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Retailing: Integrated resorts’ non-gaming gorilla, revenue second banana

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Shopping attracts visitors, creates links with famed global brands, underpins loyalty programmes, provides local spice and extends visits. But, like other non-gaming IR amenities, its profitability pales in comparison with gaming, Muhammad Cohen writes.

Retailing looms larger than ever in integrated resorts. Playing the shopping card has succeeded brilliantly across Asia’s casino industry, delighting operators, customers and authorities demanding tourist appeal beyond gaming. 

IR malls have transformed Macau from retail desert to shoppers’ paradise, carving a vital channel for mandated non-gaming diversification. In Singapore, South Korea and Malaysia, retailing provides vital outreach to local citizens who can’t freely enter casinos in three of the region’s per capita wealthiest casino jurisdictions, a role to be reprised in Japan. Across Asia, retailing can set a tone to distinguish a resort from rivals.

With retail such a significant IR component and natural complement to gaming, it’s hard to believe casinos and shopping weren’t always paired.

“Four decades ago, a simple gift emporium nestled within the confines of an Atlantic City or Las Vegas casino could effortlessly outshine the revenue generated per square foot by the illustrious Bloomingdale’s flagship in bustling New York City,” renowned resort designer Paul Steelman says.

“It was merely a question of when before the retail landscape flourished within the alluring embrace of integrated resorts.”

Hail Caesars

“When” arrived spectacularly in 1992. “The Forum Shops at Caesars Palace marked a sea change in the role retail played,” Klebanow Consulting principal Andrew Klebanow says.

“From the start, The Forum Shops not only redefined retail as part of the gaming and vacation experience but reshaped the design of shopping malls by adding thematic and entertainment elements. The Forum Shops was highly themed, even boasting animatronic statues that performed at the top of every hour.”

The Forum Shops’ first Spago outside Los Angeles pioneered Las Vegas for celebrity chefs. 

By 1999, when Las Vegas Sands founder Sheldon Adelson debuted Venetian on the Strip, retailing was an established IR element. So naturally, Sands’ supersized Venetian in Macau included a mall modelled on Venice’s Saint Mark’s Plaza, complete with gondoliers serenading passengers poling down a replica Grand Canal.

“Astonish and delight all”

“The retail concourse must incorporate an entertainment-driven theme and design, enhancing the overall guest experience,” Steelman says. “Any retail project must aim to astonish and delight all shoppers and diners, promising to offer an even more immersive and entertaining shopping environment.”

At more than one million square feet, The Shops at Venetian nearly quadrupled Macau’s premium retail space overnight, a gamble despite Sands’ Vegas experience.

“The [Venetian Macao] retail component was not only based on the learnings from its success in Las Vegas but also from the appetite for retail within the Asian market, known for its propensity to spend,” Sands China senior vice-president of retail Timothy Jones tells iGB. 

“The government’s vision was to make Macau a global tourist destination and retail was a key driver among the non-gaming components.” Hong Kong’s success as a regional shopping hub bolstered Sands’ confidence.

Retail worked so well that Sands China upped the ante to two million square feet and 850 stores: Shoppes at Four Seasons, focused on luxury with the group’s highest sales per square foot; The Londoner (formerly Sands Cotai Central) with appropriately English and family fun touches; and The Parisian, featuring “younger premium brands new to Macau”, Jones says, all malls linked via elevated walkways.

“These are not just malls, but unique shopping experiences with Streetmosphere performers lighting up the ambience with shows and appearances, each unique to the theme of its property, for example, gondoliers in Shoppes at Venetian and can-can performances within Shoppes at Parisian. The retailers selected are carefully curated for each, while the malls also complement each other.”

Retail rebound

Macau retail has recovered from the pandemic more quickly than gaming. For Sands China, retail revenue in this year’s third quarter surpassed 2019, while gaming revenue was 79% of Q3 2019. That beat market GGR at 69% of 2019, perhaps abetted by Sands’ retail plus its longtime mass market orientation in Macau’s post-junket era.

