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J.C. Penney's rebuilding strategy? Sell secondhand clothing

  • J.C. Penney and ThredUp Inc. will sell used clothing in 30 stores through a partnership with the popular resale site that stocks brands from Gap to Gucci.
  • The announcement came as J.C. Penney reported a net loss of $48 million for the second quarter and a nearly 9.2% drop in sales from the year-earlier period.
  • The clothing initiative might not be enough to save 117-year-old J.C. Penney, a literal penny stock these days that's trading for less than 60 cents a share.

Ailing department store chain J.C. Penney is making its first foray into the increasingly popular used-clothing business.

The retailer announced Thursday a partnership with online consignment store ThredUp Inc. as part of its effort to rebuild the waning brand into a profitable business.

The announcement came as the retailer reported a net loss of $48 million for the second quarter, and a nearly 9.2% decrease in sales compared to the same quarter a year ago.

Analysts sounded the alarm bells and warned that 117-year-old J.C. Penney must act fast to save itself.

"When you have sales declines of almost 10% over the course of the year, you've got a very serious problem that needs to be very quickly addressed. It's a shrinking company with a lot of costs and debt and they need to move very rapidly," said Neil Saunders, managing director of GlobalData Retail.

Online consignment opens doors for bargain hunters' paradise

The reasons for J.C. Penny's decline are clear, Saunders said. "It does not take much effort to understand why customers are migrating away: Most stores lack energy, interest and ease. They are not pleasant places to shop and offer little that is compelling, so customers increasingly avoid them," he explained.

He said the retailer's partnership with ThredUp is a step — albeit a small one — in the right direction.

"This kind of partnership should only be seen as the icing on the cake. It's a nice extra benefit; it's not a solution or replacement for getting the core business right," Saunders said.

Thirty of its stores will begin selling used clothing through a partnership with the resale site, which stocks brands from Gap to Gucci. The selection will rotate weekly in order to surprise frequent shoppers, according to a press release.

"With the rise of online resale markets, there's no doubt that demand for great value on quality brands is at an all-time high. There's an emotional thrill that comes with finding one-of-a-kind secondhand product for much less," said Michelle Wlazlo, executive vice president and chief merchant for J.C. Penney.

The so-called circular fashion movement is gaining steam as more shoppers eschew buying new clothing, citing the toll of clothing production on the environment as well as their own household budgets.

In 2016, the apparel and footwear industries together accounted for more than 8% of global climate impacts — the equivalent of 3,990 million metric tons of carbon dioxide, according to a report from Quantis.

The resale market is expected to outpace fast fashion within 10 years, according to a 2019 report by the Business of Fashion. The secondhand market is projected to be valued at $64 billion by 2028, according to ThredUp's research.

Indeed, 64% of women have bought or are now willing to buy secondhand products, according to ThredUp.

This isn't ThredUp's first foray into brick-and-mortar retail. J.C. Penney rival Macy's on Wednesday announced a similar partnership with the company.

ThredUp sells name-brand clothing for up to 90% off retail prices and has resold nearly 100 million pre-owned garments.

From its perspective, the partnership will bolster ThredUp's visibility.

"This is wonderful, giving it exposure in existing stores that will enlarge its audience and amplify the brand for them," Saunders said.

Still, the initiative might not be enough to save J.C. Penney, a literal penny stock these days that was trading this week for less than 60 cents a share.

"It's a sensible move, but in some ways there is this element of department stores scraping around to find things to put in their big shops because they aren't delivering sales," Saunders said. "There is also an element of having to borrow someone else's smart thinking because you are not savvy enough to think of it yourself."

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