As JCPenney proceeds toward a potential bankruptcy, the struggling department store is caught in a legal battle with Sephora over early termination of their multi-year agreement to jointly operate Sephora Inside JCP (SiJCP) beauty departments.
The impetus for Sephora’s plan to immediately withdraw from the deal was the furlough of SiJCP employees during the temporary COVID-19-related shutdown of all JCPenney stores, according to JCPenney’s request for a Temporary Restraining Order, filed in the district court of Collin County, Texas, on April 27.
However, the filing also reveals that the two retailers had been in discussions over an early ending to their contract for weeks or more. This led to what JCPenney called “an explicit threat” on April 24, 2020: “If JCP did not agree to shorten the term of the Agreement so that it ended in April 2021, then Sephora would terminate the Agreement on Tuesday, April 28, 2020,” an action JCPenney said “would cause irreparable harm.”
The contract termination would mean that SiJCPs would not reopen within JCPenney stores when the latter were phased back into operation beginning that week. “JCP has no alternative to the 16-year relationship it has built with Sephora and cannot replace Sephora — its sole beauty partner — on a prompt basis if Sephora follows through with its threat,” according to the filing. More than 600 SiJCP locations were in operation before the shutdown.
The restraining order JCPenney requested was issued on March 27 and the dispute has since moved to federal court.
From the viewpoint of LVMH-owned Sephora, the working relationship between the two retailers “is at the end of the road,” according to Sephora USA CEO Jean-André Rougeot in an email sent to Law360.
There is little doubt among retail industry insiders that JCPenney is on the verge of bankruptcy and prospects for a turnaround in a post-COVID-19 recession are bleak.
Sephora “sees JCPenney as a sinking ship it can’t abandon fast enough,” said Ryan Mathews,Founder/CEO of Black Monk Consulting in a RetailWire discussion. “Sephora sees its brand as viable, [and] is pursuing a strategy that will ultimately lead it away from mall retailing. As to the loss of Sephora, it obviously would not help [JCPenney] but, in all fairness, Sephora isn’t strong enough to keep JCPenney afloat.”
“This is only one such instance of many more that we should expect in the retail landscape,” said Suresh Chaganti, Co-Founder and Executive Partner at VectorScient in the RetailWire discussion. “In this specific case, clearly Sephora sees no value anymore — financial or otherwise — from the relationship.”