Scientific Game

Retail review

In years gone by retail was an afterthought for an Asian integrated resort. But with the rising Chinese middle class and its voracious appetite for brands, retail is as crucial as any other non-gaming element. How is retail shaping up in Macau’s new normal?

Tuesday, 15 December 2015 15:14
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IAG recently sat down with Gloria Siu, Galaxy’s Assistant Vice President of Retail, for a chat about how Macau’s retail sector is faring. While Siu was quick to clarify her words represented her own personal point of view rather than her employer’s, they nevertheless provide interesting insights to the retail sector. 

IAG: How is the general level of retail sales now compared to what it was before the gaming revenue plunge? Gaming revenue is down over 30%, is retail the same? 

Gloria Siu: With the recent macroeconomic effects and government policies, in general retail business has dropped compared to last year. Unlike gaming, retail is a big word and has a wide range of components, including the “luxury”, “affordable” and “must-buy” product mix. Most of the drop in gaming has come in the VIP sector. In such an environment, customers tend to spend less in luxury, maintain affordable purchases and increase buying must-buy products. Also some shops and brands benefit from differences between Hong Kong, Macau and China, such as tariff differences with duty free goods, quality assurance differences (think baby products, healthcare and drugs) and daily price variation such as with gold. 

IAG: How have the new openings of Galaxy phase 2 and Studio City affected retail in Macau?

Gloria Siu: The new openings of retail portfolios offer a wide range of choices to both locals and tourists. Quite a few international brands have entered Macau for the first time. With environmental and political policy changes, Macau is stepping into a “new normal”, which means apart from gaming as the major revenue, non-gaming sectors such as retail and MICE are playing more important roles. The increased diversification is a healthy and positive direction that Macau is heading in.

IAG: Are the tastes of the mainland visitor maturing compared to a few years ago?

Gloria Siu: Definitely. The middle class clusters have been growing rapidly with China’s booming economy in the past few years and Chinese people’s brand awareness is growing. More and more shopping malls are opening in China with international brands and Chinese people travel more to Hong Kong, Macau and destinations outside China. Visa requirements for travelling Chinese are relaxing. A few years ago Chinese people might look for brands with big logos that are easily recognizable on the street to show off, but now they are looking for subtle luxury symbols that makes them feel different. Things like luxury designer labels, limited editions and so on. While there is no doubt the overall brand awareness of mainland tourists in Macau is still behind those from Hong Kong and Macau – especially with more and more mainland tourists from second and third tier Chinese cities entering Macau – catching up the gap won’t be too far away given all the rapid changes in China.

IAG: There are plenty of high-end offerings in retail for the VIPs, but what about midrange for the growing mass floor player?

Gloria Siu: Types of retail offerings are all about supply and demand. Usually retail mix positioning and planning is implemented and confirmed before retail professionals approach retail brands to come into the malls. The whole planning, leasing and opening process generally takes around two to four years. Therefore, what you see now reflects the market demand two to four years ago, which explains why there are plenty of high end offerings for VIPs in the current retail mix at most malls. With the “new normal” market, I believe the retail mix will be inclined to become more affordable. However, the retail mix also depends on the whole positioning of the property and its branding. If the property’s branding is still VIP-oriented, the retail mix will follow. If the retail area is big enough, it would be ideal to have a full range of offerings to cover all clusters.

 

IAG: What specific difference are there doing retail in an IR setting compared to normal retail say in Hong Kong or Shanghai for example?

Gloria Siu: The three golden rules in retail mall value are location, location and location. In Macau? It’s gamers, gamers and gamers! Well, at least it still is right now. In a normal retail industry, rental income is the major revenue for a mall, therefore everything is retail leasing oriented, while in Macau, retail is a relatively small proportion compared with gaming, therefore things are more gaming oriented. It shows in many ways. The first is mindset, which is not how other business and operations would help retail, but how retail would help gaming. Then there is marketing, in that different target customers decide different marketing strategies and promotion and membership systems. The population and customer bases are more versatile in Hong Kong and Shanghai – there’s a bigger pie for differentiation. Properties in Hong Kong and Shanghai are normally a mix of office and retail or residential and retail, where office workers and residents are regarded as providing important spending power in the mall, while in Macau it is mostly IR and tourist-oriented. Then you have HR factors, it is more difficult to get retail professionals and qualified staff in Macau, which limits some good brands or interesting concepts from entering Macau. In places like Hong Kong and Shanghai you can easily find lots of interesting designer or niche brands – not so easy to do in Macau!

IAG: How are retail space deals struck between the retailer and the concessionaire? Typically what’s the mix between fixed cash monthly rental and percentage of sales? Has this been changing over the years?

Gloria Siu: Normally a typical retail lease has a fixed rent and a turnover rent, with the retailer paying whichever is higher each month. However, every landlord is different and every deal is different, depending on how you negotiate and the attitudes of both sides. It has not changed too much over the years in the Hong Kong and Macau markets.

IAG: We’re hearing Hong Kong is getting a bad reputation with mainland tourists with analysts predicting much lower growth rates in the future. Is this a boon to Macau retail?

Gloria Siu: It can be a risk or an opportunity to Macau. The risk side is that tourists may choose to come to Hong Kong and Macau on the same trip. If the number of tourists entering Hong Kong decreases, it might affect Macau too. The opportunity side is that if Macau can offer better hospitality and customer experiences than Hong Kong, together with entertainment, gaming and other elements, Macau might benefit from the current Hong Kong situation.

IAG: Will greater critical mass of retail on Cotai propel Macau into more of a shopping destination in the minds of tourists? Could it help extend the average stay in Macau?

Gloria Siu:Cotai is becoming the shopping destination for tourists, although it still has a lot to improve to catch up with Hong Kong. I don’t think shopping alone can help extend the average stay in Macau. Tourists won’t stay in a city for three days or more purely for shopping. Instead, if Macau offers more attractions, entertainment, resort facilities, F&B and places of interest combined with shopping, it will significantly help to extend the average stay.

 

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