Grand Buildings Help Keep Macy’s Afloat

The company’s real estate is now worth more than its market value.

The Macy’s Thanksgiving Day Parade is an indelible and durable holiday tradition. But the company that has sponsored the annual parade for nearly a century is being tested like the SpongeBob balloon in a strong wind.

Battered by e-commerce competition, Macy’s sales have fallen for 11 consecutive quarters, and its stock price has plunged about 41 percent this year alone.

Shoppers and investors seem to agree that the magic of the department store has faded in this era of instant online gratification and free home delivery. It is not a fate unique to Macy’s, as other bricks-and-mortar retailers scramble to adjust to the whims of American shoppers.

What Macy’s does have going for it is real estate — a vast network of more than 600 stores across the country. Macy’s real estate, with an estimated value of $16 billion, is worth more than the company’s market value of $6.4 billion, according to an analysis by Cowen, the investment management and banking firm.

Many of its oldest stores are a developer’s dream — soaring spaces with ornate exteriors in the heart of major American cities.

“By any metric, there is a lot of value,” said Oliver Chen, a retail analyst at Cowen.

The Macy’s flagship store on 34th Street is worth an estimated $3.3 billion alone. The company has no plans to sell its Manhattan flagship, a tourist magnet that contains more than one million square feet of retail space, and spent $400 million on renovating it between 2012 and 2016.

Some analysts, though, say that what for many years was the “world’s largest store” doesn’t have to be so large and have suggested that the company redevelop some of the upper floors.

In other cities, Macy’s has already been selling off parts or all of its most distinct buildings. One of them, a former Meier & Frank department store in Portland, Ore., will soon house “creative” office space with a coffee shop and a gym.

The passing of Macy’s grand department stores into the hands of office and condominium developers reflects the tectonic shifts in the retail industry, where e-commerce has come to dominate a greater share of sales.

Perhaps the most vivid marker of that change is the conversion of much of the Macy’s store in downtown Seattle into offices.

The new tenant will be Amazon — the very force that is pushing Macy’s and other retailers to rethink the need for many of their stores. The e-commerce giant intends to move a variety of employees to 470,000 square feet of the Seattle building by next summer.

Macy’s had also taken over some prime real estate in Chicago — the former Marshall Field’s flagship store on State Street. Macy’s said it was selling the upper floors to create a “more productive” store.

Any redevelopment of the Marshall Field’s is likely to be sensitive. The store features treasured spaces that hark back to the golden age of retail, like a Tiffany-designed vaulted ceiling and the Walnut Room restaurant.

Amid discussion about downsizing the store, Macy’s has been careful to note in a statement that “dining in the restored Walnut Room, shopping beneath the Tiffany Dome and meeting under the Great Clocks remain treasured traditions for Chicagoans and visitors alike.”

While Macy’s old urban buildings may hold much of their grandeur and value, the more difficult task may be figuring out how to pare its network of suburban stores.

In January, the retailer named more than 60 stores it was closing — many of them in suburban malls, like the store in Alexandria, Va., which was sold this year.

The store closings and other cost-saving measures will allow the company to invest $250 million annually into its digital business and other growth strategies. Macy’s said the closings were expected to displace about 3,900 workers.

Over the long term, the Alexandria store will be part of a large commercial redevelopment. But over the next two years it will serve as a homeless shelter, with 60 beds.