Nine young retailers are coming together under one roof in New York to test a new, smaller-format mall, as the industry experiments with ways to draw in shoppers.
The space, called HiO, opens this week inside Acadia Realty's City Point shopping complex in downtown Brooklyn. It will include eight international retailers, some of which are entering the U.S. for the first time with this location: women's accessories line Parfois, travel items by Campo Marzio, sunglasses brand Hawkers, soap and cosmetics by Compagnie de Provence, embroidered bags by Emma Lomax, spa line L:A Bruket, candles and oil diffusers by Skandinavisk, and notebook line Moleskine. Makeup brand Winky Lux, which already has a presence in the U.S. and started in New York, will also be there.
"The market with the biggest opportunity to grow is still the U.S. for retailers," HiO co-founder Sever Garcia told CNBC.
There's still a lot of trepidation, however, especially from international companies, to grow in North America because of waves of store closures and bankruptcies, Garcia said. "These companies are cautious ... but they are interested." (CNBC reported earlier this year on a handful of international brands already starting to grow in the U.S., including three that are moving into the new HiO shop.)
HiO is owned by Direct Brands Group, a business formed in 2017 to serve as an intermediary for international businesses and e-commerce brands that are looking to open bricks-and-mortar locations in North America. A group of top former retail executives came together with the idea of opening up collaborative stores within some of the best shopping centers in the United States. HiO had been running The Edit at Simon Property Group's Roosevelt Field Mall, for example.
The co-founders are Larry Meyer, former CEO of Uniqlo USA and executive vice president of Forever 21, Garcia, founder and CEO of SGN Group, David Zoba, former global real estate head at Gap, and Herb Kleinberger, a lead retail consultant at PwC.
"There are concepts in the Middle East and Asia ... making it easier for foreign brands to come into the country, but that hasn't existed in the U.S.," Meyer said. "Our goal is to provide that background, making it easier for retailers to get a start and facilitating incubation as businesses evolve, and as the margin structures are more clear."
The first HiO space to open in the U.S. is about 1,900 square feet, but Garcia said 5,000 square feet is better. He said the company is already working on additional locations in North America, primarily in urban markets, that could open as soon as this year. HiO is receiving a lot of interest from top real estate landlords like Taubman and GGP, according to both Garcia and Meyer.
"The consumer is hungry for newness," Garcia said. "We think we are resolving an issue and creating a platform for brands that want to get into bricks and mortar."
With the amount of retail square footage set to go dark this year at a record pace, landlords are actively looking to refill empty boxes, which is where HiO hopes to step in and fill the gaps.
"There are a lot of headwinds, still," Acadia Realty COO Chris Conlon told CNBC. "But I do think there is a lot of enthusiasm to make retail centers more of a social element of communities."
The goal, according to HiO's co-founders, is to offer an element of discovery and surprise for shoppers. More and more, those are the only reasons consumers opt to get off their sofas, where they could otherwise place orders online.
"We have found more success in our real estate projects when we add more surprises — brands shoppers can't find anywhere else," Conlon said. "If we put in a typical [tenant], we would have disappointed Brooklyn and disappointed ourselves."