Owners of struggling malls have added medical clinics, offices, even amusement-park rides in an effort to resuscitate a fading retail model.
Now, China Lesso Group Holdings Ltd. , a maker of pipes, building materials and home-furnishing products thinks it’s hit on a winning formula: Mixing manufacturers’ showrooms that sell lighting fixtures, floor tiles and kitchen cabinets with traditional mall chains such as the Gap and Cheesecake Factory.
The Hong Kong-based company is in the midst of a $25 million renovation of what was the Mall at the Source in Westbury, N.Y. The firm aims to recast the long-ailing retail center as a home-furnishings marketplace for design professionals, contractors and retail buyers—with a big food and entertainment component for local shoppers.
Redubbed Lesso Home New York Market, the mall with its collection of showrooms would be the first of several that Lesso hopes to roll out across the U.S., and eventually in other countries. Lesso has a site in Frisco, Texas, almost twice the size of the Westbury property that is in the approvals process for a mixed-use development that includes showrooms, as many as 1,200 apartments, and retail, office and hotel space, according to public documents.
“That’s what has been done in China,” said Michael Mai, Lesso’s New York general manager. “In the same space, you can have both, and you can find a way to serve both sets of customers.”
Mixing wholesale and retail is hardly a common turnaround strategy. Retail real-estate consultants and brokers said they can’t recall anyone else trying this approach in the U.S.
But the concept isn’t all that surprising. The growth in e-commerce has forced traditional brick-and-mortar retail chains to close stores as they expand their online operations. Mall owners have been dressing up properties with food and entertainment venues and experiences that aren’t so easily replicated online.
While some malls in well-located, dense affluent areas have maintained strong occupancy rates, lower quality malls have suffered from store closings. The vacancy rate for malls in the U.S. reached 8.6% in the second quarter of this year, up from 8.4% in the first quarter, and the highest level since 2012, according to real-estate research firm Reis Inc.
A major hurdle for enclosed malls is that the merchandise mix has long been based on a model rooted in a concept anchored by department stores, said Melina Cordero, Americas head of retail research for real-estate services firm CBRE Group Inc.
“We are talking about a mall model built 70 years ago, based on consumption patterns from 70 years ago,” Ms. Cordero said.
The tough environment for many retail properties didn’t drive the timing of Lesso’s plans to launch its home-furnishings showroom concept in the U.S., but it certainly helped, Mr. Mai said. The Long Island property, which has more than 700,000 square feet of retail space, consists of the former Mall at the Source and the adjacent, connected building that once housed a Fortunoff jewelry and houseware flagship store.
The Westbury mall had been in decline for the past decade, despite its location in a dense affluent retail hub on Long Island. Many retail consultants said it had design flaws that stymied foot traffic. Several years ago, lenders took ownership after a failed foreclosure auction.
Lesso purchased both properties, which are located near Roosevelt Field, one of the country’s top-performing malls, for $92 million last year. The mall is largely vacant now, and Lesso expects to complete its makeover early in 2019.
“With all these headlines and reports of the decline of American retail and the mall emerging, this legendary property in Westbury became available at a reasonable price,” Mr. Mai said.
The company’s Lesso Home concept intends to provide a physical market where Chinese and international manufacturers, including Lesso, can display their interior-decor products and building materials.
Lesso aims to cater to trade customers, including buyers for retailers and designers, in places where home building and renovation are strong such as Canada, Australia and the United Arab Emirates. The company, which will also offer these customers business services, designed its Lesso Home division to help small- and medium-size firms expand overseas and extend the reach of their brands.
Lesso also plans to create a more welcoming environment, adding an open lawn for people to hang out that would feature food trucks and events, and improving the facade with more glass, perforated metal and bright orange palettes.
The company plans to have a food hall or marketplace highlighting authentic Chinese cuisine and gourmet food at the mall’s entrance. Lesso drew inspiration from Manhattan’s Union Square farmers market, Mr. Mai said.
The new design, which is expected to be completed in the first half of 2019, will add entrances and connect parts of the mall that had been separated. Some of the few remaining tenants such as Cheesecake Factory, which has extended its lease, are expected to remain.
Mr. Mai hopes the mall will reclaim its place as a gathering spot for the community.
“People need a place to get together,” he said, “right now it’s the iPhone, but we want it to be Lesso Home.”