J.C. Penney and Sephora clash over store reopenings

By

Robin Driver

Published
May 6, 2020

Following struggling department store chain J.C. Penney’s accusations that Sephora is trying to back out of a long-term contract between the two companies by not reopening its shop-in-shops when J.C. Penney stores start opening again, the French beauty retailer has hit back with a motion to dissolve.

 
Plano, Texas-based J.C. Penney initially filed a temporary restraining order against Sephora on Monday in Texas district court, purportedly in an effort to prevent the cosmetics seller from keeping its shop-in-shops closed.
 
In the filing, J.C. Penney accuses Sephora – its only exclusive beauty partner – of attempting to gain “negotiating leverage” by threatening not to reopen the more than 600 shop-in-shops that it operates in J.C. Penney locations around the country as Covid-19 restrictions are gradually lifted and the department stores begin to open their doors again.

In so doing, J.C. Penney alleges that Sephora is seeking to alter the two companies’ long-term contract, which came into effect in 2009 and is apparently due to continue for “several years,” by bringing its termination date forward to April 2021.
 
Sephora was quick to respond with a motion to dissolve, also filed on Monday, in which it decried J.C. Penney’s accusations as a “fanciful, one-sided narrative.”
 
The Paris-based retailer questioned the department store operator’s legal basis for requesting a temporary restraining order and claimed that the two companies had, in fact, been engaging in “good faith wind-down discussions” over the past few weeks in light of reports relating to a possible bankruptcy filing from J.C. Penney.
 
According to Sephora, these negotiations had resulted in the decision that, in the event of a J.C. Penney bankruptcy filing, the cosmetics retailer would be permitted to pull out of their contract through “a prolonged wind-down process called ‘disengagement’.”
 
Although the temporary closure of J.C. Penney’s approximately 850 stores due to the coronavirus pandemic has no doubt aggravated its problems, the retailer had been struggling for some time prior to the start of the health crisis, with issues ranging from falling sales and a debt load of $4 billion to successive leadership changes.
 
In April, The Wall Street Journal reported that the company was in advanced bankruptcy talks for a debtor-in-possession loan worth between $800 million and $1 billion.

As it faces up to the financial challenges posed by prolonged coronavirus-related store closures, J.C. Penney has furloughed a number of employees, reduced expenditures, deferred capital spending, suspended merit bonuses and new hires, and drawn down $1.25 billion from its $2.35 billion revolving credit line.