JC Penney gears up for closures as department stores sales continue to deteriorate

Krystina Gustafson

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It's starting to look like J.C. Penney (JCP) will be the next department store chain to put its physical footprint under the shrink ray.

Just one week after Macy's (NYSE:M) and Sears (SHLD) detailed the upcoming closures of a combined 218 stores , Cowen and Company analyst Oliver Chen said that Penney's could ultimately chop its count by some 30 percent. Such a move would leave the chain with roughly 700 locations, and free up cash to invest in its best stores.

Chen's comments come just a few days after Penney's CEO Marvin Ellison said the company is getting ready to downsize its fleet. Ellison made his remarks at a real estate conference in Dallas, and they were reported by The Dallas Morning News.

"While there are only four J.C. Penney stores that lose money, we do expect store closures to come out of J.C. Penney next year," Chen told investors, explaining that the chain has room to increase the portion of its sales that are generated online.

Ellison has been reluctant to shutter stores, closing just seven Penney's locations last year. On a call with analysts in August, the CEO explained that his stores typically get a lift in malls where a Sears has shut down. Meanwhile, he reiterated the company's commitment to physical stores, saying more than 50 percent of its online orders touch bricks and mortar in some way.

Traditional retailers have been under pressure to shrink their store fleets amid falling revenues and productivity. Though Penney's performed better than its peers over the holiday, its comparable sales still registered an 0.8 percent decline. Department stores were by far the worst-performing retail segment in December, with sales tumbling 8.4 percent over the prior year, according to the Commerce Department.

A spokesman for J.C. Penney told CNBC the company has not yet announced details regarding potential store closures for the year.

Back in 2015, the chain closed 40 locations.