Macy’s decision to shut down nearly a third of its stores will initiate significant changes in malls and communities throughout the U.S.

These transformations might surprise some shoppers.

In late February, the retailer announced plans to close approximately 150 of its flagship locations by early 2027. Macy’s has not yet disclosed which specific stores will be affected. CEO Tony Spring noted that the stores slated for closure represent 25% of the company’s total square footage but contribute less than 10% to its sales.

The company intends to reinvest in the roughly 350 remaining flagship stores and expand its more successful brands, including the upscale department store Bloomingdale’s and the beauty chain Bluemercury.

However, these closures will serve as a catalyst, compelling malls to adapt to evolving consumer preferences. Macy’s is closing stores in response to the rise of online shopping and demographic changes, which have made it difficult for some small towns or regions to sustain vibrant shopping centers.

According to Chris Wimmer, senior director at Fitch Ratings who monitors real estate investment trusts, Macy’s closures will ultimately benefit many malls and customers. He stated that the department store’s departure will hasten the unavoidable decline of “low-quality malls that no longer need to exist.” The closures will provide owners of more viable malls an opportunity to revitalize and modernize their shopping centers.

In malls with prime locations and financially strong owners, Wimmer mentioned that owners are eager to take over Macy’s spaces and redevelop the valuable real estate.

Macy’s owns the majority of its flagship stores, a legacy from when mall owners would offer department stores space to attract shoppers and generate revenue through rent from other retailers.

The closures will also pave the way for real estate developments that better align with the shifting demographics or economic conditions of their areas, potentially resulting in the construction of medical facilities, retirement communities, or grocery stores.

Nonetheless, Wimmer acknowledged that some closed Macy’s locations might be harder to repurpose, and their closure could spell the end for malls already in decline.

“If it’s in a particularly undesirable location where no one is willing to invest in demolition, it could deteriorate,” he said.

Downsizing Department Stores

As both department stores and malls continue to decline, Macy’s is reducing its number of locations.

Over the past decade, Macy’s has closed more than a third of its flagship stores, leading to its departure from many malls. As of early May, the company operated 503 Macy’s stores, including a small number of other concept stores located outside of malls.

The Decline of Mall Anchors and the Transformation of Retail Spaces

Many anchor stores, including Sears, Lord & Taylor, and JCPenney, have either downsized or completely disappeared from malls.

The number of malls themselves has also decreased. Real estate firms typically classify malls into Class A and B, which have higher occupancy rates and lower sales density, and Class C and D, which have lower occupancy rates and higher sales density.

According to company reports, S&P Capital IQ, and Coresight Research, there were 352 shopping malls classified as Class A and B at the end of 2016. By the end of 2022, this number had decreased to 316. The decline was even more pronounced among Class C and D malls, which fell from 684 in 2016 to 287 in 2022.

“Weak U.S. malls have become weaker, while strong shopping centers have become the preferred destinations for both retailers and consumers,” said Anand Kumar, an associate director of research for Coresight. He expects this trend to continue, predicting that by 2030, top-tier malls will capture a larger share of total mall spending, while more lower-tier malls will either close or repurpose their spaces for non-retail uses.

In some struggling malls, Macy’s may be the last remaining anchor store.

Kumar noted that the U.S. doesn’t need as many malls as it once did, given the increase in online shopping. He added that many of the fastest-growing retailers in terms of store count, such as Dollar General, Five Below, and T.J. Maxx, prefer suburban strip centers over traditional malls.

He suggested that mall owners could attract more foot traffic by diversifying their tenant mix to include medical buildings, co-working spaces, nail salons, and restaurants. This strategy has been employed by many mall owners and could be applied to vacant former Macy’s locations.

Even if a mall wants to replace a Macy’s space with another retailer, there are few single tenants capable of occupying such a large area, said Naveen Jaggi, president of retail advisory services at JLL. Potential candidates like Nordstrom and Belk generally aren’t opening large stores as they did in the past.

Macy’s stores typically range between 200,000 and 225,000 square feet.

Transforming Former Macy’s Stores: A New Era for Malls

The closure of Macy’s stores is leading to surprising and innovative transformations within malls, creating new opportunities and revitalizing these spaces. Historically, the departure of anchor stores has paved the way for diverse projects, including apartment complexes and entertainment hubs featuring restaurants, amusement parks, and activities like laser tag and rock climbing.

Innovative Mall Transformations

Since 2012, Brookfield Properties, a major mall owner, has invested over $2 billion to redevelop more than 100 anchor spaces. One notable example is Stonestown Galleria in San Francisco, where a former Macy’s has been repurposed into a Whole Foods, a movie theater, a sporting goods store, and a healthcare facility.

At Tysons Galleria in the Washington, D.C. area, Brookfield utilized the closure of Macy’s to expand the mall with a new wing. Opened in 2021, this addition includes a bowling alley, a movie theater, home furnishing stores like RH and Crate & Barrel, new dining options, and a showroom for the electric vehicle brand Lucid Motors.

The Challenges and Benefits of Redevelopment

According to Adam Tritt, Chief Development Officer for Brookfield Properties’ U.S. retail portfolio, these projects require significant investment and time. For instance, the San Francisco conversion involved raising the roof height, adding more windows, and installing a glass storefront. Despite these challenges, Tritt sees a silver lining in the closure of anchors like Macy’s, as it allows for more flexible and creative uses that attract more visitors to the mall.

“There’s a collective challenge to get people off the couch and out of the house,” Tritt said. By converting large spaces into smaller, more manageable retail or dining areas, mall owners can adapt more quickly to changing trends and community needs.

Unique New Tenants

In some cases, the replacement tenants for former Macy’s stores are even more unique. Near Salt Lake City, Utah, a former Macy’s will soon become the training and practice facility for the NHL’s new addition, the Utah Hockey Club, complete with ice skating rinks and corporate offices.

The shift from in-person shopping to online shopping has also led to significant changes. For example, Amazon has repurposed the former site of Randall Park Mall in Northeast Ohio, which struggled with declining occupancy and lost anchors like Dillard’s, JCPenney, and Macy’s, into a massive fulfillment center. Similarly, Amazon opened another fulfillment center earlier this summer on the site of a former mall in Baton Rouge, Louisiana.

These examples illustrate how the closure of traditional department stores like Macy’s can lead to innovative and diverse uses for mall spaces, ultimately revitalizing these areas and adapting to new consumer behaviors.