Inside Asian Gaming

P 5 4 rada and other famous name brands have indicated they are willing to set up two or more outlets in Macau to take advantage of the tourist gold rush expected in the next few years. The amount of retail space in Macau is set to explode from a mere 330,000 square feet on the Macau peninsula and Taipa today, to six million sq. ft before the end of the decade, according to research by the retail developer Taubman Asia. It represents a rise of 1,718%. During that period, 23,000 new hotel rooms will also be built. The number of visitors to Macau grew by 18% last year to 21.9 million – more than half of the total coming from Mainland China according to the govern- ment’s Statistics and Census Service (SCS). At The Casino-Retail Story If the devil really does wear Prada, then he should soon feel perfectly at home in Macau that rate, the number of annual visitors will nearly double in three years. By comparison, neighbouring Hong Kong experienced a steady but more modest rise in tourist numbers, of 8.1% last year. The amount of new retail space coming on to the Hong Kong market this year and next is only 177,000 sq. ft according to Hong Kong’s Rat- ing and Valuation Department, though that city is starting from a much more mature market.It has 34.1 million sq.ft of commercial space – much of it retail. Taubman Asia estimates the amount of retail space per Macau hotel room will rise from 26 sq. ft last year to 184 sq. ft by 2009. Retail space is one thing, but earnings per sq. ft of retail space are a more reliable indicator of economic success. Earnings dilution ahead? Some observers have suggested the extra capacity will dilute earnings per store. Early reports from the 12 luxury brands that set up home in Wynn Esplanade – the arcade of shops at the Wynn Macau casino resort that opened last September – seem to contradict this. Morgan Parker, President of Taubman Asia says:“We take considerable solace from the experience of Wynn. It’s not a large proj- ect, but it’s 12 great stores – all of them set- ting records across Asia for their performance and it’s the beginning of the story.” Taubman has a vested interest in re- searching the market, as it recently took a 22% stake in the retail portion of the US$2 billion Macao Studio City on Cotai. Work has begun on the site and Taubman hopes the retail development will be completed by mid-2009. Mr Parker says: “We haven’t reached the stage yet where we can announce names of retail partners, but we are working with all the world’s luxury names. In the last few months it’s become a bit clearer as to what our positioning is – so it’s news that we’re ac- tually premium.We had to go through a lot of evaluation of opportunities in Macau looking at the spending patterns of people before we arrived at this size and this positioning.” In many business sectors, being first to market can give a decisive advantage. By that measure, Steve Wynn has the drop on his rivals in Macau’s luxury retail sector af- ter persuading Chanel, Christian Dior, Fendi, Giorgio Armani, Louis Vuitton, Prada, Tiffany & Co., Piaget and Bulgari to set up shop at Wynn Esplanade. Mr Parker from Taubman suggests though the reality of Macau’s retail market is more complicated. He says:“A lot of those retailers that have already committed to go into Macau retail sites are saying to us‘Surewewill open a store in DFS that might be 300 sq meters or 200 sq. m. but we would like to open a store in yours of maybe 800 sq. m.’ Retailers are looking at how they’re going to use each project.” Density of outlets He explains:“Hong Kong has 11 Louis Vuitton outlets, which is really quite extraordinary. That sort of density can only happen in cities like Hong Kong, and in casino environments. These are the only two ways you can support such a density [of outlets]. “In Macau we’re seeing retailers commit to stores, and seeing them open more stores in more projects. Louis Vuitton for example, has already got three commitments just on the Macau peninsula. One is at the Mandarin Oriental, as well as the outlet at Wynn. Before Louis Vuitton even opened in Wynn they committed to the Hongkong Land project at One Central – for a flagship store. Citing the Louis Vuitton example, Mr Parker says the retailers’multiple outlet strat- egy is to have flagship stores selling a wide range of products, including shoes, ready to wear and large luggage items, plus smaller network stores carrying accessories. He says:“Those larger flagship stores you would think on a per meter or per foot ba- sis would do less business, but the reality is they become