What the Future Holds for Shuttered Department Stores

Even before the pandemic portended a rapid-fire demise of brick-and-mortar retail, it was clear that struggling department stores—especially those in non-residential areas that rely heavily on foot traffic from office workers and tourists—needed a survival strategy. One of the most notable closures saw Neiman Marcus break its 50-year lease in Hudson Yards after a mere 16 months as the oft-maligned “Little Dubai” sat eerily deserted during lockdown. Related Group, which developed the complex, quickly started marketing the empty 190,000-square-foot space to office tenants. 

The closure brought up a major question: What will happen to these gigantic spaces formerly occupied by department stores? A recent CoreSight Research report predicts that 25 percent of America’s roughly 1,000 malls will close over the next three to five years, and beleaguered retailers and real estate developers have been scrambling to figure out what’s next. 

Facing its own closures, Saks Fifth Avenue seems to have taken notes from its competitors’ misfortune. Hudson’s Bay Co., the upscale department chain’s Toronto-based owner, announced it will soon start converting sections of its shuttered Saks and Lord & Taylor stores into WeWork co-working spaces thanks to a new partnership called SaksWorks. Five outposts (Brookfield Place, 611 Fifth Avenue, Scarsdale, and Manhasset in New York, as well as Greenwich, Connecticut) are scheduled to open in September before the program expands nationwide. Membership is $299 per month—the same as a WeWork All Access membership—with locations featuring a cafe, gym, and mobile furniture that makes for rearrangeable workstations.

While the success of SaksWorks remains to be seen, it seems like a strategic move from the outset. Demand for flexible workspaces has risen considerably during the pandemic, with WeWork leading the charge. According to WeWork chairman Marcelo Claure, demand has reportedly outpaced pre-pandemic levels. That dovetails with a recent survey of 9,000 workers by consulting firm Accenture PLC, which found that 83 percent of respondents see a hybrid-work arrangement as ideal. SaksWorks aims to capitalize on this trend, especially as the highly contagious Delta variant sees more companies delaying a return to office life. The company is also betting on suburban communities, where many workers are itching to leave the house without embarking on lengthy commutes to the city. 

Another possibility lies in cultural venues. When Barneys closed this past winter, the quintessential Manhattan department store left behind the skeleton of its swanky 230,000-square-foot emporium on Madison Avenue. Many were left wondering what would come of the nine-story, Peter Marino–designed flagship that once housed the largest store in New York City to open since the Great Depression. 

The world received an answer through Art Space, a flexible events venue that will house temporary exhibitions for fine art galleries based outside of New York. It’s the brainchild of TEFAF founders Michael Plummer, Jeff Rabin, and Geoff Fox, who launched the venture as a financial salve for smaller and mid-size galleries unable to keep up with an increasingly taxing fair schedule. Kulapat Yantrasast, founder of bicoastal architecture firm wHY, is reimagining the interior by incorporating offices and salon-style viewing rooms that allow dealers to host year-round programming. Art Space’s inaugural exhibition opens on November 4; the seasonal costume purveyor Spirit Halloween has set up shop there in the interim.

Amazon has taken a particular liking to forsaken department stores. Last year, the e-commerce behemoth was reportedly in talks to convert empty mall spaces into fulfillment centers. While those plans never quite panned out, news recently broke that Amazon is planning to open department store–style locations of its own in California and Ohio. The stores will reportedly be smaller than the average 100,000-square-foot Macy’s or JCPenney and hawk household goods, clothing, and electronics. It may seem like an odd course of action for an e-commerce pioneer to replace the very retail albatrosses it was instrumental in killing off, but the brand has recently found success through bricks-and-mortar groceries, bookstores, and Amazon Go convenience stores that stayed in business throughout the pandemic. 

Amazon is hardly the only tech giant to take interest in these mammoth retail spaces. In 2019, Google announced plans to convert 584,000 square feet within L.A.’s mostly empty Westside Pavilion—a once-premier shopping center whose heyday saw it appear in the 1995 cult hit Clueless—into its main campus in the city. Google enlisted Gensler to oversee the transformation, which involves the construction of folding glass walls and terraces to create an indoor-outdoor environment in a nod to the regional vernacular. 

Google plans to move into its new campus by early 2022, which might seem like unfortunate timing given how the Delta variant’s rapid spread has thrown a wrench in back-to-office plans. The company seems to be standing by its decision, which may be at least partially motivated by the project’s astronomical price, even though financial terms of its 14-year lease haven’t been publicly released. According to property brokerage CBRE, however, landlords in West Los Angeles ask for an average monthly commercial rent of $5.08 per square foot compared to the citywide average of $3.37. Being located in a flashy property in a prosperous part of Los Angeles near freeways and public transit may be enough to justify the price tag. 

Defunct shopping centers also attracted the gaming developer behind the ubiquitous Fortnite. Epic Games recently closed on the failed Cary Towne Center mall in North Carolina with plans to convert the desolate space into its global headquarters by 2024. Before the deal, developers Turnbridge Equities and Denali Properties purchased the struggling shopping center for $31 million after three of the mall’s anchor tenants shuttered. The two entities later unveiled plans for a massive mixed-use project that would include 1.2 million square feet of office space, 360,000 square feet of commercial space, 450 hotel rooms, and 1,800 multi-family residential units.

Of course, those plans are now off the table, and what led the developers to sell the 87-acre site to Epic Games remains unclear. While the company’s plans are still in the early stages, it intends to demolish buildings on the site to make way for new office buildings and recreational facilities that will accommodate its 2,000-strong workforce. Construction is slated to begin this year, but until then, the company will continue operating from its current location about three miles away. 

If the above examples are any indication, empty department stores are expected to find a myriad of uses as developers adapt to our increasingly digital times. Many of these projects are far off, however, and rezoning intricacies may very well present insurmountable hurdles that will ultimately leave big-box spaces sitting vacant for the foreseeable future. At least the folks over at deadmalls.com, a trusty blog that has documented the death of retail since 2000, will have an abundance of spaces to scavenge in the meantime.