Every Cotai property has retailing. Galaxy Macau, Wynn Palace, Melco’s City of Dreams and Studio City and SJM’s Grand Lisboa Palace feature fully fledged shopping malls, the latter with Cotai’s first supermarket in its NY8 New Yaohan department store, defying conventional wisdom.

“IR retailing tends to target high-end spenders so their trade mix would be watches, leather goods, jewellery and high-end F&B,” Macau senior manager of leasing for commercial real estate giant JLL Matt Kou says. The supermarket fits a niche as mainland China visitors to Macau seek food items as souvenirs. 

Kou also explains why the same brands inhabit multiple Macau IR malls. “Even though Macau is a small city and most IRs are located in close proximity, they are not well connected. Different IRs are like islands. People tend to buy goods nearby in walking distance, so brands tend to set their footprints in different resorts.

“Only established brands that tend to carry a certain gravitas would be provided the opportunity to open more than a single location within [our] four malls,” Sands China’s Jones says. Unlike many IR operators, Sands selects its own tenants, although Shoppes at Four Seasons operates as a DFS T Galleria.

Betting on luxury

In Singapore, Sands entered a famed shopping destination. Opened in 2010, The Shoppes at Marina Bay Sands brought a “game-changing, all-encompassing, under-one-roof business, dining and leisure concept,” MBS senior vice-president of retail Hazel Chan says.

From 2012, MBS doubled down on luxury. “This vision was conceived at a time when the mall was witnessing demand from luxury retailers to expand their footprint, so that they could offer a full range of collections to their customers in the region,” Chan explains, “which led to a three-year retail remix to realign and reposition The Shoppes as a luxury shopping destination.”

The revamp and its wake increased the number of duplex outlets from three to the current 19, replaced the skating rink with Teamlab’s immersive, interactive Digital Light Canvas attraction and converted one of the mall’s two theatres to Tao Group nightlife concepts Koma and Marquee.

“Being part of an IR allows us to leverage the global nature of clientele Marina Bay Sands welcomes to its multifaceted attractions, from leisure tourists and MICE delegates to Broadway musical lovers and gourmands,” Chan says.

Sands retailing boasts operating profit margins that can exceed 90%. But financially there’s less than meets the eye, Apple Brook Consulting COO Michael Zhu says, since retailing profitability pales in comparison to gaming.

“On a per square foot basis, revenue from gaming operations far exceeds that from retailing, or virtually any other IR component,” Zhu, whose boutique practice specialises in GELATO – gaming, entertainment, lodging, amusement, tourism and other leisure industries – explains.

Non-gaming attributes

Marina Bay Sands bears that out. In the third quarter, The Shoppes at MBS delivered net revenue of US$68m from 616,699 square feet of gross leasable area. MBS Q3 casino net revenue was $698m from 161,459 square feet of gaming space, 69% of MBS quarterly revenue of $1.02bn from 2.6% of its area, compared with mall operations’ 7% of revenue from 9.8% of area.  

MBS casino revenue was US$4,323 per square foot, mall revenue $110. Other non-gaming amenities are even less profitable. According to Sands’ Q3 earnings report, MBS conventions’ 1.3 million square feet delivered revenue of $35m, $27 per square foot, 3.5% of revenue from 20.8% of IR area. Occupying an estimated 40% of area, hotel rooms’ $125m represented $50 per square foot and 12.3% of revenue.

Non-gaming is about more than profits, of course. Most Asian jurisdictions encourage, if not compel, IRs to include numerous non-gaming amenities. Hotel rooms give customers places to stay. Conventions bring midweek customers to fill rooms and spend, often on their company tab. 

Retailing, Zhu says, “attracts robust foot traffic including those who would not otherwise have made a visit to the IR. Retailing can also help extend the length of stay at the property and realise marketing synergies, as well as other cross-sale opportunities with other IR components.” Shopping is the best topping for gelato.

Local market passport

To succeed in South Korea with casinos requiring foreign passports for entry, Paradise City in Seoul satellite city Incheon leverages its Plaza mall to tap local wallets. “Plaza is filled with highly preferred brands that customers find worthy of their time to make the trip and this in turn has become a crucial factor in nudging customers to stay longer for the full experience and to make repeat visits,” a Paradise City official says.

