M Macys Inc

By Esther Fung and Kris Maher 

STEUBENVILLE, Ohio -- The Fort Steuben Mall in this former steel town on the edge of the Ohio River is battling a double whammy of store closures that have thrust it into a fight for survival.

On one side of the mall is an empty space that housed a Sears department store and automotive center until the struggling retailer closed the location last June.

On the opposite side sits a Macy's set to close in early spring, the retail chain said early this month, as part of 100 closures announced last summer.

Together, the two anchor locations make up 37% of the property's leasable space.

Fort Steuben Mall is being swept up in a wave of store closings that is buffeting landlords across the U.S. Specialty retailers such as the Limited and department stores such as Sears and Macy's in recent months have announced plans to close hundreds of stores nationwide and slash jobs as online shopping takes a growing share of revenue.

The rise of online shopping has created tough times for the traditional retail model, said Stephanie McVicker, general manager of the Fort Steuben Mall for its owner, DLC Management Corp.

Malls in smaller U.S. cities are often linchpins of local economies and their struggles can have a ripple effect, from jobs and tax revenues to the fortunes of logistics and transportation companies that provide trucking and inventory support for stores. Creditors who invest in mortgage securities tied to troubled malls face the risk of default.

Now the 43-year-old Fort Steuben Mall faces a spiral in which fewer shoppers could lead to more store closures, which could lead to still fewer shoppers, and so on, analysts said.

"In weaker malls sometimes you see an anchor blow out, and then another anchor blow out," said Steve Kuritz, managing director at Kroll Bond Rating Agency, who studies distress in commercial mortgage-backed securities. "It's a binary situation where strong malls continue to do well and then there are malls that are duds."

An appraisal of Fort Steuben Mall last March, before the Sears closure, by property consultancy Cushman & Wakefield noted that the mall's in-line occupancy rate, or that of non-anchor stores, declined to 54% from 68% over the past four years.

Three anchor stores remain open at the mall: Wal-Mart, the largest; along with J.C. Penney and a stand-alone Dick's Sporting Goods across the parking lot.

But the departure of two anchors within a year is a tough blow. It typically takes landlords one to three years to redevelop big retail spaces, and they usually know in advance when a store is closing due to low sales.

"It becomes more challenging if you have four anchors and two are closing," said Mark Hunter, managing director of retail asset services at real estate services firm CBRE.

At the Scent Shop, a retailer of candles and home crafts near the old Sears at Fort Steuben Mall, foot traffic and sales fell between 30% and 35% after the Sears closed, according to the store's manager, Amanda Vargo. She expects both measures could fall another 50% after Macy's shuts its doors.

"I see things falling like a domino effect by summer," she said. "We all feel like our jobs are in jeopardy."

The closures in turn could weigh on the economy of this city of about 18,000 that sits 40 miles west of Pittsburgh. Sears employed 53 people. The Macy's store has 59 employees.

"It's very, very sad," said Jamie McCallister, a Macy's jewelry associate who stood behind a glass case of gold and silver chains and earrings as a liquidator earlier this month walked through the store adding discounts to individual products. "I'm just heartbroken."

DLC purchased the mall for $43 million in 2006, just before the recession. Since then, the mall has suffered from store closures including apparel retailer Steve & Barry's, Waldenbooks and Toys "R" Us.

Kroll now values the mall at just $7.4 million, taking into account the coming loss of Macy's. It projects creditors face a loss of $31.3 million.

When Fort Steuben Mall opened in 1974, it benefited from the growth of the steel mills in the area. As the steel industry shrank in the 1980s and plants from Wheeling-Pittsburgh Steel closed, the population in the area dwindled, and the mall's fortunes began to turn.

Terri Hutton frequented the mall regularly in the 1970s and 1980s to buy clothes for her children.

"Any store you can imagine to go to was here," said Ms. Hutton, a 60-year-old auctioneer who lives 25 miles to the west in Cadiz. Once, she said, she came to hear a young Tanya Tucker perform her hit song "Delta Dawn" beneath a skylight at the center of the mall.

Today, that same atrium has a barren look. The beige carpet is worn and two facing storefronts, former jewelry stores, are empty.

The last time the mall signed a new tenant was in April when a Mexican restaurant inked a lease for a 3,286-square-foot space, according to DLC's website.

"I'm guilty," said Ms. Hutton, acknowledging she rarely visits the mall these days. Now that her daughter does much of the family's shopping online, she comes to the mall maybe once a year, she said.

The mall operators have tried to boost foot traffic by hosting church concerts, gingerbread cookie decorating events, pet adoption drives, book signings and fundraisers.

Patricia Maple-Damewood, president of the Jefferson County Chamber of Commerce, said she plans to send a letter to Macy's executives asking them to reconsider closing the store, adding that a nearby university, small manufacturers and shoppers from West Virginia and Pennsylvania support a strong customer base for the mall.

The mall's leasing department has received calls from parties interested in the two anchor locations and they aren't traditional retailers, said Ms. McVicker, who declined to name them. She added that call centers and medical supply companies have filled similar vacancies at other malls.

"I'm certainly confident that the mall will stay open," she said. But she acknowledged the urgent need to find new tenants.

"You don't want to have empty space," she said. "It doesn't give out a lot of confidence."

(END) Dow Jones Newswires

January 19, 2017 09:14 ET (14:14 GMT)

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