The shutdown of Macy's stores will trigger a ripple effect of transformation at shopping centers.

• By early 2027, Macy's will shut down approximately 150 of its namesake stores, triggering a wave of change at malls across the country.
• For many years, the department store operator has been a key tenant in malls, with stores ranging from 200,000 to 225,000 square feet.
• The old Macy's boxes could be transformed into smaller retail spaces or lead to significant changes, including adding apartments or tearing down the mall for a new development.

The closure of nearly a third of its stores will bring about changes in malls and communities across the U.S.

Some of those transformations may catch shoppers by surprise.

In late February, the retailer announced plans to close approximately 150 of its namesake locations by early 2027. However, Macy's has not yet disclosed which stores will be closed. When CEO Tony Spring made the announcement, he stated that the stores to be closed account for 25% of the company's gross square footage but less than 10% of its sales.

The company intends to allocate more funds to the approximately 350 stores bearing its name, while also expanding its presence through new locations for its better-performing brands, Bloomingdale's and Bluemercury.

The closure of stores by Macy's is a result of the growth of online shopping and demographic shifts, which have made it difficult for some small towns or regions to sustain a busy shopping center.

The closure of Macy's will ultimately benefit many malls and customers, according to Chris Wimmer, senior director at Fitch Ratings. The department store's departure will hasten the decline of "low quality malls that no longer have a place in the retail landscape." The closures will provide an opportunity for the owners of healthier malls to revitalize and modernize their shopping centers.

Owners of malls with better locations and stronger balance sheets are eager to acquire Macy's and utilize prime real estate, according to him.

Since the inception of malls, department stores have been given space by mall owners to attract shoppers and generate revenue through rent payments.

Real estate developments that better suit the changing demographics or economy of their surroundings may replace Macy's closures, such as a medical building, retirement community, or grocery store.

Some closed Macy's stores may be more challenging to sell, and their departure could be the final blow to a mall that's becoming an eyesore.

If it's in a location that's highly undesirable and no one is willing to invest money to demolish it, then it could deteriorate.

Downsizing department stores

Macy's is trimming its locations as department stores and malls alike dwindle.

Over the past decade, Macy's has shut down more than a third of its stores, leaving many malls without its presence. Currently, the company operates 503 Macy's stores, along with a few other concepts outside of malls.

Sear's, Lord & Taylor, and JCPenney are among the anchors that have downsized or disappeared from malls.

The number of malls has decreased, and real estate firms categorize malls into classes A and B, which have higher occupancy rates and lower sales density, and classes C and D, which have lower occupancy rates and higher sales density.

The number of shopping malls classified as Class A and B decreased from 352 to 316 between the end of 2016 and 2022, according to company reports S&P Capital IQ and Coresight Research.

The decline in Class C and D shopping malls is sharper, with a drop from 684 malls in 2016 to 287 in 2022, according to the companies' research.

Top-tier malls will continue to attract more retailers and consumers, while weak U.S. malls will either close or convert more space into non-retail uses, predicts Anand Kumar, an associate director of research for Coresight.

In some troubled shopping centers, Macy's could be the last major retailer standing.

According to Kumar, the U.S. doesn't require as many malls as customers increasingly prefer to shop online through retailers' websites. He noted that many of the fastest-growing retailers, including Amazon, Walmart, and Target, are opting for suburban strip centers over malls for their store locations.

Mall owners can increase traffic by adding diverse tenants, such as medical buildings, co-working spaces, nail salons, and restaurants, to their malls.

Many mall owners have repurposed vacant former Macy's locations.

According to Naveen Jaggi, president of retail advisory services at JLL, even if a mall wants to fill a Macy's space with a retailer, there are few single tenants that can take up the whole box. The ones that could, such as Nordstrom and Belk, generally aren't opening up huge stores like they did in the past.

Macy's store typically range between 200,000 and 225,000 square feet.

Grocery stores, hockey rinks and Amazon warehouses

New developments are likely to emerge in former Macy's stores, as history suggests. The closure of mall anchors has paved the way for new apartment complexes and entertainment zones with restaurants, amusement parks, and activities such as laser tag and rock climbing.

Since 2012, Brookfield Properties has invested over $2 billion in redesigning more than 100 anchor boxes.

Stonestown Galleria, a mall in San Francisco, was retrofitted after the closure of a Macy's and now houses a Whole Foods, movie theater, sporting goods store, and health-care facility.

In the Washington, D.C. area, Tysons Galleria seized the chance to expand with a new wing after Macy's closed. The addition, which opened in 2021, features a wider range of entertainment options, including a bowling alley and movie theater. Additionally, there are new home furnishing stores such as RH and Crate & Barrel, as well as new dining options and a showroom for electric vehicle brand Lucid Motors.

According to Adam Tritt, chief development officer for Brookfield Properties' U.S. retail portfolio, the projects require both money and time. For the San Francisco conversion, Brookfield had to increase the roof's height, add more windows, and install a glass storefront.

For mall owners, the closure of an anchor like Macy's can have a silver lining, as it clears the way for more flexible and creative uses that draw more people to the mall, according to Tritt.

He stated that there is a shared effort to motivate individuals to leave their couches and venture outside.

By transforming a large retail or dining space into smaller leasable units, mall owners can become more agile.

He stated that we can break it down into smaller, digestible pieces to enable quicker responses to changing trends and evolving communities.

In other malls, the tenants that replace a Macy's could be even more distinctive.

The Utah Hockey Club will soon establish its training and practice facility near Salt Lake City, Utah, featuring ice skating rinks and corporate offices.

In some regions, consumers' preference for online shopping has manifested physically, with the opening of a large fulfillment center on the site of a struggling mall. The mall in Northeast Ohio experienced declining occupancy rates and lost major anchors, including Dillards, JCPenney, and Macy's.

In Baton Rouge, La, Amazon opened a new fulfillment center this summer, utilizing a former mall site.