destination stores.It becomes a self-fulfilling prophecy that the flagship does more business and productivity does not go down. Critical size “When you increase size of a store, it allows you to stock more merchandise and increase the probability of a transaction. However, there is a very sensitive point where if you go over a certain size, you can start to see pro- ductivity dilution. These days retailers don’t tend to make that mistake too often. “You can see the retailers understand the opportunities and are getting excited about them.They are opening multiple stores close together because they feel confident about the density of spending. “This is because the volume of people passing through is so high. In Macau there are projects potentially attracting 20 to 30 million people per year. The sheer volume of people, the extended trading hours the ven- ues enjoy – 24-7 very often – and the money to be made in these environments means the retailers want to have more points of distri- bution. “Another factor is that these casino proj- ects are almost like cities in their own right. It makes retailers feel they want to be rep- resented in each one of them and think of each one as its own market. People can go into one of these casino resorts and spend a whole day there. In Las Vegas, some people don’t come out of them for a week.” Cotai capacity Half the new retail capacity in Macau will be provided by Las Vegas Sands Corp (LVS) on The Cotai Strip™, its US$14 billion city-sized development on reclaimed land north of the Macau peninsula. It features The Vene- tian Macao Resort Hotel, a scaled up version of the company’s famous Las Vegas resort, The Venetian. The complex will have its first phase opening in July. Earlier this year LVS said it had signed up 400 retailers for its on- site shopping complex, known as Grand Ca- nale Shoppes, which will have a million sq. ft of active retail space on three floors. In addition, there will be an 86,000 sq. ft mall from DFS at the Four Seasons Hotel on the Cotai Strip™ site, including plans for a 3,000 sq. ft Prada store, to complement the brand’s 2,000 sq ft outlet at Wynn Esplanade. Sebastian Suhl, Prada’s chief executive officer in Asia, indicated recently the brand could even open a third store in Macau next year, but has not confirmed the details. This multiple-outlet approach is already familiar to Hong Kong shoppers, but a nov- elty in Macau. Singapore and Hong Kong took decades to build themselves into world famous shop- ping destinations. Macau plans to become a shoppers’paradise almost overnight – and all without even a whisper of a suggestion of a sales tax, thanks to the government’s healthy bank balance resulting from the millions of US dollars paid in tax annually by the gaming industry. The reality of course, is that without all the new casinos, the shops wouldn’t be com- ing at all. Retail therapy is an integral part of the business plan of LVS and other foreign in- vestors to change Macau from a destination for low-spending day trippers, to a holiday resort for high-rolling jet-setters and conven- tion delegates just as interested in trawling the malls as in crowding around the baccarat tables. Macau’s retail potential Total retail spending in Macau is currently a tiny fraction of the amount generated in Hong Kong – 2.9 billion patacas (US$362.5 million) in the fourth quarter of 2006 com- pared to Hong Kong’s HK$56.2 billion (US$7.2 billion) in the same quarter says Helen Mak, Senior Associate Director at property consul- tants Colliers International, in Hong Kong. Research from Hong Kong shows that people who stay overnight spend more money, even when hotel costs are left out of the equation. Last year, 51% of Macau’s visitors were day-trippers,mostly from China, spending on average only 522 patacas (US$64.79), accord- ing to Macau’s SCS. By contrast only 37.3% of Hong Kong’s tourists were same-day visitors, spending on average HK$1,015 (US$130). The 62.7% of Hong Kong visitors who stayed at least one night in a hotel spent HK$4,799 (US$ 611) on shopping – 78% of it on cloth- ing and cosmetics, according to figures from the Hong Kong Tourism Board (HKTB). Chinese citizens staying overnight in Hong Kong were on average from higher so- cio economic groups than day-trippers. A total of 60% of them were college or university graduates, 37% of them were in the prime 26-35 age range targeted by marketers for their disposable income and fondness for branded goods, and 63% were travelling with a companion – ideal for driv- ing spending on shopping and restaurant The mall at Wynn Macau