CINCINNATI - They’re still on deathwatch, but the prognosis may be improving for many of the roughly 100 stores on the closure list at Macy’s Inc.
Chief Financial Officer Karen Hoguet told Wall Street analysts Nov. 15 that many of the doomed stores could continue to operate for a few more years until leases expire.
“Many of those have leases that make no sense to pay the rent and not operate,” she said. “These stores ... are making money. We don't want to do something stupid; so there won't be 100 stores close at year-end this year, but we do have plans to close approximately 100 over the next couple of years.”
That is a subtle change from Macy’s previous comments on store closures, but it could be important for stores like Macy’s Fountain Place location Downtown.
“That’s going to save Downtown,” said Kathleen Norris, a commercial real estate consultant who helped the city of Cincinnati develop its new urban retail strategy.
Norris said the Downtown Macy’s has a lease that could keep it open well into 2018. That could be enough time for Downtown’s growing residential and retail base to convince Macy’s the store is viable long term.
“We have a little bit of a lag on delivering the residential and the customer base. But I’m given to understand that the sales at Saks are pretty strong and the sales and Macy’s are rising,” said Norris, a principal at Urban Fast Forward, a Downtown-based real estate advisory firm.
Macy’s has yet to identify any local stores on its closing list. It declined to elaborate on Hoguet's comments to the Morgan Stanley 2016 Global Consumer and Retail Conference.
“The ones that are in our control, more likely we will be closing this year,” Hoguet said. “In some cases you'll see short term leases signed so that the buyers can figure out what to do with it. We’ll be transparent with that as well, but that's all yet to come as we get towards year end.”
The pace of store closures isn’t the only recent change that could impact Macy’s local real estate holdings. Hoguet also shed some new light on a deal with Brookfield Asset Management to redevelop 50 Macy’s stores. The sites were not identified, but the deal allows Brookfield 24 months to figure out potential new real estate uses for Macy’s store properties.
“It’s things like taking a furniture store and … putting it back into the main building, and then developing the acreage that’s around the furniture store,” she said. “So, there are lots of opportunities there.”
Florence Mall would be a logical place to deploy that approach because it’s the only local mall that’s home to both a furniture store and department store, said John Heekin, a principal at Source 3 Development Downtown. Heekin is a retail redevelopment specialist who has revived shopping centers in New Orleans, Maryland and Cincinnati.
Combining stores at Florence could be a win for Macy’s and the mall’s owner, General Growth Properties.
“It’s two stores, two roofs, two sets of employees,” Heekin said. “A lot of efficiency can be gained by combining them. Florence would definitely be one place where you’d consider it.”
For General Growth, it's a chance to bring new life to a quiet corner of Florence Mall.
One of the nation’s biggest mall owners, General Growth, has invested $1.5 billion since 2011 to buy back and re-lease 91 empty department-store boxes with new tenants. Replacements have so far included 18 rival department stores, 10 sporting goods stores and 14 entertainment venues, such as Dave & Busters, movie theaters and trampoline parks.
In addition to Florence Mall, General Growth owns Kenwood Towne Centre in Cincinnati. It recently agreed to pay Macy’s $46 million for five department stores that will be closed and redeveloped. It’s already lined up a Belk department store for one of the spaces and is reviewing Macy’s store closure list for other potential deals.
“We have capacity to take on more,” Chief Operating Officer Shobi Khan told analysts recently. “We review the portfolio constantly. There is a discussion we have with them all the time.”
Khan would not say what additional stores he’d like to “take back” from Macy’s or offer a time frame on his decision.