James Walker explores why both operators and visitors are sold on shopping…

Whether you are looking for budget-busting extravagance or bargain-basement trophies, casinos around the world are fast becoming synonymous with retailing on a grand scale. As gaming revenue continues to represent less and less of the overall top line, operators now place a heavy emphasis on retail, and most new casinos are now opening with hundreds of thousands - if not millions - of feet of dedicated shopping space.

The world’s first bona fide casino retail offering was developed in 1992, when the Forum Shops were constructed at Caesars Palace. Now, however, it would seem strange if a new casino development did not list a colossal shopping complex among its many attractions.

An average gambler in Las Vegas spends just 3.6 hours a day at the tables or slot machines. Although some punters certainly try, it is impossible to gamble 24 hours a day. And with an average gambler staying in the city for 4.5 days, that leaves a lot of time to prise money from shops, restaurants and shows.

According to the Las Vegas Convention and Visitors Authority, the number of visitors travelling to Las Vegas has increased at a steady and significant rate over the last five years, from approximately 35 million visitors in 2001 to nearly 40 million visitors in 2006. This growth has been perpetuated in no small part by the introduction of large luxury and themed destination resorts.

In an effort to draw additional visitors and boost the average spend per visitor, an increasing number of these destination resorts are developing their non-gaming entertainment offerings. LVCVA figures state that while gaming revenues in Clark County stood at approximately US$10.6bn in 2006, non-gaming tourist revenues totalled a massive $28.8bn in the same year.

“It is significant to remember that gambling is no longer the largest source of revenue for our Las Vegas resorts and has long been surpassed by the revenue earned at our retail outlets, restaurants and entertainment offerings,” said Frank Visconti, president of retail operations for MGM Mirage.

“Shopping is a fundamental part of the vacation and relaxation experience in Las Vegas and has proven to be just as important to our guests as our top-flight restaurants and shows,” he continued. “Gambling in Las Vegas will always be important from a business perspective, but now we attract a growing number of tourists who associate Las Vegas with many different forms of indulgence beyond gambling. While Las Vegas used to be a place where gamblers vacationed, it is now a place where many people enjoy a wide range of entertainment choices.”

This view was confirmed by Jacqueline Peterson, a spokesperson for Harrah’s Entertainment, who told InterGaming: “Retail is very important to an integrated resort. The world-famous Forum Shops here at Caesars Palace in Las Vegas is the highest grossing retail mall per square foot in the world. There is quite a shift that we are experiencing here in Las Vegas and in many other gaming markets; for two years non-gaming revenue has surpassed gaming revenue and retail is a strong component in this non-gaming mix.”

In fiscal 2006, revenues for MGM Mirage’s retail division totalled $278.7m, representing a 10 per cent increase over the $253.2m that was booked in the previous year. Well aware that Las Vegas is no longer longer just about gambling, the US operator is now focusing heavily on its non-gaming offerings.

“Because we’ve achieved such tremendous success in retail operations at the existing MGM Mirage resorts, we’ve integrated retail as a prime centrepiece of CityCenter, our multi-billion dollar mixed-use development currently under construction in the heart of the Las Vegas Strip,” Visconti continued.

“At CityCenter, our luxury retail complex will front the Las Vegas Strip and will mark the entrance to our ‘city within a city,’ which will also include the world’s finest hotels and luxury residences.”

Nothing perhaps exemplifies the importance of retail in Las Vegas than the world-famous Grand Canal Shoppes. Located in Las Vegas Sands’ mammoth Venetian resort, this sprawling shopping area features a scale replica of St Mark’s Square, the principal square in Venice, Italy. With a painted fresco overhead, spacious walkways and a gondola-laden canal, the Venetian provides the perfect ambience for shopping.

Here, hundreds of outlets sit on cobblestone walkways among street cafés, offering shoppers anything from the obvious Venetian-logo merchandise and budget gifts to a range of upmarket designers (Chanel, Jimmy Choo, Valentino) and heavyweight chains (Banana Republic, Wolford).

In May 2004, US real estate investment trust General Growth Properties purchased Grand Canal Shoppes from Las Vegas Sands. Executive vice president Dan Sheridan oversees the company’s retail properties in Las Vegas. When asked what attracted GGP to the region, he said: “Two things. One, it is a growing economy. Depending on what story you read, there are 6,000 to 8,000 people moving here every month. That really serves our local projects well. In addition, you have 40 million annual visitors, which really serves our more tourist-oriented destinations well. You couple those things together and we are very optimistic about Las Vegas generally, retail in Las Vegas and our projects.”

“New York has a huge tourist draw and Chicago, where General Growth is based, also does,” he continued. “But I don’t know that any place has the 40 million visitors Vegas does and the Vegas visitor is coming here predisposed to spend money. It used to be that all of that money went to gaming. Now it is all about entertainment - and entertainment can include the gaming, can include the spa and can include the dining, the shows and the shopping. The predisposition of the Vegas visitor to spend dollars really helps retail here.”

Indeed, in US terms of scale, the world-renowned shopping haven of Los Angeles is practically next-door. And in terms of accessibility to foreign tourists travelling from Europe, Nevada does little to compare to New York, which sits on the Atlantic Ocean, three time zones east of the city.

