Insiders Debate the Pros and Cons of Amazon's Rumored JC Penney Buy

Ever since JC Penney filed for bankruptcy earlier this month, rumors have swirled around potential buyers. The latest—and most dissected by insiders—is Amazon.

According to Women’s Wear Daily, Amazon is in talks with JC Penney  to acquire all or part of the store chain’s real estate assets. “There is an Amazon team in Plano as we speak,” the WWD report reads, according to Yahoo Finance and referring to JC Penney’s headquarters in Texas. “There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business.”

JC Penney plans to close nearly 200 stores this year, as well as an additional 50 in 2021. The retailer has been struggling for years, and cited the COVID-19 pandemic as the main reason for the Chapter 11 filing.

By contrast, Amazon has been expanding these days. In order to meet increasing demand, the Seattle-based giant has hired 175,000 additional workers since March 16. There are also reports that Amazon has held talks to buy AMC Entertainment Holdings Inc., which has also been embattled on several fronts since the pandemic began.

Theories have abounded as to what Amazon’s intentions might be with such a purchase. Sanford Stein of Forbes notes the increase in Amazon’s shipping costs in the first quarter of 2020, with prime delivery jumping from one to four days on essential items. JC Penney is said to have 30 freestanding locations that could be used for warehouses and distribution, Stein conjectures.

“I cannot imagine any scenario where Amazon would want to purchase, or partner with J.C. Penney in a turnaround. There’s no there, there,” Stein writes. However, he does imagine the possibility of using the sites of pre-existing stores as a drive-up “last mile” solution, where customers could pick up deliveries and drop off returns in a safe, contactless way.

Rich Duprey of The Motley Fool suggests the possibility of a “JC Penney by Amazon,” which could make the 118-year-old retailer interesting again by stocking a broad selection of apparel as well as electronics. Such a move could help Amazon build on its leadership position in online apparel sales, which it obtained after surpassing Walmart last year.

Duprey also observes that some of JC Penney’s best-selling brands are private label ones, like St. John’s Bay and Arizona. Private label goods have helped build Amazon’s business, and there are over 100 Amazon labels that account for 1% of its sales.