A customer walks into a Macy’s store that is set to close at Bay Fair Mall on February 27, 2024 in San Leandro, California.
Justin Sullivan | Getty Images
Macy’s The decision to close nearly a third of its stores will cause changes in malls and communities across the US
Some of these transformations may surprise buyers.
The retailer said in late February that it plans to close about 150 of its namesake locations by early 2027. Macy’s has not yet disclosed which stores it will close. When CEO Tony Spring announced the move, he said the stores Macy’s will close represent 25% of the company’s gross square footage but less than 10% of its sales.
The company plans to invest more in the roughly 350 namesake stores that will remain and open new locations for its best-performing brands: higher-end department store Bloomingdale’s and beauty chain Bluemercury.
But the closure will be the latest catalyst pushing malls to evolve to changing consumer preferences. Macy’s is closing stores as the rise of online shopping and demographic changes mean that some small towns or regions can no longer support a busy mall.
Macy’s closing will ultimately be good for many malls and customers, said Chris Wimmer, a senior director at Fitch Ratings who tracks real estate investment trusts. The department store’s exit will hasten the inevitable demise of “low-quality retail stores that really don’t need to exist anymore,” Wimmer said. The closure will give owners of healthier malls an opportunity to breathe new life and relevance into a shopping centre.
At those malls, which tend to have better locations and owners with stronger balance sheets, he said owners are “itching to get their hands on their Macy’s” and free up prime real estate.
Macy’s owns the majority of its namesake stores. This dates back to when mall owners gave department stores space to attract shoppers and make money by charging rent to other retailers.
The Macy’s closing will also pave the way for the development of properties that may better fit the changing demographics or economics of their surroundings, whether through the construction of a medical building, a retirement community or a grocery store.
But Wimmer acknowledged that some of the shuttered Macy’s may be a tougher sell, and their exit could be the nail in the coffin for a mall that’s becoming an eyesore.
“If it’s in a really bad location where nobody wants to spend money to tear it down, then it can rot,” he said.
Shoppers walk through the Fashion Center at Pentagon City, a shopping center in Arlington, Virginia, February 2, 2024.
Saul Loeb Afp | Getty Images
Shrinking department stores
Macy’s is reducing its locations as department stores and malls shrink.
Macy’s has already left several malls. It has closed more than a third of its namesake stores in the last 10 years. As of early May, the company had 503 Macy’s stores, including a small number of stores other concepts outside the malls.
Other anchors have declined or disappeared from malls, including Sears, Lord & Taylor and JCPenney.
The number of malls has also shrunk. Real estate companies usually divide shopping centers into categories A and B, which have higher occupancy rates and lower sales density, and category C and D, which have lower occupancy rates and higher sales density.
There were 352 malls classified as Class A and B at the end of 2016, according to reports by the company, S&P Capital IQ and Coresight Research. This was reduced to 316 malls by the end of 2022.
That decline is sharper among C and D malls, which fell from 684 malls in 2016 to 287 in 2022, according to the companies’ survey.
Weak US malls have become weaker and strong malls have become places where all retailers and consumers want to be, said Anand Kumar, associate director of research for Coresight. He expects this trend to continue. By 2030, he said, top-tier malls will draw a larger share of total mall spending, and more lower-tier malls will either close or be forced to convert more space to non-retail uses.
In some struggling malls, Macy’s may be the last remaining anchor.
Kumar said the U.S. doesn’t need as many malls as customers are buying more from retailers’ websites. It added many of the fastest growing retailers in terms of store count, such as Dollar General, Five below and TJ Maxxthey want to be in suburban centers rather than malls.
He said adding more diverse tenants to malls, such as medical buildings, co-working spaces, nail salons and restaurants, can be a smarter move for mall owners to increase traffic.
That’s what many mall owners have done, and that’s what they could do with vacant former Macy’s locations.
Even if a mall wants to fill the space of a Macy’s with a retailer, there are few individual tenants who can take the whole box, said Naveen Jaggi, president of retail consulting at JLL. Those that could, like Nordstrom and Belk, generally don’t open huge stores like they did in the past, he said.
Macy’s stores typically range from 200,000 to 225,000 square feet.
Stonestown Galleria is an example of how a mall can change after Macy’s closes. The mall, located in San Francisco, features a Whole Foods, movie theater, sporting goods store and a health care facility where the department store once stood.
Courtesy: Brookfield Properties
Grocery stores, hockey rinks and Amazon warehouses
If history is any guide, former Macy’s stores will likely be transformed into venues and spark projects that surprise longtime mall visitors. The closing of anchor malls made way for new apartment complexes and entertainment wings with restaurants, theme parks or activities like laser tag and rock climbing.
Since 2012, mall owner Brookfield Properties has rebuilt more than 100 anchor boxes with a capital investment of more than $2 billion.
One of the malls that was remodeled after Macy’s closed is the Stonestown Galleria. In the San Francisco mall, a former Macy’s is now a Whole Foods, a movie theater, a sporting goods store and a health care facility.
At Tysons Galleria in the Washington, DC area, Brookfield used the closing of Macy’s as an opportunity to attack a new wing. It opened in 2021 with wider entertainment offerings, including a bowling alley and cinema. Home furnishings stores including RH and Crate & Barrel. new dining options and a showroom for electric vehicle brand Lucid Motors.
Projects take money and time, said Adam Tritt, head of development for Brookfield Properties’ U.S. retail portfolio. As part of the San Francisco conversion, Brookfield had to raise the ceiling height, add more windows and install a glass storefront.
These projects show that for mall owners, closing an anchor like Macy’s can come with a silver lining, Tritt said. It paves the way for more flexible and creative uses that attract more people to the mall.
“There’s a collective challenge to get people off the couch and out of the house,” he said.
And by converting a big box into smaller leasable retail or dining spaces, the mall owner can be more nimble.
“We’re able to break it down into smaller digestible chunks so that as trends move and communities evolve we’re able to respond more quickly,” he said.
In other malls, the tenants replacing a Macy’s could be even more unique.
Near Salt Lake City, Utah, a former Macy’s coming soon become its location training and practice facilities for the NHL’s newest addition, the Utah Hockey Club, with skating rinks and corporate offices;
And in some parts of the country, the shift of consumers from shopping in malls to shopping on their couches has taken physical form. Amazon opened a massive fulfillment center at the former Randall Park Mall site. The mall in Northeast Ohio faced declining occupancy rates and eventually lost mall anchors including Dillards, JCPenney and Macy’s.
And earlier this summer, Amazon opened another fulfillment center in Baton Rouge, Louisiana — also in a former mall.
