The Silver Lining to Mall Anchor Department Store Closures

While the news has been full of headlines of department store closures and potential mergers, the fact remains that with the right leasing, an empty anchor can breathe new life again so long as the fresh tenants are something that the shoppers desire. Case in point: Stonestown Galleria. This San Francisco stalwart faced a Macy’s closure in March 2018. According to Placer data, this actually did not have an enormous impact on overall foot traffic in the subsequent months. While the mall faced the universal traffic drop wrought by the pandemic, since then foot traffic has recovered and even exceeded 2018 figures. Current traffic at the mall in July 2024 is 30% higher than March 2018, when the Macy's closed.

What came in to replace the Macy’s? It now includes a Whole Foods, a Regal movie theater, and a Sports Basement.

In the past year alone, numerous tenants have seen traffic increases.

This Target ranks sixth in the nation in terms of visits per square foot and like the overall center has seen only increased traffic this year compared to a year ago.

Compared to 6 years ago, when the Target opened, current traffic has grown on the order of 2-3 times.

We’ve seen that some of the woes that plague certain districts in San Francisco have resulted in shoppers coming from much further within the city, such as the Mission District or Financial District down to Stonestown. The area in the red (2023-2024) indicates this larger trade area.

For a city that is only 7x7 miles, the increase in trade area is considerable when comparing 2017/2018 (blue) to 2023/2024 (red).

And in more changes to this location, just last month the SF Board of Supervisors approved an ambitious new redevelopment where “the estimated $2 billion mixed-use master plan aims to replace thirty acres of surface parking with over three thousand homes alongside a host of new uses around the existing 1.3-million-square-foot mall.” There will be new retail space, service space, a senior center, and 20% of units will be designated as affordable housing.

On the other side of the equation, a Macy’s closure of an underperforming location may help their profitability. In fact, on a fiscal second-quarter earnings call, Macy’s chairman and CEO Tony Spring said that, ”While non-go-forward locations are underperformers relative to the total Macy's fleet, they are valuable real estate assets. Demand for these properties has been strong.” In June, University of Miami purchased a Macy’s furniture store location for $40M, signaling a possible expansion of its healthcare network. We may be seeing various malls or department store anchors turning into education, health, or science-related uses, much like UCLA’s purchase of the erstwhile Westside Pavilion for its new Research Park.