So Long, Macy's

The board of Macy’s is currently pondering a buyout offer for roughly $5.8 billion (worth about $21/share) from a real estate investor and an asset management firm. The structure and price point of any specific deal seem pointless to evaluate. The only dynamic that applies here is that the favorite “restructuring” scheme of yesteryear involving purchasing a retailer, immediately splitting the operation into “retail” and “real estate”, making the retail side lease from the real estate side at exorbitant premiums, then closing stores while the space is sold off for other purposes would appear dead on arrival.

  • all existing locations are having trouble competing with online sales
  • no OTHER retailer is doing well enough to become new tenants of the space
  • so both sides of the retail / real estate equation are plummeting simultaneously

If the deal goes through, I would bet Macy’s will disappear under the water nationwide in three years. Four years tops. If the deal doesn’t go through, same forecast.

WTH

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Macy’s will join Sears Roebuck,The Great Atlantic and Pacific Tea Company, and many others in Retail Heaven.

The Captain

That sounds like an argument to take the deal, If your forecast is that the company dies either way within four years. If that holds true, with the buyout, today’s shareholders would get $21 per share, while without the buyout they’d likely get ‘liquidation value’ within a few years, which could be nothing at all.

Regards,
-Chuck
Home Fool

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Macy’s has over 500 stores, including subsidiaries, but the single New York (Manhattan) stores takes up an entire city block and was valued several years ago at $3B all by itself. That’s more than half the offered purchase price.

In fact, Macy’s has been playing the real estate game for several years, albeit on a smaller level that this total buyout. Yes, I’m trying to remember the last time one of these ended well (and coming up empty) but stranger things have happened.

A lot of Macy’s (Bloomies, etc.) locations are leases in malls or elsewhere, so it’s hard to see how those come into play in any event. Personally I don’t know why an investor would want to be in the brick/mortar retail business anyway these days, for while there are sure some victories it would seem the overall tide is going out.

Anyway, decent story of Macy’s & real estate:

https://www.thestreet.com/investing/stocks/macys-is-a-real-estate-company-not-a-retailer-14502903

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When Macys closes down, I suspect that some [additional] malls will fail as well. Malls don’t fail immediately, but rather slowly spiral down, it could take 10 years, but they eventually fail. A local mall, a nice one, simply built a decorated wall where the large Sears store was, and put a restaurant in front of the wall, so the mall now ends there. It’s been 5 years or so and no new tenant has been found for that very large space.

Depends on the location of the mall. A large empty space could work for Amazon, for example. But, if the location is not a good fit, no deal.

But it probably wouldn’t work for them. It’s unlikely the mall property is zoned for industrial/warehouse uses. It’s dead certain that it isn’t physically configured for them. These are retail spaces - they’re not going to have the truck bays in place to handle warehouse use.

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Major retailers tend to have significant delivery capability (to the store) at major stores, particularly mall anchors. It is more location than anything else. Can’t say how the other stores in that mall are doing, so we don’t have an indicator as to the how the mall inself is doing.

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Nothing like what Amazon needs. Macy’s isn’t a warehouse - they’re not turning volume of goods through at the same rate as an Amazon distribution facility. I’ve worked on a few Amazon projects. There’s no way that a typical mall anchor spot has the delivery dock capacity that Amazon needs.

Even if you could kludge it - Amazon’s mostly looking to optimize the efficiency of these distribution facilities. They don’t want to have their flow slowed down by a retrofitted delivery bay, or trucks having to managed interactions with mall patrons.

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Actually, it is being done now. Amazon targets areas with a number of destinations within a short range of the mall. Then that becomes the local distribution point for that area. There are a number of malls here that have closed anchor stores available and fit the described need. However, Amazon just closed one large sorting facility south of the metro and opened a new one east of the metro. Plus one mall (northwest metro) was (mostly) torn down after it closed.

