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Walden Galleria woes: Pandemic shakes WNY's strongest mall

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Walden Galleria (copy)

Walden Galleria is Western New York's strongest traditional mall, but even it has hit hard times post Covid.

As the retail apocalypse ravaged Buffalo Niagara's traditional shopping malls, the Walden Galleria seemed unscathed.

While the Boulevard, Eastern Hills and McKinley malls struggled with tenant departures, dismal consumer traffic and plummeting sales, the Galleria thrived and grew. By far the region’s strongest and healthiest mall, Walden Galleria had been spared the punishing brick-and-mortar realities that battered the region's smaller shopping centers.

And then Covid-19 hit.

Now, with retailers hit even harder by a coronavirus pandemic that has made shoppers less likely to venture out, the Galleria no longer enjoys such distinction. One of its anchor stores, Lord & Taylor, is closing, as the high-end clothing retailer goes out of business. Other smaller stores have either closed or have yet to reopen. The steady stream of Canadian shoppers the mall relies on has dried up with the border still closed.

Eat, shop – but play?

The Walden Galleria has weathered downturns before. But some of the things that gave them an edge in the past have been eroded since the pandemic: Offering entertainment beyond retail, rising to the top as customers' mall of choice and catering to Canadian shoppers.

An important component of the Walden Galleria's survival strategy is its "Eat, Shop, Play" business model. For the most part, Covid-19 precautions have hampered the "play" portion of the mix. Popular children's entertainment complex Billy Beez has not yet been allowed to reopen, and neither has bar and arcade Dave & Buster's. With movie theaters still closed, the mall's Regal Cinema also remains dark.

In past economic downturns, including the Great Recession, the mall was able to hang onto the affluent shoppers it attracts. But the current retail environment — the worst since the Great Depression — has devastated brick-and-mortar commerce universally.

When officials closed the border to recreational traffic in order to curb the spread of the virus, Canadian shoppers disappeared overnight. The Galleria counts on Canadian shoppers for an important portion of its sales.

Walden Galleria owner Pyramid Management Group declined to answer specific questions, but it noted some of those restrictions in a statement it sent.

"Taking into consideration those temporary hurdles, the trend is positive, and we and our tenants can look to the future with confidence," it said.

Pyramid also said it was "encouraged about the way that business has bounced back since many tenants within Walden Galleria were allowed to reopen" and that weekly customer traffic has "ramped up considerably."

"Our mix of offerings at the property will continue to evolve and grow stronger as we continue to bring in a diverse mix of exciting tenants with brands and experiences that we know our guests will love," the statement reads. "We will further cement Walden Galleria’s dominance in the region’s retail sector and continue to be an important economic engine that benefits the community at large."

Shoppers still reluctant

With positive test rates for Covid ticking higher in Western New York, many shoppers are still staying away, relying instead on online shopping and curbside pickup. One food court tenant said they have done less than a third of the business they would normally do this month.

Nationally over the past seven months, clothing and shoe store sales were down 36.5%, while department store sales, such as those at Macy's and J.C. Penney, were down 18.5%, according to the U.S. Census Bureau. Online and mail-order sales were up 19.8% over the same period.

Last week, the mall announced it would shorten its operating hours, opening at 11 a.m. and closing at 7 p.m. Mondays through Saturdays, instead of 10 a.m. to 9 p.m. It cited feedback from tenants and customers.

New York State's Covid reopening schedule, which left malls closed during all four phases, was another blow. As free-standing stores, restaurants and salons were given permission to reopen across Western New York, those inside Walden Galleria and other malls were left on the sidelines. When malls were given the OK to reopen, they were first required to invest in new heating and cooling filters. By that time, tenants had lost months worth of business.

Until just recently, malls were forced to rope off their food court seating, even though restaurants had long been allowed to sit down at dine-in restaurants. That left food court patrons sitting on the floor or propped up against garbage cans to eat. The governor recently relented and allowed malls to reopen seating, but at far reduced capacity.

Hard line with tenants

Even as the Galleria seeks more favorable terms with its own lenders, tenants say the mall refuses to negotiate leases to provide its similarly hard-hit tenants with relief.

