Macy's Closing Will Change Malls

Maisie The decision to close nearly a third of its stores will shake up malls and communities across the United States.

Some of these shifts may come as a surprise to shoppers.

The retailer said in late February that it plans to close about 150 of its Macy’s locations by early 2027. Macy’s has not yet shared which stores will close. When CEO Tony Spring announced the move, he said the stores Macy’s will close represent 25% of the company’s total square footage, but less than 10% of its sales.

The company plans to invest more in the approximately 350 stores that will remain under its same name, and to open new locations for its best-performing brands: luxury department store Bloomingdale's and cosmetics chain Blue Mercury.

But the closures will be the latest catalyst for malls to evolve to meet changing consumer tastes. Macy’s has closed stores as the growth of online shopping and demographic shifts mean some smaller cities or regions can no longer support a busy mall.

The Macy’s closure will ultimately be a good thing for many malls and their customers, said Chris Wimmer, a senior director at Fitch Ratings who tracks REITs. The store’s exit will hasten the inevitable demise of “low-quality malls that don’t really need to exist anymore.” The closure will give healthier mall owners a chance to breathe new life and relevance into the mall.

In those malls, which tend to have better locations and stronger balance sheets, he said, owners are “eager to get Macy’s” and free up prime real estate.

Macy's owns most of its stores under its name. This dates back to a time when mall owners gave department stores space to attract shoppers and make money by charging other retailers rent.

Closing Macy's stores will also free up space for property development that may better fit the changing demographics or surrounding economy, whether through a medical building, retirement community or grocery store.

But he acknowledged that selling some of the closed Macy's stores could be more difficult, and that their exit could be the final nail in the coffin of the shopping center that has become a nuisance.

“If the building is in such a bad location that no one wants to spend the money to demolish it, it could rot,” he added.

Macy's is downsizing its locations as both department stores and malls shrink.

Macy’s has already left many malls. It has closed more than a third of its name-brand stores over the past 10 years. By early May, the company had 503 Macy’s stores, including a small number of other non-mall concepts.

Other stores have scaled back or disappeared from malls, including Sear's, Lord & Taylor and JCPenney.

The number of shopping malls has also decreased. Real estate companies usually divide shopping malls into two categories: A and B, which have higher occupancy rates and lower sales density, and C and D, which have lower occupancy rates and higher sales density.

According to reports from the company, S&P Capital IQ and Coresight Research, the number of shopping centers classified as Class A and Class B was 352 at the end of 2016. This number decreased to 316 centers by the end of 2022.

The decline was most severe among Class C and D malls, which fell from 684 malls in 2016 to 287 in 2022, according to corporate research.

“Weak malls in the U.S. are getting weaker, and strong malls are becoming 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 capture a larger share of total mall spending, and more lower-tier malls will close or be forced to convert more space to non-commercial uses.

In some struggling malls, Macy's may be the last remaining anchor.

The United States doesn’t need as many malls because customers are buying more from retailers’ websites, Kumar said. Many of the fastest-growing retailers by store count, such as Dollar General, five below and TJ MaxI want to be in suburban centers instead of shopping malls.

Adding more diverse tenants to malls, such as medical buildings, co-working spaces, nail salons and restaurants, could be a smarter move for mall owners to increase traffic, he said.

That's what many mall owners have done and could do with vacant former Macy's locations.

Even if a mall wanted to fill a Macy’s space with a retail store, there are few single tenants that can take up the entire space, said Navin Jaggi, head of retail consulting services at JLL. The ones that can, like Nordstrom and Blk, aren’t opening megastores like they did in the past, he added.

Macy's stores typically range in size from 200,000 to 225,000 square feet.

If history is any guide, former Macy’s stores are likely to be transformed into spaces and spark projects that will surprise longtime mall goers. The closing of major shopping malls has made way for new residential complexes and entertainment pavilions featuring restaurants, theme parks or activities like laser tag and rock climbing.

Since 2012, Brookfield Properties, a major shopping mall owner, has rebuilt more than 100 anchor funds with capital investments exceeding $2 billion.

Among the malls the company has renovated since Macy's closed is the Stonestown Galleria. In the San Francisco mall, the former Macy's has been transformed into a Whole Foods, a movie theater, a sporting goods store and a health care facility.

At Tysons Galleria in the Washington, D.C., area, Brookfield used the closing of Macy’s as an opportunity to add a new wing. It opened in 2021 with expanded entertainment offerings, including a bowling alley and movie theater; home furnishings stores including RH and Crate & Barrel; new dining options and a showroom for electric-car brand Lucid Motors.

Projects take money and time, said Adam Treat, chief development officer for Brookfield Properties’ U.S. retail portfolio. As part of the San Francisco transformation, Brookfield had to raise the ceiling height, add more windows and put a glass storefront.

These projects show that closing a big store like Macy's can be a positive for mall owners, Tritt said. It paves the way for more flexible and creative uses that will draw more people into malls.

“There is a collective challenge to get people off the couch and out of the house,” he said.

By converting a large box into smaller retail or dining spaces that can be rented out, a mall owner can be more agile.

“We are able to break it down into smaller, digestible pieces, so we can respond more quickly as trends change and societies evolve,” he said.

In other malls, the tenants replacing Macy's may be more unique.

Near Salt Lake City, Utah, the former Macy's store will soon become the site of a training and practice facility for the NHL's new addition, the Utah Hockey Club, complete with ice rinks and corporate offices.

In some parts of the country, the shift of consumers from shopping in malls to shopping on their couches is becoming more palpable. Amazon Randall Park Mall opened a massive fulfillment center on the former site of the mall. The Northeast Ohio mall suffered from declining occupancy rates and eventually lost major shopping centers, including Dillard's, J.C. Penney, and Macy's.

Earlier this summer, Amazon opened another fulfillment center in Baton Rouge, Louisiana — also on the site of a former shopping mall.