Retail revenue is bucking the current softness on the gaming side, and Sands China is leading the charge
As Macau’s gaming revenue retreats, retail revenue at the city’s casino resorts keeps advancing.
The sector is so firmly established now as a high margin growth stream, all the new Cotai resorts plan to jump on the bandwagon, eager to catch-up with Sands China, the Las Vegas Sands subsidiary that has spearheaded a veritable revolution in Macau retailing.
In 2006, Macau had total retail space of approximately 300,000 square feet, featuring one department store. The opening of The Venetian Macao in 2007 quadrupled the market’s retail space, and today retail covers some 5 million square feet, almost half of it in Cotai.
“There is a powerful synergy between gaming and retail that creates the optimal environment for retailers to maximize a store’s sales potential,” says Morgan Parker, chairman of the International Council of Shopping Centers’ Asia Pacific Research Council. “Cotai’s casinos create enormous foot traffic for the retailers.”
Macau’s retail sales grew 21% in 2013 to US$6.2 billion, according to the government’s Statistics and Census Service, and are up 9% by value through the first half of this year. An estimated 60% of that spending is by tourists.
Sands Retail, the arm of LVS that runs its malls in Macau and Singapore, claims one in three dollars of last year’s retail expenditure—more than $2 billion—was spent in Sands China malls, whose sales through the first half of this year are up 21% year on year to $1.25 billion.
“This sustained growth totally vindicates our strategy of continuing to expand and develop our offering in Macau,” says LVS Senior Vice President of Retail David Sylvester. “The physical interconnectedness of Shoppes at Four Seasons, Shoppes at Venetian and Shoppes at Cotai Central creates a one-stop shopping destination for local consumers and tourists, particularly those who may be pressed for time and are seeking mass-market, prime upscale and luxury items.”
Third-quarter results show Sands China’s malls continued to boost revenue and fatten operating margins while tenants increased sales, despite Macau’s falling gaming revenue. As landlord, Sands China derives mall revenue from rents, overage (a portion of sales above agreed targets) and property management fees. Combined these were up 17.5% from a year earlier to $104.7 million. Operating profit grew 18.6% to $94.8 million as operating margins widened to 90.5%. Morgan Stanley notes that retail growth outstripped Sands China’s casino business with pre-tax earnings up 19% year on year and 40% quarter on quarter. Viewed on a trailing 12-month basis, which provides a better picture of the sector’s staying power, revenue rose 20% from a year earlier. Same-store sales per square foot were up 13.9% to $2,289. Occupancy at the end of the quarter was 96.6%, up from 94.5% a year earlier, despite leasable area increasing by 11.3%.
Sands China is the only gaming operator that breaks out its Macau retail figures, and it’s currently the only one with scale in retail. The three Cotai malls, linked by footbridges, measure a combined 1.6 million square feet and include more than 600 shops. Melco Crown Entertainment’s City of Dreams has 176,000 square feet of retail space and 70 outlets. Galaxy Entertainment’s Galaxy Macau has 40 shops covering 375,000 square feet. On the peninsula, Wynn Macau has 57,000 square feet of retail space with about two dozen shops. The One Central commercial and residential complex adjoining MGM Macau has around 50 shops covering approximately 200,000 square feet. MGM has no interest in One Central, but their proximity to each other is no coincidence.
Pansy Ho, co-chair of parent MGM China Holdings and its largest individual shareholder, is a partner in One Central through her Hong Kong-based Shun Tak conglomerate, and the two are linked by direct indoor access. SJM Holdings’ renovated Jai Alai casino near the city’s Outer Harbour and the ferry link with Hong Kong will include retail when it reopens, although the company says it plans to contract it out. Across town, at SJM’s 51%-owned Ponte 16 casino hotel on the Inner Harbour, plans for a waterfront shopping arcade are currently under government review.
All six gaming operators plan to introduce or significantly increase the retail offerings of their Cotai resorts. Details for most remain under wraps, but the 2015 openings of the first two—Galaxy Macau Phase 2 and Melco Crown’s Studio City—should provide an interesting glimpse.
Galaxy says its $2.5 billion Phase 2 will expand the resort’s total retail area to more than 1 million square feet encompassing both luxury and middle-market brands. “Retail is definitely important to us going forward,” Vice President for Public Relations Buddy Lam says. “It will make us a more complete destination.”
Melco Crown signaled its commitment with the August opening of SOHO at City of Dreams—a “lifestyle shopping, dining and entertainment precinct,” as it’s billed—and will be “substantially expanding” retailing at the resort ahead of the scheduled opening in 2017 of a fifth hotel tower. Early plans put the number at around 200 shops. On its third-quarter conference call, Melco Crown confirmed the expansion will include retail on its street frontage opposite The Venetian.
Meanwhile, Sands China has the 330-store gorilla in the market, Shoppes at Venetian, and keeps striving to solidify its leading position overall. Sands Cotai Central is completing a $60 million mall expansion adding 150,000 square feet, bringing its total retail space to 400,000 square feet and the shop count to 140. The mall, opened in 2010, caters to families with a casual feel, children’s fashion brands, DreamWorks animated character interactions, and a youth role-playing theme park due to open next year. The company says plans to add up to 200,000 square feet to the mall are already on the drawing board.
Renovations at Shoppes at Four Seasons, which opened in 2008, are creating 10 new outlets, pushing its total above 160. Plans call for completion in time for the holiday season. The project is boosting the mall’s area to 260,000 square feet, including 20,000 square feet on its mezzanine level to create seven duplex shops.
The $2.7 billion Parisian, which will open in phases beginning late next year, plans to unveil 320,000 square feet of shopping with some 150 outlets in the first quarter of 2016. Sands Retail says Parisian will be positioned as a “hub for creative luxury … targeted at a fashion-forward, affluent demographic”. About 85% of the space is already rented, “snapped up much faster than we expected,” says Mr Sylvester.
Parisian, combined with the full build-out of Cotai Central’s retailing, will position Sands China with 850 shops on Cotai encompassing more than 2 million square feet.
Editor at large Muhammad Cohen also blogs for Forbes on gaming throughout Asia and wrote Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.