J.C. Penney pulls plug on clothing subscription service

By Melissa Fares

NEW YORK, Feb 27 () - J.C. Penney Co Inc on Friday will end a clothing subscription service venture, the retailer said this week, a move toward sharpening its focus on more-profitable apparel sales and exiting lines like major appliances.

In December 2017, the department store chain announced a new service through a partnership with that offered Penney private label and national men's clothing brands to people who signed up for regular apparel shipments.

Customers who signed up for the men's subscription service paid a $20 "styling fee" with each order that included a "dedicated personal stylist, free shipping and returns" and which was applied toward the cost of any clothing they kept. Penney, with $2.65 billion in total net sales last quarter, relied on Bombfell to handle logistics of the arrangement.

Some of Bombfell's current partners include Lucky Brand, Tommy Bahama, Barbour and Johnnie-O.

The end of the partnership was mentioned on the style blog Representatives for Penney and Bombfell confirmed that the arrangement would end but declined to elaborate.

Bombfell, based in New York and founded in 2011, is similar to Stitch Fix Inc, Nordstrom'sTrunk Club, and Inc's Prime Wardrobe service, which launched in the U.S. in June and more recently in the UK and Japan.

Through the partnership, Plano, Texas-based Penney became one of many consumer companies to pitch online subscription services. The strategy has not always worked.

When successful, subscriptions and timed shipments can provide retailers with guaranteed revenue and valuable customer data. But analysts said the downside includes high marketing costs and high cancellation rates as consumers get frustrated with the return process.

Penney, struggling to maintain sales as more shoppers move online, recently cut jobs, shut some stores around the country and renovated others as part of a multi-year turnaround plan that sped up under newly installed Chief Executive Officer Jill Soltau.

This month, Penney announced it would stop selling major appliances including fridges and washing machines, and revamp the layout of its stores in a bid to focus on apparel to boost profits.

Penney has generated a quarterly profit just three times since 2012 and analysts expect it to report another net loss in the fourth quarter.

The 116-year-old company is struggling with the same problems that sent longtime rival Sears into bankruptcy. Penney's interest coverage ratio, measuring ability to pay interest on its nearly $4.5 billion debt load out of operating income, has been negative in all but one of the past seven years and remained so through the first three quarters of last year.

Both its stock and its bond prices have swooned. JCPenney's share price has collapsed 70 percent in 12 months and briefly sank below $1 a share late last year. It closed at $1.25 on Tuesday.

Its bonds were downgraded twice in the past 12 months by each of the three main credit rating agencies and now stand six notches into junk bond territory. Its longest-dated obligation, a $500 million "century bond" issued in 1997 and maturing in 2097, is quoted at 35 cents on the dollar and has lost half its face value in the past year.

The service, Penney's only subscription offering, marketed big and tall clothing, according to a notice "Team Bombfell" sent to customers of the big and tall clothing service earlier this month.

"It was great to see firsthand how much the Big & Tall Box provided easy style solutions to so many of our loyal customers," said the notice, which reviewed. Current subscribers can work with their stylists to place orders through Feb. 28.

Trent Kruse, J.C. Penney's head of investor relations, highlighted the success of Penney's overall sales to big and tall men on an earnings call last November. "Men's apparel outpaced the company comp with particular strength in big and tall, active and seasonal categories," Kruse said.

Burt Flickinger, managing director of Strategic Resource Group, dubbed the big and tall clothing business one of the "fastest growing" in retail and valued the category at roughly $25 billion.

But, he added, "neither Penney nor Bombfell really has the size or the scale now to take the partnership forward." Both companies declined to comment on Flickinger's analysis.

He said both retailers are better off continuing independently, as Bombfell works to develop its technology and Penney focuses on turning around its apparel business among its consumers, who tend to favor in-store shopping as opposed to making online purchases.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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