Holiday E-commerce Surge Shows Retailers Should Close More Stores

The most obvious candidates for cutbacks in locations remains those most desperate. First among these are J.C. Penney Co. Inc. (NYSE: JCP) and the Kmart and Sears divisions of Sears Holdings Corp. (NASDAQ: SHLD). J.C. Penney has more than 115,000 employees and 1,100 locations. The Sears divisions employ more than 250,000 and the company maintains more than 2,000 stores.

J.C. Penney has made its own case about an overabundance of stores. It recently announced trends for last month:

• Same store sales increased 0.9 % in October, marking a 490 basis point increase over September
• Sales on jcp.com increased 37.6 % versus last year, a continuation and acceleration of the positive trend in the Company’s online business

While the revenue driven by visits to jcp.com represents a small sliver of Amazon’s number, the e-commerce company’s revenue grew at a 24% pace last quarter. So, at least J.C. Penney’s online business shows relatively impressive improvement.

Since J.C. Penney lost $985 million last year, some large portion of its locations must lose a great deal of money. Management likely believes that in the markets in which it has stores, if its overall national sales recover, then sales at these locations will increase as well. However, there is no case to be made that sales recover that evenly by geographic location. Somewhere among the 26 stores it has in Missouri and the 22 in Colorado, or the hundreds it has in the balance of the states, many must bleed money every year. Keeping these all open risks keeping none of the J.C. Penney stores open as the company spirals down.

The J.C. Penney case can be made for Sears, as well as other embattled retailers such as Radio Shack Corp. (NYSE: RSH) and even healthy ones like Macy’s Inc. (NYSE: M). As online sales grow at an increasingly superior rate, almost all large retailers have locations that lose money, which means they have too many locations — period.