One Of America's Largest Department Stores Is Closing More Locations
Once upon a time, some Americans outside of New York knew Macy's more as a movie set from "Miracle on 34th Street" than a national department store chain. However, Macy's gained nationwide attention during its massive expansion from 1994 to 2007, for better or for worse. Macy's closed out many department stores' locally beloved private labels in favor of its own branded merchandise. (A case in point, ask a Chicagoan who makes a better Frango mint: Macy's, or the store Macy's took over, Marshall Field's.)
Macy's shrunk its physical retail footprint in 2008 through 2015, closing many stores it seemingly just took over. As of October 2023, the Macy's brand held 723 locations nationwide, with almost 500 being Macy's stores. (Macy's also owns Bloomingdale's and Bluemercury.) Macy's made headlines in January 2024, after announcing plans to lay off about 2,350 staff and to close five underperforming brick-and-mortar store locations.
In February 2024, Macy's announced plans to close 150 of its underperforming stores across the country over a three-year span, starting with 50 stores by the end of the 2024 fiscal year. In August 2024, Macy's commanded headlines again for closing even more stores, faster than planned. Now, 55 stores will be shuttered in fiscal year 2024, rather than the 50 previously planned. Macy's Chief Financial Officer Adrian Mitchell painted this development in a positive light in a Q2 earnings call.
Macy's real estate portfolio
More store closures on an accelerated timeline can mean major gains for Macy's as a company. Macy's owns a great deal of its store locations free-and-clear. Even if the brand is facing its final decline as a retail giant, Macy's may tap into value when it comes to real estate dealings.
An April 2024 report from CoStar, a provider of commercial real estate information and analytics, estimated Macy's real estate portfolio to be $10.5 billion, while advising for variance. As reported by Yahoo Finance in December 2023, JP Morgan values Macy's Herald Square flagship location in New York City (of "Miracle on 34th Street" fame) at $3 billion on its own. It could be tricky for Macy's to sell or lease buildings designed for department stores. Still, Macy's leadership has confidence in its brand (or its real estate portfolio) to continue to bet on the Macy's name, even if contracting some physical retail operations is involved.
Macy's rejected a $6.9 billion hostile takeover from Arkhouse Management and Brigade Capital Management in July 2024 (via CNN). It's hard not to see the attempted buyout as interest in Macy's real estate potential, which may have helped inspire the additional five store closures in 2024. "We're getting very healthy responses from landlords and developers," CFO Adrian Mitchell said on the company's Q2 earnings call, adding, "The deal pipeline is healthy even in this environment."
Macy's and the American mall
Macy's is closing its underperforming stores in an attempt to restructure the brand in some way. One attempt will be to shift to luxury-store experiences, which could be a smart business move, or yet another out-of-touch play. Consequently, the lack of Macy's stores anchoring already-dying shopping centers could also be the last nail in the coffin of the American mall.
2024 is a long way from the days when Americans did most of their shopping in department stores. It's also quite a ways' away from the classic holiday movie that imbued the Macy's name with a sense of wonder, rather than looming store liquidation. But, regardless of Macy's plans to restructure and experiment with formats after its Q2 earnings call, one thing is clear about the retail landscape: It's changing.
Department stores and malls in the U.S. feel like relics from another time. Not just a prior era that favored in-person shopping rather than an online experience (really, how much money do Americans spend a month on Amazon?), but an era where middle-class consumers could spend at middle-class income levels, rather than depend on treasure-hunting deals at deluxe-feeling discount retailers (read up on our clever tricks to save you money at Target) or off-price stores like a T.J. Maxx. That said, stores like T.J. Maxx and their shoppers may have the most to gain from Macy's planned closures, because the closest off-price retailers are sure to snap up the closeouts from the chain.