Yet despite this, millions of people continue to travel to Las Vegas every year; and, as we have seen, this number is still growing. It is perhaps that the city is located in the middle of a desert that makes it such a popular shopping destination. Operators based in Las Vegas are adamant that this unique city continues to lure people from the great shopping cities of Chicago, Los Angeles and New York simply because it is impossible to find the same level of retail in such a confined area.

When asked what types of retail formats are most successful in and around casino resorts, Visconti maintained that variety was key: “In defining the range of retail outlets that we offer on the Strip, we are always very careful to offer a retail component in each resort that is commensurate with the guest who visits that resort. For example, we would never install Tiffany’s at a value-oriented property, while the presence of Chanel or Tiffany’s at our world-renowned Bellagio is simply a natural.”

Statistics often speak for themselves and it is clear that retail on the Las Vegas Strip has now become an extremely profitable phenomenon. But are there any possible storm clouds for the sector?

“You are always a little paranoid,” Sheridan said. “But even when you go back to last year and gas prices did what they did and a lot of people were concerned about the tourists from southern California, we had a very, very strong year in 2006 at our tourist destinations. You live in a constant state of paranoia, but I don’t see anything specific that overly concerns me.”

When questioned over the idea of a possible recession in the US, Sheridan said that Vegas would still remain a good option for tourists: “You can get here relatively inexpensively and there are lots of different options for the tourists here. You can go to the very high-end hotel and have that type of experience. There are mid-level options and there are things on the lower range of the spectrum. Vegas can sustain some economic downturn if it were to happen.”

The Las Vegas market has shown consistent growth over the short and long terms in both visitation and expenditures. Clark County has one of the highest hotel occupancy rates of any major market in the US, and it is clear that the retail sector in Las Vegas is in symbiosis with this explosive growth. But what of other global gaming markets? The former Portuguese enclave of Macau is the fastest-growing gambling market in the world and benefits from being the only market in China to offer legalised casino gaming.

In May 2004, The Sands Macau became the first Las Vegas-style casino to open in the region. Two years later, and gaming revenues in Macau reached a record $7bn - a 22 per cent increase over 2005 - and the number of visitors was up 17.6 per cent in the same period.

While these ballpark top and bottom line statistics have been thrown around liberally over recent months by analysts who have labelled Macau ‘the new Las Vegas,’ what is perhaps most interesting here is recent government statistics which stated that during 2006 nearly 50 per cent of visitors travelling to the area stayed, on average, just one or two nights.

Importantly, over the next few years the average length of stay is expected to edge ever closer to that of Las Vegas. As a result, this will herald a prolific expansion of non-gaming amenities, including retail and entertainment offerings. “We believe that as new facilities and standards of service are introduced, Macau will become an even more desirable tourist destination,” Las Vegas Sands said in its 2006 annual report.

On the opening night of the $2.4bn Venetian Macau, Las Vegas Sands chairman Sheldon Adelson told reporters the massive facility was intended to offer much more than mere gaming, and that it was mainly about leisure, meetings, conferences and exhibitions and, of course, retail.

Built on the Cotai Strip, an area of land downtown that is undisputedly set to become Macau’s tourism epicentre, some 350 retailers are expected to sign leases in the Venetian’s one million-square-foot Grand Canal Shoppes complex, which mirrors its highly successful Las Vegas development - not bad for a place that, up until recently, had just one mall, the New Yaohan, and a few high street shopping districts.

Analysts who were initially critical of the Venetian project are now swallowing hard as the first waves of cash pour in. In the Venetian’s canal-side arcade of shops, gondolas cruise by high-end outlets where even the exchange rates have been artificially skewed to favour mainland punters spending cash in Chinese yuan.

The rapid development of Macau’s retail market is also exemplified in Macau Studio City, Asia’s first leisure resort property, which combines media studios, huge retail opportunities, a wide variety of entertainment and world-class hotels.

Located, again, in Cotai, the $2bn project broke ground in January this year and is scheduled to open in mid-2009. It is being developed by Cyber One Agents, a joint venture between East Asia Satellite Television Holdings, one of Asia’s leading entertainment companies, and New Cotai, a consortium of US-based investors, including veteran gaming and resort developer, David Friedman.

Once completed, Macau Studio City will include a 4,000-seat multi-purpose arena, state-of-the-art television and film production facilities, 1,902 luxurious hotel rooms in partnership with leading brands including Marriott and The Ritz-Carlton and a massive 920,000sq.ft studio retail complex.

As operators in Las Vegas, Macau and indeed all over the world continue to develop bigger, more impressive resorts, they continue to set a new standard for the retail operations that are linked so crucially to their lasting success. This is a trend that has gained momentum as the tourism base for casinos has expanded. Las Vegas, in particular, has evolved into one of the most exciting retail destinations in the world, so much so that every new opening raises the bar for retail quality and further enhances the Strip’s presence as a high-end shoppers’ magnet.

Both Las Vegas and Macau have a growing local population base and a rising visitor count. Ultimately, with those two things coming together and the resorts creating an environment where people want to come for three or four days and spend money, these burgeoning gambling havens are nothing short of a living dream for retailers from all over the world.