It includes K-Style with rising local designers, K-Beauty and K-Food with popular restaurants in its food court, aimed at the domestic market plus visitors from adjacent Incheon airport, South Korea’s international gateway.

“Plaza also embodies the ‘Art-tainment’ value proposition at Paradise City,” the official adds, combining original artworks amid shops and throughout the IR, a gallery featuring local and international artists plus travelling exhibitions and Hallyu (Korean Wave) events in its Agora inspired by the Piazza della Signoria in Florence, Italy.

Mohegan Gaming and Entertainment, operator of the massive Mohegan Sun between New York and Boston and six other resorts in North America, will soon begin opening its Inspire IR in Incheon.

“We strive to bring the best practices from our US operations to the Korean market but in a way tailored to the unique market dynamics. In our planning, we have extensively researched Korea’s consumer behaviour to ensure we provide a localised touch,” MGE CEO Ray Pineault says.

“Mohegan aims to collaborate with local artisans, brands and culinary talents to infuse a touch of Korean culture into our offerings, ensuring guests have a unique experience that they can’t find elsewhere.”

As in the US, the mall goes beyond shopping. “F&B isn’t merely an accompaniment to the IR retail experience, it’s a star attraction in its own right,” Pineault says.

Popularly priced Premium

“Entertainment is a cornerstone of IR retailing,” he adds. Inspire will include a 15,000-seat arena, following Mohegan Sun’s blueprint.

“While enclosed entertainment venues like clubs and theatres provide controlled, high-quality performances and shows, public attractions add an open-air, casual and spontaneous element to the guest’s experience. Both are vital in offering a balanced and diverse entertainment portfolio.”

Both Incheon IRs feature multiple attractions, including family fun parks and nightlife, as does Resorts World Genting in Malaysia, where the majority Malay Muslim population is barred from casino entry.

In 2017, RW Genting opened Premium Outlets with 130 shops selling discounted brand name goods, part of its 10-year, RM10bn (now $2.1bn, or $3.1bn when announced in 2013) investment programme that also upgraded its flagship Sky Avenue mall. 

“The Premium Outlets and shopping mall concepts target different market segments, each with its own distinct positioning,” RW Genting senior vice-president – theme parks, tenancy and festivals/resort events – Aaron Soo says.

“Premium Outlets is a platform where shoppers can shop for off-season products at discounted prices, whereas the resort’s shopping mall focuses on seasonal and limited new items. Trend seekers typically buy latest designs and are willing to pay normal retail prices.”

In Manila, where everyone goes to malls, two IRs take radically different retail approaches.

Newport World Resorts, formerly Resorts World Manila, controlled by billionaire Andrew Tan’s Allied Global Group, casts a wide net with its mall. “Except for a supermarket, we offer pretty much everything,” Newport COO Hakan Dagtas says.

“If people want to have fun, play a bit, watch a concert, cinema, [buy] different types of clothing, everything is available within quite a compact complex, well maintained, with air con.”

Branding for loyalty

For Entertainment City rival Solaire, owned by ports billionaire Enrique Razon’s Bloomberry Resorts, retail reinforces its high-end positioning.

“One of our goals is to make Solaire one of the most significant luxury destinations in the world and having a luxury retail area with the most sought-after brands contributes to that goal,” a Bloomberry executive says. “We already have key LVMH names in our portfolio and [are] looking to expand well beyond those brands.”

As at most IRs, Solaire’s mall allows customers to earn and use IR membership points, “making it a very effective loyalty tool”.

As for competing in the segment with mall developer linked Newport, opening an Entertainment City IR next year, and Melco’s City of Dreams Manila, partnered with national retail leader SM, the Bloomberry executive says: “If that experience will help them become the dominant IR operator in the Philippines, it should have happened years ago.”

Former US diplomat and current iGB Asia editor at large Muhammad Cohen has covered the casino business in Asia since 2006, most recently for Forbes, and wrote Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.

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