Macy’s plans to shutter 100 stores have put $3.64bn in securitised mortgage bonds at elevated risk of impairment, according to analysis from Morningstar, with a further $21.36bn of loans to malls being exposed due to Macy’s being a flagship store in the malls.

Large department store chains like Macy’s have been hit hard by the growth of e-commerce, with shoppers increasingly choosing to buy online rather than go to physical stores, and the rise of off-price retailers like TJX Cos, that offer branded items at steep discounts, write Joe Rennison and Mamta Badkar in New York.

The Ohio-based company, which has come under pressure from activist investors to unlock value from its vast property holdings and has already closed 36 locations this year, said earlier this month that it plans to close a further 100 stores. While it did not disclose the locations, Macy’s did say the stores it was eyeing had real estate values that exceeded their value as retail stores.

Commercial mortgage backed securities (CMBS) take mortgage loans and bundle them up into a bond that pays out interest to investors from the payments made on the loans.

Loans directly to Macy’s that are in CMBS total $7.13bn but loans to malls are also at risk because the closure of Macy’s as an “anchor” store in the mall could jeapordise the future of the entire mall. The loan of greatest concern the report said is backed by the Cottonwood Mall in Albuquerque, New Mexico.

From the report:

Strategic store closures are necessary and positive according to Morningstar, Inc. senior equity analyst Bridget Weishaar’s Aug. 11, 2016, Analyst Note. Macy’s needs to align the historic store base with modern day e-commerce trends, and the latest round of announced store closures “will go a long way to improving profitability levels and focusing investments on higher return opportunities,” noted Weishaar. She then said, however, that “Macy’s lacks a moat and is in a sector experiencing secular decline.”

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