J.C. Penney, Sephora Settle Dust-Up Over Beauty Boutiques

(Bloomberg) -- J.C. Penney Co. and Sephora USA Inc. said they agreed to settle a legal dispute over the continued operation of about 650 in-store beauty boutiques shut down because of the coronavirus pandemic.

While terms of the settlement weren’t disclosed, the department store chain said the partnership behind “Sephora inside JCPenney” will continue.

“The companies are committed to continuing to expand and innovate SiJCP’s offerings in order to deliver the beauty experience customers expect in the future,” J.C. Penney spokeswoman Brooke Buchanan said in an emailed statement late Thursday.

J.C. Penney filed a lawsuit in Texas state court last month claiming the beauty products company threatened to walk out on their agreement over the boutiques. A state judge issued an order temporarily blocking the exit, and Sephora shifted the dispute to federal court, where it sought to overturn the order.

Sephora claimed the partnership agreement was breached when J.C. Penney furloughed its workers in the boutiques. J.C. Penney said it furloughed the workers so they could collect unemployment insurance until the chain reopened. Sephora didn’t furlough employees at its own stand-alone stores, which also were closed in response to the virus.

Sephora said it wanted to end their 16-year relationship by April 2021, which is earlier than the May 2022 exit J.C. Penney offered, according to court papers. J.C. Penney complained a quick divorce would leave it without the beauty products it relies on to drive foot traffic.

Sephora insisted the department store has hundreds of millions of dollars in makeup and skin-care products already stocked that will last at least another quarter, if it chooses to seek a new partner.

J.C. Penney is struggling to refinance billions in loans and missed a debt payment last month, although the chain is current on its rent.

Retailers in the U.S. have been struggling during the shutdowns as revenue plunges. Earlier on Thursday, Neiman Marcus Group Inc. filed for bankruptcy.

The case is J.C. Penney vs. Sephora USA, 4:20-364, U.S. District Court, Eastern District of Texas (Sherman).

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