Millions of dollars worth of Nike Inc. goods could be coming J. C. Penney Company Inc.’s way soon.
Nike in recent weeks had held off on shipping about $80 million worth of product to JCPenney, claiming the beleaguered department store chain owes about $19.5 million in pre-bankruptcy bills. But yesterday, U.S. Bankruptcy Judge David Jones approved on an interim basis an agreement between the two companies that will see Nike shipments resume.
Under the terms of the deal, JCPenney will pay Nike $2 million, a pay-down of 10% of the agreed-upon $19.5 million in pre-petition claims. In exchange, the retailer will receive its $80 million order for the quarter. Nike has agreed to deliver $30 million in product upon entry of the interim order, with the remaining $50 million of goods to ship after the the final order has been entered. A hearing on a final order is expected to be held June 25.
According to court documents filed by JCPenney on June 15, Nike is its No. 4 brand overall and accounted for a “substantial percentage” of JCPenney total revenues for the 2019 fiscal year. What’s more, JCPenney wrote that Nike has “become even more important” in recent months amid the COVID-19 pandemic, as shifting consumer preferences have made the activewear category one its the best performing both in store and online. Thus, JCPenney counsel wrote, “losing out on [the] opportunity to receive Nike merchandise would be a terrible blow to [its] bottom line.”
After several years struggling with declining sales, increasing digital competition and numerous leadership changes, JCPenney filed for Chapter 11 protection May 15. According to court documents, the retailer had $500 million in cash at hand and received debtor-in-possession financing commitments of $900 million. The company said its assets were in the range of $1 billion to $10 billion — the same as its estimated liabilities. Nike was listed as the retailer’s largest creditor, with an unsecured claim topping $32 million. In the athletic wear space, JCPenney also owed millions to Adidas, New Balance and Van Heusen Sportswear.
As part of its bankruptcy plan, JCPenney expects to close 242 doors, or about 29% of its fleet, by February 2021. This summer, a first round of closures kicks off at 154 stores across 20 states. At some outposts, liquidation sales have already commenced and are expected to last between three to four months. In addition, the company, which employs about 85,000 people, is also in the process of reducing its staff.