Tensions are building, especially among small, locally owned small businesses and franchises, as tenants struggle to pay full, lump sum rent to cover the four months the mall was ordered shuttered by the state. Some stores, unable to earn sales while the mall was closed, and unsure of what the coming months might bring and said their only influence is to withhold August's rent as well, in hopes of negotiating more favorable terms. The Galleria has already offered better terms to its temporary tenants, according to a memo from the mall's manager obtained by The News, and permanent tenants are holding out for the same accommodations. Temporary tenants have more leverage to negotiate since they are able to leave without penalty.

A different tenant, Burger King franchisee James Cammilleri, understands his legal obligation to pay rent — especially since the mall is also in a difficult situation, he said. But he believes there is a middle ground that could help relieve the pressure that has been put on tenants through no fault of their own.

The mall could appeal to local government for real estate tax relief, of which tenants pay a portion, he said. Common area maintenance charges could be eliminated, since the need for maintenance was drastically reduced throughout the closure. And Cammilleri is unaware of any advertising efforts that took place during the closure, so advertising fees seem unfair as well, he said.

"All in all, rent is not the real issue. It’s all of the other charges imposed that do not make any sense," he said.

The Walden Galleria filed lawsuits this month against national retailers Victoria's Secret, Pink and Bath & Body Works for back rent totaling half a million dollars. All three are owned by the struggling L Brands and haven't paid full rent since March, according to the suit.

15 vacant storefronts

Since the pandemic, the Made in America store has closed, as have Jos. A. Banks, Justice, Arby's, Bravo Cucina Italiana, Cellino Plumbing and local favorite Sunshine and Bluebirds. Other stores — such as Gap, Alex and Ani, Lids, Dough Life and Cultured Home — still haven't reopened. The mall will also lose the Microsoft Store and New York & Co. when their corporations close all brick-and-mortar locations as they have announced they will.

Cacique, Tim Hortons, Parkside Candy, Hot Topic and Perfume Stop have reopened but were closed for at least part of the day during regular business hours last week. A Hot Topic worker said the store closes for employee breaks and lunch, because of a shortage of workers. A note on the entrance to Aeropostale said the store was closed for similar staffing issues.

The odd hours and patchworks of open and closed stores left some mall patrons confused.

"I thought it was kind of weird. I thought everything was supposed to be open," said Taylor Johnson of Amherst.

But, Pyramid notes, previously announced openings are still on track. Canadian fashion brand Ardene, Mandati Jewelers and Fresh Healthy Cafe are set for this week. Trampoline park Urban Air is slated to open at the end of the month, as long as the governor gives businesses of its kind permission to reopen. The highly anticipated LEGO store is scheduled to open Oct. 2, the same day as Earthbound Trading Co.. And Santora's Pizza Pub & Grill is destined for the mall's Restaurant Row on Nov. 1.

Not counting stores that have recently closed or are slated to open, there appear to be more than 15 vacant storefronts in the mall.

In August, word came that Pyramid Management Group was in danger of defaulting on the mall's $247.5 million commercial mortgage, which is now in special servicing.The mall is suing tenants for hundreds of thousands of dollars in unpaid back rent. It is losing giant anchor Lord & Taylor, which is in liquidation. Another two-floor anchor, J.C. Penney, is in bankruptcy with plans to close 200 stores.  And now the mall has shortened its hours.

Commercial real estate analyst firm Trepp, which first reported Walden Galleria’s danger of defaulting, noted that the mall’s shaky situation is similar to one playing out across the country.

“On the national level, the retail sector has been severely impacted in the recent months due to the pandemic,” said Jyoti Yadav, a Trepp research analyst.

Trepp data reveals that About 17.4% of retail CMBS loans were 30 or more days delinquent as of Aug. 26, more than double the previous record high of 8.14% during the Great Recession, according to Trepp data.

Charles Lindsey, a marketing professor at the University at Buffalo School of Management, said the pandemic is giving Walden Galleria a small taste of what it has had the fortune to escape for so long.

“Prior to Covid-19, flagship malls such as the Galleria haven’t struggled to retain anchor stores nor faced the precipitous reductions in foot traffic to nearly the same degree as regional malls," he said. "The pandemic though is giving formerly mighty flagships a glimpse of what life has been like for regional malls for the past decade plus.”

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