J.C. Penney will close three stores in Hawai'i

By Andrew Gomes
Advertiser Staff Writer

After nearly four decades in the Islands, J.C. Penney Co. announced yesterday that it will close all but one of its four Hawai'i department stores by Jan. 10.

The Ala Moana Center store is one of three J.C. Penney department stores in Hawai'i that will close Jan. 10. Bruce Asato • The Honolulu Advertiser

An official with the retailer said he could not discuss the future of the company's store at Queen Ka'ahumanu Center on Maui, where 100 to 125 employees work.

"Basically, the stores have been unprofitable for some time, and we don't see a turnaround coming in the near future," said J.C. Penney spokesman Tim Lyons. Lyons said he could not say anything about the future of the Maui store or whether it also is unprofitable.

The decision by the nation's second-largest department store chain is the latest in a string of similar closures and contractions by longtime Island retailers and comes amid a local market struggling to regain its footing in the wake of an overall economic slowdown, creating a hardship for employees, opportunities for other retailers, and a mix of challenges and opportunities for shopping centers.

"It's certainly big news for Hawai'i, but it's not really a surprise," said Roger Lyons, retail services vice president at commercial real estate firm CB Richard Ellis Hawai'i Inc. "We have gone from few department stores to fewer."

Retail experts in Hawai'i and on the Mainland said a combination of forces likely led to J.C. Penney's decision, including more pressure to cut costs, local consumer spending declines, competition on the horizon and attractive payments for some of the company's store space.

For employees facing pink slips in a difficult job market, the outlook may be grim. Lyons of J.C. Penney declined to disclose details but said all of the stores' employees will receive severance benefits based on a formula typical at other companies.

"There will be separation benefits available to associates," he said, "and we meet with them individually and go over their packages."

The closures also leave almost 400,000 square feet of empty retail space on the market — nearly as much as all of Kahala Mall.

Perhaps the biggest opportunity to use the bulk of that space is for Seattle department-store retailer Nordstrom, which for a decade has tried to find a way to put an outlet into Ala Moana Center.

The company has been kept out by competing department stores Liberty House and its successor Macy's, which enforced a lease provision giving them veto rights over adding stores outside existing mall walls.

At 181,000 square feet, the Ala Moana J.C. Penney space is big enough for Nordstrom, retail analysts said.

John Bucksbaum, chief executive of Ala Moana owner General Growth Properties Inc., said the company continues talking with Nordstrom about location possibilities but is weighing all of its options for the Ala Moana space, including the possibility of carving it up for several retailers.

Nordstrom spokeswoman Deniz Anders said yesterday that the retailer remains optimistic about opening a location in Hawai'i.

"We still look forward to having a full-line store in Honolulu," she said. "We're still reviewing all of our options with General Growth."

Lyons of CB said Pearlridge and Prince Kuhio Plaza will have more difficulty finding replacement tenants.

The Pearlridge store is 131,000 square feet, which J.C. Penney will turn back over to the mall.

At Prince Kuhio Plaza, where J.C. Penney owned its 72,000-square-foot space, mall owner General Growth will buy the space for an undisclosed amount.

While Scott Crockford, real property vice president for Ka'ahumanu Center general partner Maui Land & Pineapple Co., said he expects J.C. Penney will continue to operate the Maui store, he said discussions are under way about its long-term future.

J.C. Penney entered Hawai'i at Ala Moana in 1966, followed by Pearlridge in 1972. The Maui store opened in 1994, followed a year later by the Hilo store, which replaced an older store there. A store at Windward Mall was closed in 1998.

In the past three years, the retailer has struggled to reverse sales declines and has closed more than 10 percent of its stores nationwide, which today number just more than 1,000.

Mark Bratton, an agent with local commercial real estate firm Colliers Monroe Friedlander, said department stores in general have had difficulty competing with specialty stores and have struggled to reinvent themselves to survive.

Penney, which targets Middle America households with annual incomes between $30,000 and $80,000, has made improvements to its bottom line, but continues to review underperforming stores.

"It's not a top-line fashion department store," Bratton said. "They're mid-market, which means easy to copy, not unique."

Local retail analyst Stephany Sofos was more blunt: "Penney's is considered a tired concept, no disrespect to them."

Advertiser reporter Frank Cho contributed to this story. Reach Andrew Gomes at 525-8065 or agomes@honoluluadvertiser.com.