Earlier this year, Macy’s (M) announced plans to close about 30% of its stores, leaving small-town malls to experience the harsh repercussions and opening the doors for commercial real estate market growth.
In February, Macy’s announced it would be closing around 150 stores across the U.S. by 2027 as part of its restructuring plan. According to the company, this strategy allows the department store to adapt to the fast growth in online shopping and the ever-evolving consumer retail behavior.
Related: Macy's struggles cause it to bring back popular brand
With the remaining 350 stores, Macy’s wants to redirect its attention to its higher-end, more profitable brands.
However, Macy’s decline and the closure of multiple stores have been ongoing issues for several years; over the past 10 years, the department store company has closed over a third of its stores.
Image source: Shutterstock
Which Macy’s locations will close, and how will they be chosen?
Macy’s has yet to announce which specific locations will be on the chopping block, but the company's plan is to keep stores with strong sales performance while cutting out the ones underperforming.
The 150 Macy’s stores that will be closing make up 25% of the brand’s square footage but represent less than 10% of sales, said Macy’s CEO Tony Spring in a Shoptalk discussion in March.
Spring said Macy’s has “too many locations that were built for a different era,” and keeping up with today’s consumer trends is critical to succeeding.
Macy's stock is around 13% higher than it was a year ago.
More Macy:
- Macy's Buyers Are Leaving with Empty Shopping Bags
- Huge department store chain follows Macy's in closing more stores
- Big retail brand makes a post-bankruptcy comeback
The extinction of small-town shopping malls
Due to the loss of Macy's and other department stores, thousands of malls face being completely demolished or repurposed and turned into new projects that bring in greater profit.
According to Capital One Shopping Research, an average of 1,170 shopping malls closed annually between 2017 and 2022, compared to only 581 yearly closures between 1986 and 2017.
Class C and D shopping malls, often located in small towns, seem to be more affected than those in Class A and B. In this system, malls are classified with a letter grade based on the relationship between collective sales driven and the amount of space taken up.
The same research shows that between 2016 and 2022, the number of Class A and B malls across the country decreased from 352 to 316, but the number of Class C and D malls fell steeper, from 684 to 287.
Related: Macy's makes major bet on lucrative luxury line to boost profit
Valuable commercial real estate on the rise
While these ongoing mall closures mark the potential end of an era, the available real estate could be far more valuable for new developments to capitalize on if used properly.
According to Statista, the commercial real estate market in the U.S. is predicted to generate the highest value in the real estate sector when compared to the rest of the world, with an annual growth rate of 2.18% projected.
The same study shows that the commercial real estate market is expected to reach $25.28 billion by the end of this year and $28.16 billion by 2029.
Related: Veteran fund manager picks favorite stocks for 2024
