Dive Brief:

• Amazon has the lease to the top six floors of Macy’s downtown Seattle flagship, the Cincinnati Business Journal reports. 

• As Macy’s moves to rationalize its massive physical footprint, which also entails shuttering some 100 stores nationwide, the department store is selling the top floors of its State Street full-line store in Chicago, according to the Chicago Tribune.

• Retail Dive's requests for more information from Amazon and Macy's weren't immediately returned.

Dive Insight:

Macy's isn't the icon it once was: Sales are falling, and, after several store closings in recent years, the company shed another 41 in 2015, with at least 100 additional locations slated to shutter by sometime this year.

Macy’s isn't alone. A lot of department stores these days are stymied by shifting demographics, changing consumer priorities and behaviors, confounding competition from Amazon and an enduring wage gap that's dampened spending. Moody's Investors Service a few times this year has singled out department stores as particularly challenged, even in a turbulent retail market. 

That challenge from Amazon makes the e-commerce giant's takeover of Macy's Seattle store feel right on the nose. Many Macy's stores are more valuable as real estate to be sold or leased than as retail operations. The company is grappling with an expansion from decades ago that has left it over-stored and ill-equipped to offer merchandise that shoppers find unique or exciting.

In 2005, department store operator Federated Department Stores (which changed its name to Macy’s in 2007) bought St. Louis-based The May Company, which itself had been amassing a series of department stores and retail chains throughout the West and Midwest, including most of the stores held by Dayton-Hudson, the parent company of a smaller discount chain called Target.

The value in its real estate led activist hedge fund Starboard Value to grab a stake in Macy’s in 2015, and begin dialing up pressure on the retailer to reduce its store footprint. Although Macy’s isn't the real estate company that, say, Hudson's Bay is, the retailer did respond to Starboard Value's pressure by naming a board member and an executive with real estate chops. In March 2016, William Lenehan, an expert in real-estate investment trusts, joined the board. Starboard ran out of patience, however, threw in the towel and sold its entire stake in Macy’s in March.

Macy's does also face some unique challenges even in the department store space. Its namesake stores in particular are neither discount retailers like Target or J.C. Penney nor luxury shopping destinations like Saks Fifth Avenue, so they’re muddling along in an ill-defined middle. At the same time, Backstage, an off-price effort Macy's launched in response to the continued success of retailers like T.J. Maxx, Ross, and Burlington, threatens to dilute its brand.

"Look at the growth rate of TJX and Nordstrom Rack," Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive. "That’s where [Macy's] market share is going."

These leases could be just the beginning of Amazon's encroachment into Macy's turf. This summer Jeff Glueck, CEO of location intelligence company Foursquare, suggested that the e-commerce giant could very well acquire rival Nordstrom, while other analysts have suggested Macy's as a more logical target.