Even before the coronavirus pandemic began, department stores were starting to struggle. Competition from online giants like Amazon (NASDAQ: AMZN) and big-box stores like Target (NYSE: TGT) has taken business away from department stores for years. And now that many consumers have shifted heavily to online shopping during the pandemic itself, department stores could suffer an even greater hit to their revenue, especially in locations where foot traffic isn't robust.
So what should be done with all that unused space? Over the past few months, we've already seen some department stores get repurposed as coronavirus vaccine centers. And one shuttered department store in Vermont has already undergone a big change -- it's become a school.
Mathematics at the makeup counter
Students in Burlington, Vermont, are getting a unique experience this year -- they're attending high school at a former Macy's (NYSE: M) location. The Downtown Burlington High School opened on March 4 after administrators had to close the existing high school due to concerns about toxic chemicals in the building. In the absence of having another school building available, a local Macy's that closed in 2018 was converted to accommodate students.
The store itself underwent a $3.5 million retrofit to put up walls and make the space more classroom-like. But certain signature Macy's features remain, like the store's bright white floors and different designers' logos on walls.
For now, the school district has signed a 3.5-year lease for the building while it investigates the safety issues that forced the original high school to close. Whether the district will look to use the old Macy's as a permanent high school location is still to be determined.
The start of a trend?
The great thing about department stores is that they're very spacious and tend to be found in convenient locations designed to draw in customers. As such, converting sluggish department stores to schools isn't such an offbeat concept.
In the coming years, a growing number of department stores are likely to shutter as retailers shift their focus to digital sales and dropping revenue renders more and more locations unprofitable. Rather than let that space go to waste, commercial landlords have a real opportunity to put it to good use by converting it to classrooms.
Of course, department stores can do more than just become schools. They can become medical centers, distribution centers, and even laboratories. But right now, overcrowding in classrooms is a major concern in many school districts, and the coronavirus pandemic only amplifies the need to carve out more space for students to learn in. Though department stores may not be the most natural choice for school buildings, they're a viable option nonetheless.
That said, stand-alone department stores are certainly better poised for school conversions than their mall-based counterparts. Housing students in malls means grappling with a range of concerns, from safety issues to noise. But real estate investors shouldn't be surprised if, in the coming years, we see more underperforming department stores start to welcome in students.