Department store giant Macy's (NYSE:M) controls a massive amount of real estate, thanks to its position as an anchor tenant in many of the largest U.S. malls. It also has downtown stores in a number of cities across the country.

This vast real estate portfolio could be worth as much as $20 billion -- more than Macy's entire enterprise value. Indeed, some of Macy's real estate isn't being used efficiently. The company has raised more than $1 billion in the past few years from selling various properties, and it is working on plans to sell more.

Nevertheless, there has been a haphazard aspect to Macy's asset sales in recent years. It would likely benefit from a more rigorous real-estate strategy.

There's no overarching plan

Macy's stores come in a wide variety of sizes and formats. In general, the variations don't bear much relationship to demand patterns. At many malls, there is a single Macy's store with 100,000 to 200,000 square feet of space. However, at some malls, the Macy's store is larger than 300,000 square feet -- or even 400,000 square feet.

The exterior of a Macy's store

Macy's stores come in all different sizes. Image source: Macy's.

Meanwhile, more than 100 malls have a second Macy's store in the mall or within a mile or two. Most often, the second location is smaller and just sells furniture. However, there are dozens of malls with multiple full-size Macy's stores, typically differentiated by merchandise category. (For example, one store might sell women's and children's merchandise, while the other focuses on the men's, home, and furniture categories.)

Aside from its mall-based stores, Macy's has a handful of prominent downtown stores in major cities. At the other end of the spectrum, it still operates smaller downtown locations in a few small towns.

To an outside observer, it might seem as if Macy's collection of real estate was assembled at random. That's not far from the truth. Macy's was created from a series of mergers over the past century that rolled dozens of once-independent department stores into a single national chain. These predecessor companies had different real estate strategies. Furthermore, many malls with multiple full-size Macy's stores came to be that way after Macy's acquired a competitor operating in the same mall.

Times have changed

Five years ago, Macy's was posting steady growth in both revenue and operating income as it recovered from the Great Recession. As a result, it didn't make sense for the company to rethink its use of real estate. By contrast, revenue has been under pressure for the past several years. Furthermore, a growing proportion of Macy's revenue now comes from e-commerce rather than in-store sales.

M Revenue (TTM) Chart

Macy's revenue and operating income data by YCharts. TTM = trailing 12 months.

With lower in-store sales, Macy's probably doesn't need as much floor space in each store as it did a decade ago. And whereas there used to be a strategic rationale to hold on to mall real estate to prevent a competitor from moving in, rival department store chains aren't looking to expand anymore.

Technological improvements could also reduce Macy's need for space in the future. Better inventory tracking may allow it to maintain lower inventory levels in its stores. Furthermore, Macy's is piloting virtual-reality-enabled furniture departments. This technology will help Macy's sell a full range of furniture in half as much space, according to CEO Jeff Gennette.

There must be a better way

"All real estate is local," as the saying goes. No large retail chain can have exactly the same size and layout for every single store. However, chains that grew organically tend to have a much more uniform store format than Macy's.

It stands to reason that there are best practices that would maximize Macy's sales per square foot and profitability. Either it makes sense to have furniture departments within full-line stores to encourage cross-selling and reduce costs, or it is more efficient to have stand-alone furniture stores in lower-rent locations. Having a mix of the two is the result of inertia, not any deliberate strategy.

The strong real estate market is giving Macy's a chance to raise cash by selling surplus real estate. For example, if Macy's doesn't need as much space for furniture going forward, perhaps it should downsize its stand-alone furniture stores and rent out the extra space. Alternatively, it could sell or sublease the stand-alone locations and move the furniture departments into nearby full-line stores.

Without access to the company's sales data, it's impossible to know what the best move would be. However, by analyzing its data, Macy's should be able to develop a real estate strategy that squeezes as much value as possible from its properties.

Adam Levine-Weinberg owns shares of Macy's. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.