As Macy’s retrenches, so could the shopping malls

Sales are dropping at Macy’s stores nationwide, which likely means rough times ahead for other retailers.

Macy's shoppers may smile at good deals but the outlook isn't so happy for the company, which expects sales declines that could force store closures with a ripple effect for malls. The Associated Press

But the department store’s slide could be truly devastating for mall owners.

Experts have already been predicting that of the nation’s 1,100 malls, as many as a third or even half may end up closing. Dominant locations remain incredibly popular with shoppers and profitable for investors, but smaller regional centers have to struggled to remain relevant.

Some owners have torn their once prized centers down altogether and decided to try something new such as mixed-use development projects.

Macy’s executives already say they have too many stores. After a crummy holiday season, the company announced in January that it would close 40 locations.

Now the company is expecting a decline in sales of 3.5 to 4.5 percent for the year. If the drop in sales adds more locations to the heap of closures it could accelerate the demise of malls rapidly because of the heft that Macy’s and other anchors including Bloomindales (which is owned by the same company) have in drawing shoppers to the stores that surround them.

On Thursday, retail analyst Jan Kniffen told CNBC that he thinks Macy’s needs only about 500 of its nearly 800 stores and that as the company cuts back he expects a third of America’s shopping malls to go under.

“On an apples-to-apples basis, we have twice as much per-capita retail space as any other place in the world. The U.K. is second. They’re half of what we are. So, yes, we are the most over-stored place in the world,” Kniffen said.

Part of the reason losing Macy’s is so painful for mall owners is how difficult the stores are to replace, particularly as other chains cut back as well. Another mall stalwart, Gap, reported company-wide sales down 5 percent this week as well and is considering how many Banana Republic and Old Navy stores it really needs.

Given that outlook, it’s not too early to wonder how many other Macy’s-anchored malls could survive if the department store shutters locations.

It appears the reckoning for shopping malls is far from over.

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