Retail REITs Dip On Macy's (M) Store Closure Announcement

Shares of retail real estate investment trusts (REITs) took a hit yesterday as Macy’s Inc. (NYSE:M) revealed its plan to shut down 100 full-line stores. The decision was triggered by the retailer’s plans to reallocate investments in stores with high-growth potential and focus on its digital sales.

Though Macy’s did not divulge the precise list of stores it plans to close, the news worried investors about the adverse effect of store closures on the mall traffic, sales and, finally, the cash flow of mall landlords.

As such, shares of Simon Property Group Inc. (NYSE:SPG) , WP GLIMCHER Inc. (NYSE:WPG) and Pennsylvania Real Estate Investment Trust (NYSE:PEI) slipped 2.02%, 3.35% and 1.87%, respectively. General Growth Properties, Inc. (NYSE:GGP) , too, dropped 3.45% while Taubman Centers, Inc. (NYSE:TCO) dipped 1.98%.

Of late, customers’ shopping preferences and patterns are changing rapidly, with online purchases growing by leaps and bounds. Concerns over reduced footfall in the brick and mortar shops, amid this e-commerce boom, have also forced retailers to reconsider their physical presence. This, in turn, is leading several stores to be shut down.

In fact, in this new technology era, with retailers embracing the omni-channel concept, the retail real estate landlords are compelled to give a facelift to their malls, in order to lure customers. Their ultimate aim is to see higher demand for their space and, therefore, these firms are transforming their boring shopping hubs into swanky entertainment zones and distribution centers.

Retail REITs are also adapting to latest technologies to offer attractive services to their tenants and mall visitors. However, implementation of such measures requires a decent upfront cost and, hence, is likely to curtail any robust growth in profit margins of the retail REITs in the near term.

Currently, Simon Property, WP GLIMCHER, Pennsylvania Real Estate Investment Trust and Taubman Centers carry a Zacks Rank #3 (Hold), while General Growth Properties has a Zacks Rank #4 (Sell).