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Do you have any links? I’d love to see how they managed it. I know that there were a number of mall operators that were looking to do that, especially during the pandemic years. Simon was trying hard, especially with some of their Sears spots that tended to be almost out-parcelly in order to accommodate their automotive and appliance segments. But I didn’t think any of that went anywhere.

Obviously if you scrape the site and get rid of the mall entirely, these properties can work. I just didn’t think that you could take just an anchor space and convert it, while the rest of the mall kept going.

Exactly true. When this Sears closed there was a lot of speculation that it could be turned into an Amazon distribution center. Well, that was VERY naive speculation on our part. That’s because even a large anchor Sears store with 2 levels all across including a large auto service department area and even including building out to use up the parking lot on that side of the mall is STILL tiny compared to an Amazon distribution center. The space is useless to Amazon. Amazon needs a HUGE rectangular building with truck bays on two sides of it, one side for incoming and one side for outgoing, and it doesn’t need just 10 or 20 bays (even 20 is already larger than what an anchor at a mall can handle), it needs about 100 truck bays.

Later on, there was speculation that it could be turned into a multiplex movie theater, but that required way too much construction, and thus way too much capital investment to make it worth it. Even worse now with construction costs having gone way up through the pandemic and recovery years.

So now it sits empty and walled off for years and years. Maybe they’ll somehow turn it into a nursing home?

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No, I don’t have a link. But Simon closed down their #2 mall here in Knoxville and Amazon has taken it over to make it a distribution hub. Presumably that means connection point for last mile deliveries; they just opened a full blown warehouse center about 15 miles away.

They’ve been extraordinarily tight lipped bout both projects; both ran far longer in the construction phase than predicted, and no one knows what’s going on with the mall conversion (I believe they’ve leveled it and are just using the large land to build. This is a bit weird in that this location has excellent access to an interstate, while the distribution warehouse that just opened does not. It is close to the airport, tho…)

Warehouse opened:

Mall conversion:
https://www.reddit.com/r/Knoxville/comments/186esdb/east_towne_amazon_facility/

Oh, sure. That’s easy. What I don’t think they are trying to do, or even can do, is take an anchor space in a mall and convert that to an Amazon facility while keeping the mall in place.

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Dave Clark was a VP at Amazon going back to the early days who loved to build stuff. He loved to build stuff a little too much and post-COVID Amazon wound up with a number of these projects where they had warehouses and land but no need for them. So Amazon gave him the boot.

I don’t think they can either. At least not easily. I’ve been in a number of Amazon facilities, from the ultra-huge to the small-ish. In a nutshell, the way Amazon fulfillment works (as I understand it) is that all packages (or mostly all) start off in the giant fulfillment centers. From there they get moved to progressively smaller facilities (some of which might be right next door to the FCs), maybe three or so total before they arrive at the last mile facility, which in some cases might be the Post Office or some other vendor.

Presumably the mall spaces would be last mile facilities. But in addition to the warehouse space, they also need the trucking yard space, which is has to be secure, and it has to be really big because that’s where the vehicles park when not in service. So that would require a big chuck of the mall parking lot.

So I could see Amazon flattening malls (or outbuildings like the Sears service centers) and building their own facilities but I don’t really see them moving into existing spaces except in a limited way.

Here you go:

Sounds like Amazon is buying the properties and flattening the buildings.

I don’t either. I didn’t mean to imply that they would. I mean they bought the entire mall including anchor stores, parking lots, etc… It’s on the other end of town and our local media won’t do anything but relay the press releases, so I don’t really know what’s going on with it, but I presume they’re flattening it and starting over.

The owners should look at health service providers. “Medtail” is the newest thing.
Why Health Care Systems Should Invest in Medical Malls (hbr.org)

Convenient locations, lots of parking, and a nonthreatening familiar ambience. What better place for a doctor’s office than the local mall?

Why old, suburban malls are being transformed to health care facilities - Marketplace

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