In early August, Macy’s announced that it would close 100 stores. Executives said the chain had too many outposts for the digital era but didn’t say which stores they would be closing, igniting speculation around which locations it would shed.
The implications spread well beyond Macy’s, because many malls and shopping centers rely on the department store as an anchor. Some experts think woes at Macy’s could doom one-third of American malls. Macy’s currently has 24 stores in the Washington-Baltimore area.
Post reporters Sarah Halzack, who covers retail, and Jonathan O’Connell, who covers commercial real estate, took to the messaging app Slack to try to decipher where the company’s cuts are likely to come nationally and in the Washington area. We cleaned up the discussion for grammar and brevity.
Jonathan: It’s like they’re deciding which kids to cut from the football team and the kids who get cut could also go bankrupt. Which stores do you think are on the chopping block?
Sarah: I was going to make a “Survivor” analogy, but we’ll go with your football team one instead. Ok, so let’s start with what kinds of stores we know are NOT on the chopping block. Macy’s executives said recently they are putting particular emphasis on their top 150 stores, and plan to try to wring even more sales out of those already strongly performing locations.
I think that means we can infer that a store such as the one at Tysons Corner Center, widely thought to be among the healthiest malls in the country, is likely to stay put.
Jonathan: Agree — the two Tysons stores have to be safe. Macy’s says it is targeting stores with sliding sales volume and profits, and it’s not going to be those top-tier malls. I think everyone figures it will be kind of B-level malls and shopping centers, which are unfortunately the ones that can least afford to lose Macy’s. Has the company given any other hints?
Sarah: Yes. Karen Hoguet, Macy’s chief financial officer, told investors in August that they have a number of stores that don’t “reflect our aspirations” for the Macy’s brand. In other words, they want to get rid of stores that look dumpy or are in dumpy malls. Any around here that immediately jump to mind for you as fitting that description?
Jonathan: One thing the D.C. area has going for it is how wealthy all the ‘burbs are here. It’s got to be tough for Macy’s to pull out of neighborhoods with such good demographics even if their stores there aren’t in really great shopping centers. So look at Landmark Mall in Alexandria. Disappointment of a mall almost from the get-go. Community has been begging for a redevelopment for years. So far Macy’s has stuck with it.
Sarah: Catch me up on exactly what’s gone wrong at Landmark. Macy’s owns its space there, as opposed to leasing it. Do you think that difference has any bearing on their decision-making?
Jonathan: There’s a plan to turn the mall into a town center with apartments surrounding Macy’s and the other anchor, Sears (!), which would remain in place. The plan has been delayed infinity times so far. And it’s a lot easier to sell a store than get out of a lease, which can require paying an exit fee.
Sarah: What about the downtown D.C. store? The merchandise assortment there is certainly not among the most aspirational in the fleet. A friend who lives about one mile away from that store recently told me that she goes there once a year to buy clip-on earrings for her mother, because it is the only store where she can reliably find them. That’s not exactly the height of urban chic.
Jonathan: Wow, I hadn’t considered that. That store has a legacy here because it was the flagship Hecht’s store and Hecht’s was headquartered here before Macy’s acquired it. D.C. is adding thousands of young professionals ever year, why don’t they just update that store?
Sarah: Valid question. But here’s what I’d say: Many millennials are shopping at off-price concepts such as T.J. Maxx and Nordstrom Rack, and those companies are fast descending on downtown. Also, while Macy’s said that most of the stores it shutters will be weak performers, it offered one interesting caveat. Executives said that in a limited number of cases, they would close locations for which “their desirability as a redevelopment opportunity exceeds their value to us as a retail store.” Think the D.C. store could fit that description?
Jonathan: That would be one hell of a redevelopment opportunity. Directly in the heart of town, literally on top of Metro Center station. Macy’s owns that store, but it’s connected to an office building with a pretty new owner.
Sarah: So, you’re saying my wild idea is complicated?
