Macy’s is closing up to 40 of its stores, and there could be more to come. For shopping malls, the implications are terrifying.
The retailer has faced lacklustre sales in recent quarters, reflecting an overall downward trend in the full-priced apparel sector.
Customers are spending limited funds on iPhones and Netflix subscriptions instead of sweaters and jeans. Discount-obsessed consumers are shopping at TJ Maxx and Ross Stores outlets instead of traditional department stores.
The closures announced Tuesday may just be the start, according to analysts RBC Capital Markets. The chain’s 850 stores might be too large in light of major changes in the apparel space, and the brand might start pouring more resources into its new discount stores instead.
Macy’s said it doesn’t currently plan to close more stores this year.
“We typically close a small number of stores each year while also opening new stores, but no specific plans beyond the 2016 closings announced yesterday,” the company said in an email to Business Insider.
Macy’s department store competitors Sears and JCPenney have also closed anchor locations in recent years, leading to a domino effect that is hurting mall stores from Abercrombie & Fitch to J. Crew.
The closures create a domino effect for malls.
Once mall anchors like Macy’s close, it can be difficult for owners to find a tenant to replace them, said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail-consulting and investment-banking firm.
More than two dozen malls have shut down in the last four years and another 60 malls are on the brink of death, The New York Times reported earlier this year, citing Green Street Advisors, a real-estate and real-estate investments trust analytics firm.
“Teen retailers … are all a disaster and these middle-level malls are killing them,” Davidowitz said.
There is a bright spot for the malls, at least those catering to high-end shoppers: Technology-focused tenants like Tesla, Microsoft, and Apple, according to The Wall Street Journal.
Because technology is more expensive than clothing, it’s easier for these stores to turn a profit. Technology stores also require fewer staff members and smaller spaces than department stores, resulting in fewer overhead expenses.
So, moving away from apparel retailers could be one way to survive. Macy’s, which didn’t say which stores it will close, is about to give some malls a chance to test this out.
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