These days, the words "store closure" shouldn't come as such a shock, given the number of retailers that have filed for bankruptcy and shuttered locations over the course of the past year alone. But still, any time a well-known store makes plans to close its doors, it's enough to send real estate investors reeling.
This time, the damage has happened in Chicago, where Macy's (NYSE: M) confirmed plans earlier this year to close down its Water Tower Place store on Chicago's Magnificent Mile. To be fair, the closure wasn't unexpected. Even before the pandemic began, Macy's had said it would be shuttering 125 stores as part of its near-term business plan.
But still, losing Macy's is a blow to Chicago's notable shopping district. Recently, the Magnificent Mile also lost a three-story Gap (NYSE: GPS) flagship store as well as an Express location. And if more stores follow a similar path, property values could seriously start to shrink.
While the recent Macy's closure may not be a surprise, the reality is that a lot of shopping districts are struggling with sluggish sales and a notable decrease in foot traffic. The coronavirus pandemic has changed the way many consumers make purchases, and more people are buying items online to keep their COVID-19-related risk to a minimum.
And while it's true some shoppers may prefer the in-person experience, the reality is that Macy's has a pretty strong digital sales platform. So shifting to online orders is a fairly easy thing for fans of the popular department store to do.
Incidentally, Chicago's Magnificent Mile isn't the only high-end shopping district to feel the impact of the pandemic. Manhattan's luxury shopping district has also felt the pain -- as of last month, there were 32 storefronts sitting empty along the city's famed Fifth Avenue.
In addition to digital sales taking over, a lack of tourism is also hurting popular shopping areas. Travelers who would normally flock to cities like New York and Chicago have instead been staying away, keeping stores emptier than usual.
Rents along New York's Fifth Avenue have dropped an estimated 25% in the course of the pandemic from their 2017 peak, and if closures continue along Chicago's Magnificent Mile, a similar pattern may emerge there. That's bad news for existing commercial landlords, but it's perhaps good news for real estate investors interested in scooping up properties in notable shopping districts. If landlords continue to face vacancies, property values could drop substantially, giving investors a chance to buy them up on the relative cheap.
The Millionacres bottom line
Of course, an uptick in tourism could work wonders for the Magnificent Mile as well as Fifth Avenue, and with coronavirus vaccines becoming increasingly available, there could be a surge in travel later this year. That could, in turn, bring a lot more shoppers into stores and help struggling retailers, including higher-end ones, boost their revenue. But whether that's enough to prevent more store closures is yet to be determined.