Jonathan: If that owner is interested in developing the entire block, Macy’s store could be worth a fortune. I just thought they would be more likely to close suburban locations that can’t compete with Tysons, like Manassas Mall, Fair Oaks or Ballston. Or some of the older locations in Maryland, like Lakeforest Mall.
Sarah: Sure, that’s highly likely. Macy’s chief executive Terry Lundgren said last year that the rise of e-commerce had made stores at small, suburban malls less relevant. He said: Shoppers “don’t have to have that immediate convenience of going to the store next door. They’ll drive a little bit further.”
What he meant is that Web has become an important place for doing rote errands such as stocking up on socks or replacing a piece of cookware. But for shoppers who still like the experience of trying on clothes and gabbing in the dressing room with their mom — they’ll drive to a store that’s 10 minutes further away.
Jonathan: Part of the reason I think the Macy’s decision is such a big deal is because if the company decides to pull out of smaller, B-level malls some of those malls may have a hard time replacing them. Same for shopping centers.
Sarah: Yeah, if Macy’s pulls out of, say, Bowie Town Center, is that a death sentence for a mall like that?
Jonathan: Let’s just take Bowie as an example. Three of the biggest stores there are Macy’s, Sears and Barnes & Noble, which are all under stress. Other stores rely on proximity to Macy’s and there are just not a lot of big format stores to replace Macy’s. So then you’re talking about more risky ideas — breaking the big empty spaces into smaller stores or trying a larger redevelopment of some kind.
The point is — there’s a possible domino effect here.
Sarah: Right. So if I’m a major mall operator, am I shaking in my boots right now?
Jonathan: For owners of smaller properties, yeah I think it could be bad. What retailers with stores that large stores are expanding and could replace a Macy’s?
Sarah: Tough question. Nordstrom targets a more affluent customer, meaning many Macy’s locations would not be a good match. Plus, it has only opened one full-line store so far this year. It is being more aggressive with opening Rack locations, which are typically smaller than a Macy’s store. JCPenney does not appear to be pulling back from malls these days, and yet it probably is already located in many of the malls that Macy’s aims to vacate.
Jonathan: One analyst thinks Macy’s is losing the most market share in these five cities: Milwaukee, Pittsburgh, Hartford, Philadelphia and Detroit. These are all older cities that have experienced population loss. But I mean, Detroit? If you were going to get out of Detroit you might have wanted to do it before now. I don’t feel like the company has conveyed very clearly where it wants to be. Owned stores or leased stores? Big ones or small ones? Urban or suburban?
Sarah: Hoguet was asked by investors about the owned versus leased question. She said they are still finalizing the list of closures, but she expects the mix of owned and leased stores won’t be dramatically different than in Macy’s overall line-up of stores. Beyond that, executives have not shared much color yet that would allow us to think about the closures through those prisms you mention. But let’s look at an earlier round of store closures that they announced back in January.
Jonathan: Great point — the D.C. area was almost untouched that round unless you count far off locations like Hagerstown, Richmond or Owings Mills Mall. And as a word of warning Owings Mills Mall has closed down altogether (though I’m not sure Macy’s was the cause).
Sarah: Also, for what it’s worth, the last batch of closures seemed largely to eschew the bigger stores. With two exceptions, all the stores that were closed were less than 200,000 square feet. So maybe the Pentagon City location, with 307,000 square feet, and the Springfield Mall store, with 287,000 square feet, aren’t ripe targets.
Jonathan: Here’s the takeaway for me: Either Macy’s continues to chip away at the periphery by cutting stores in less cosmopolitan locations, as they did with the last round. Or they are serious about extracting some money from their real estate in pricey urban locations. When do you think we will hear?
Sarah: They’ve hired a senior executive to re-evaluate their real estate portfolio, so I don’t think bolder moves are out of the question. Most of the 100 stores are to shut down around Macy’s fiscal year end, which is January 30. But we could get word any time now of the names of the stores that are to close. Until then, the suspense continues.