Malls feel the heat as Macy's, other chains close stores
Macy's decision to close 100 stores, only the latest in a series of downsizing announcements by department-store chains, is going to fall hard on the nation's shopping mall operators.
Macy's, Sears, J.C. Penney and others, including specialty retailers, see their sales and profits being gobbled by online retailers and shoppers seeking fresher retail concepts. A real-estate research firm, Green Street Advisors, says chains would need to collectively close 800 stores to achieve the kind of profitability per square foot that they saw a decade ago.
Retail executives know they have a problem even though store cuts, with thousands of jobs at stake, are painful.
"The reality is the United States is over-stored," Macy's CEO Terry Lundgren told Bloomberg TV. "It's pure facts. We're getting in front of what we know is a trend that's been occurring and that is customers are balancing their spending with online as well as in stores."
Macy's to close 100 stores as big-box retailer shrinks further
Macy's announcement Thursday that it would shutter 100 stores shook up shopping center operators such as Indianapolis-based Simon Property Group, which has 200 shopping centers. Shares of Simon fell 2% that day, though they were largely unchanged Friday.
As Simon's largest tenant, Macy stores occupy 12.6% of the company's U.S. portfolio. Macy's has 122 stores in Simon-owned properties, accounting for more than 23 million square feet.
Two other shopping-center operators, General Growth and Kimco Realty, also saw modest drops in the stock the day that Macy's made its announcement.
Green Street Advisors issued a report saying that a spate of department-store closures will be "problematic" for "lower productivity malls that have already had their fair share of struggled competing against online retail."
For those malls, the problem will be akin to the dilemma once faced by harried shoppers: too many stores and too little time. Up until now, Green Street says mall landlords have done an "admirable" job of keeping spaces filled with stores amid the retail changes.
Indeed, Simon has boasted about how it has managed to keep is department-store spaces filled.
"It is important to note we have one vacant department store in the entire portfolio, and we have 441 of them," Simon Chief Operating Officer Rick Sokolov said during the company's May earnings call. A Simon spokesman could not be reached for comment Friday.
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Chain-store closure announcements have cascaded this year even though the U.S. economy has been generally strong.
They have included Ralph Lauren announcing it would close 50 stores. Sears said it would shutter 78 Sears and Kmart stores. Aeropostale is closing 113 locations. Sports Authority is closing down the entire chain Tailored Brands said it will close 80 to 90 Jos. A. Bank stores, mostly in January, plus 58 factory and outlet sores and up to 110 MW Tux stores. Kohl's is going to leave 18 underperforming stores. Chico's and White House Black Market are spacing out the net reduction of 105 stores total.
But Green Street noted that large malls no longer need four or five anchor department stores to be successful. And with department-store sales per square foot of store space down 20% since 2006, there are other businesses -- restaurants, grocers, movie theaters or others -- that can draw foot traffic instead.
Chains might begin cutting their losses on under-performing stores now rather than following the usual path of waiting until after the holiday shopping rush and closing stores early next year, according to Garrick Brown, national retail research director for Cushman & Wakefield, a commercial real-estate brokerage.
For all the traditional retailers that have hit hard time, some discount chains are expanding.
Dollar General, a Tennessee-based discount retailer of groceries and household items, expects to open 900 locations in the next year. The TJX Companies, which includes T.J. Maxx, Marshalls and HomeGoods, plans to add about 195 new stores this year, a 5% increase.
The looming question for commercial real estate is which concepts might emerge to fill expected vacancies. Target and Costco have gone into some shopping centers as anchors, which has helped fill space during “a relatively leisurely pace of closures,” says Brown. Ireland-based fast fashion retailer Primark is emerging as a potentially big player, acquiring some former Sears spaces, although its ramp-up could take years.
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Melina Cordero, head of retail research for commercial real-estate brokerage CBRE in the Americas, said department stores downsizing will continue. "I think department stores as a whole are really in a precarious position,” she said. Chains that traditionally appealed to middle class consumers “are going to suffer.”
New store concepts "pose an opportunity for some of these malls to restructure, refurbish and redevelop along the lines of the new consumer reality,” Cordero says.
--Contributing: Bowdeya Tweh, Cincinnati Enquirer