Macy’s decision to close nearly a third of its stores will spark change in malls and communities across the U.S.
Some of these changes may surprise buyers.
The retailer announced in late February that it plans to close about 150 of its namesake stores by early 2027. Macy’s has not yet announced 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 revenue.
The company plans to invest more in its remaining 350 or so namesake stores and open new locations for its more successful brands: upscale department store Bloomingdale’s and cosmetics chain Bluemercury.
But the closures will be the latest catalyst forcing malls to adapt to changing consumer tastes. Macy’s is closing stores because the growth of online shopping and demographic shifts mean some small towns or regions can no longer support bustling malls.
The Macy’s closures will ultimately be a good thing 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 accelerate the inevitable demise of “low-quality malls that really don’t need to exist anymore,” Wimmer said. The closures will help owners of healthier malls an opportunity to breathe new life and meaning into a shopping centre.
He said the owners of those malls, which typically have better locations and stronger balance sheets, are “eager to get their hands on Macy’s” and free up prime real estate.
Macy’s owns the majority of its namesake stores, dating back to the days when mall owners provided space to department stores to attract customers and make money by charging rent to other retailers.
The closure of Macy’s will also create space for real estate projects that better adapt to the changing demographic or economic conditions in the area, be it through the construction of a doctor’s office building, a senior living facility or a grocery store.
However, Wimmer acknowledged that some of the closed Macy’s stores may be harder to sell and that their exit could be the nail in the coffin for a mall that is increasingly becoming an eyesore.
“If it’s in a really bad location and nobody wants to spend money to demolish it, it could rot,” he said.
Shoppers stroll through the Fashion Center at Pentagon City, a shopping mall in Arlington, Virginia, February 2, 2024.
Reduction in the size of department stores
Macy’s is closing its stores as both department stores and shopping malls are shrinking.
Macy’s has already exited many malls. Over the past decade, the company has closed more than a third of its namesake stores. As of early May, the company had 503 Macy’s stores, including a small number of other non-mall concepts.
Other anchor stores have been downsized or have disappeared from the malls, including Sears, Lord & Taylor and JCPenney.
The number of shopping malls has also declined. Real estate companies typically divide shopping malls into Class A and B, which have higher occupancy and lower retail density, and Class C and D, which have lower occupancy and higher retail density.
According to company reports, S&P Capital IQ and Coresight Research, there were 352 Class A and B shopping centers at the end of 2016. By the end of 2022, that number dropped to 316.
This decline is even more pronounced for Class C and D shopping centers: according to the companies’ research, their number fell from 684 in 2016 to 287 in 2022.
Weak US malls have become weaker, and the strong shopping centers are Places where all retailers and consumers want to be, said Anand Kumar, associate director of research at Coresight. He expects that trend to continue. By 2030, he said, top-tier malls will attract a larger share of total mall spending and more lower-tier malls will either close or be forced to convert more space to non-commercial uses.
In some struggling malls, Macy’s may be the last remaining anchor.
Kumar said the U.S. doesn’t need as many malls because customers are shopping more on retailers’ websites. He added that many of the fastest-growing retailers, such as Dollar General, Five Below and TJ Maxx, prefer to have a presence in suburban malls rather than malls.
He said a smarter move for mall owners might be to attract more customers to malls by attracting more diverse tenants, such as doctor’s offices, co-working spaces, nail salons and restaurants.
Many mall owners have already done this and could do the same with their vacant former Macy’s stores.
Even if a mall wants to fill a Macy’s space with a retailer, there are few individual tenants that can occupy the entire space, says Naveen Jaggi, president of retail consulting at JLL. Those that can, like Nordstrom and Belk, generally don’t open huge stores like they did in the past, he says.
Macy’s stores typically range in size from 18,500 to 21,000 square feet.
Stonestown Galleria is an example of how a mall can transform after Macy’s closes. The San Francisco mall houses a Whole Foods, a movie theater, a sporting goods store, and a healthcare facility where the department store used to be.
Grocery stores, hockey stadiums and Amazon warehouses
If history is any guide, former Macy’s stores will likely transform into spaces and spawn projects that will surprise longtime mall visitors. The closure of core mall stores has cleared the way for new apartment complexes and entertainment wings with restaurants, theme parks or activities like laser tag and rock climbing.
Since 2012, major shopping center owner Brookfield Properties has renovated over 100 anchor boxes with an investment of over two billion dollars.
One of the malls that was remodeled after a Macy’s store 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 healthcare facility.
At Tysons Galleria in the Washington, DC area, Brookfield used the closure of Macy’s as an opportunity to add a new wing, which opened in 2021 with a broader entertainment offering, including a bowling alley and movie theater, home furnishings stores such as RH and Crate & Barrel, new dining options, and a showroom for electric car brand Lucid Motors.
The projects cost money and time, says Adam Tritt, head of development for Brookfield Properties’ U.S. retail portfolio. As part of the San Francisco remodel, Brookfield had to raise the roof, add more windows and install a glazed storefront.
These projects show that closing a major mall like Macy’s can have positive aspects for the owners, Tritt says. It paves the way for more flexible and creative uses that attract more people to the mall.
“It’s a shared challenge to get people off the couch and out of the house,” he said.
And by converting a large shopping center into smaller retail or restaurant spaces that can be rented out, the owner can operate more flexibly.
“We can break it down into smaller, more digestible pieces so we can respond more quickly to trends and community evolution,” he said.
In other malls, the tenants replacing a Macy’s could be even more unusual.
Near Salt Lake City in the US state of Utah, a former Macy’s will soon be used as a training and practice facility for the NHL’s new addition, the Utah Hockey Club, complete with ice rinks and company offices.
And in some parts of the country, the trend of consumers moving from malls to couch shopping has already taken concrete shape. Amazon has opened a massive fulfillment center on the former site of Randall Park Mall. The northeast Ohio mall struggled with declining occupancy rates and eventually lost key stores like Dillards, JCPenney and Macy’s.
And earlier this summer, Amazon opened another Fulfillment center in Baton Rouge, Louisiana – also on the site of a former shopping center.
