What will happen to malls when Macy's closes its stores?

Macy’s is planning to close nearly 40 stores across the US, a move that could be the final straw for many struggling American malls. Has the rise of e-commerce killed the once-dominant mall for good?

Stephan Savoia/AP/File
Shoppers walk into a Macy's department store at the Hanover Mall in Hanover, Mass. Macy's is cutting up to about 4,800 jobs after disappointing holiday sales.

Macy’s is set to begin closing nearly 40 stores at malls throughout the country. The retail giant and mall stalwart announced the decision in September of 2015, citing slow sales.

Macy’s also recently announced that it would be laying off approximately 4,000 workers after holiday profits slumped by about 5 percent during November and December. The decline was driven, in part, by slow winter clothing sales in the face of the unusually warm weather. The company also saw a drop in spending from international tourists as a result of a stronger US dollar.

While spending was down at physical Macy’s locations, online orders at Macys.com were up during the same November-December period: 17 million orders were filled, up about 25 percent from a year earlier.

Some of Macy’s sales associates and service-center employees affected by the closures will be placed in other positions, The company also will be implementing a “voluntary severance opportunity” for those in upper management who face layoffs.

“In light of our disappointing 2015 sales and earnings performance, we are making adjustments to become more efficient and productive in our operations. Moreover, we believe we can operate more effectively with an organization that is flatter and more agile,” Terry J. Lundgren, chairman and CEO of Macy’s, Inc., said in a press release.

When Macy’s announced the store closures, in September of 2015, it had not yet identified which stores it would be closing, but 40 stores account for approximately 1 percent, or $300 million, of Macy’s total revenue.

Macy’s announced specific closure locations earlier this month. Some of those malls where Macy's is closing up shop will  also be losing other stores that have traditionally vied for consumer dollars: The Eastfield Mall in Springfield, Mass., for example, also will lose JCPenney, American Eagle and RadioShack.

Such closures send a stark message about the state of the traditional consumer economy.

Analysts have estimated that approximately 50 percent of US malls will close over the next two decades, as anchor stores like Macy’s, JCPenney, and Sears close and consumers continue to shift their money to shopping online. In addition, when the economy is particularly strong, consumers recently have chosen to save more and not spend as much outside the home.

Before Macy’s began to close additional stores, there were 770 locations around the US. The company hopes that its cost-cutting measures will save about $400 million, even as they may negatively impact fourth-quarter profits by about $200 million.

In order to help boost sales, Macy’s has recently been experimenting with a new store concept called Macy’s Backstage, which is intended to solidify the company’s presence against off-price stores like Marshalls and TJ Maxx that have gained ground in its retail space.

Macy’s calls its Macy’s Backstage concept one that “presents a fresh face to the world and [helps] savvy, fashion-forward bargain hunters fall in love with shopping all over again.” It has opened four pilot locations in New York City.

Macy’s stocks declined in value by nearly 50 percent over the course of 2015, and despite a small recent uptick on Friday, they continue to remain low, opening at $38.87 per share on Tuesday.

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