Las Vegas Sands Corp has teamed up with a string of hotel brands to build a critical mass of high-quality resort facilities along Macau’s burgeoning Cotai Strip.
When a property developer builds a new shopping mall, the management company likes to sign up at least one prestigious store in order to attract shoppers and to encourage other retailers to move in.
Las Vegas Sands Corp (LVS) Chairman Sheldon Adelson is using the same principle to create a successful gaming resort.
The ‘mall’ is his Venetian Macau resort in Cotai, and the keystone ‘stores’ are the luxury hotels he believes will help turn Macau from a day trip destination into his vision of “Asia’s Las Vegas.” He’s so confident of achieving this vision that he’s even trademarked the slogan, as well “the Cotai Strip,” which is the official name of the development.
At first glance, it seems Mr Adelson needs the hotel brands more than the hotel brands need him. He expects non-gaming income on the Cotai Strip to make up as much as 50% of the revenues, compared to an estimated 5- 10% at present in Macau.
Mr Adelson told a recent press conference on the site: “In Las Vegas, gaming accounts for about 35% of our bottom line and we [The Venetian] are one of the top two or three casinos out of more than 100. Here in Macau, in the Asian market, it will probably be 50-60%. It’s not going to be as casino-centric a business model as has existed here for the last several decades. It’s a truly integrated resort and various parts of our revenue are from other things like shopping, rooms, spas, conventions, exhibitions and shows.”
To make that much non-gaming revenue, he’ll need to attract a lot of visitors to the one million sq. ft of retail space and the 1.2 million sq. ft of exhibition facilities being built, and to do that he needs quality places for those visitors to stay.
Leveraging local brands
Some 20,000 rooms are planned for the Cotai Strip – 3,000 of which will be at LVS’ Venetian Macau. LVS is also developing hotels under several other brands. Two of Mr Adelson’s hotel partners, Starwood and Shangri-La.
Resorts and Hotels, are better known to Chinese consumers than is LVS. Between them, Starwood and Shangri-La operate 52 hotels in Greater China, and will be opening at least 56 more within the next five years.
In Cotai, Starwood will manage a 4,000- room Sheraton Hotel (which will become the biggest Sheraton in the world), and a 460-room St Regis hotel with its signature butler service. There will also be more than 400 luxury holiday apartments under the St Regis brand. The Sheraton is due to open in 2008 and the St Regis accommodation in 2009.
Shangri-La will manage a 600-room Shangri-La hotel and a 1,200-room Traders hotel. The properties are expected to start operating in 2008. The Hilton, Four Seasons, Intercontinental, Conrad and Holiday Inn hotel brands will also have properties at the resort.
Matthew Fry, Starwood’s Vice President, Acquisitions and Development, whose own grandfather was a hotel developer in Las Vegas, says: “One of the benefits of Starwood is that we have a huge presence in China. We understand the Chinese market, and obviously that’s going to be a huge component of the guests here.”
Where LVS does have instant recognition, is among conference and exhibition planners. William Weidner, President and Chief Operating Officer of LVS, said in early March that 30 international trade shows had already been booked for the Cotai Strip’s yet-to-be- completed exhibition centre, along with several corporate conferences featuring more than a thousand delegates each. A hundred tour operators had also signed contracts with LVS in advance of the first phase of the site’s opening in July or August, added Mr Weidner.
The combined marketing muscle of the partners and the fact LVS is taking the main commercial risk as the site developer, makes the deal look very attractive for the hoteliers. Mr Fry says: “The benefit is that Starwood is frankly just managing the hotel for Las Vegas Sands and they have common ownership of everything on the Cotai Strip.
“I think Mr Adelson recognised the value that brands such as Sheraton and St Regis will bring to the Cotai Strip. They will automatically bring a stamp of quality on the location, on a global basis, and immediately make it an attractive destination. People such as meeting planners will say ‘Well if it’s good enough for Sheraton it should be good enough for me’.
“The other benefit of having branded operators such as ourselves is the power of our distribution network – our sales and marketing team. We have global teams that will be delivering business into these hotels. That’s part of what LVS is getting when they pay to have us here.”
Equal partners
Symon Bridle, Chief Operating Officer for Shangri-La Hotels and Resorts, stresses though that the Cotai project is an equal partnership between LVS and hoteliers.
According to Mr Bridle, “To get the Cotai Strip positioned correctly is going to require a collective effort. It’s going to be the Cotai Strip first, and in our case, Shangri-La second. Through our customer base and our brand loyalty, that’s how we will bring the market in.”
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Mr Adelson and his company think most of their new customers will come from mainland China, making the Shangri-La group an obvious choice as a hotel partner.
Mr Bridle stresses: “Making the assumption that a lot of the business will come out of China, I think we are recognised as the leading luxury brand in China with 21 hotels there today and another 20 under development, with five opening this year. I think we’ve already got very strong brand loyalty in the China market and that’s going to be one of our potential success elements. We have a very good relationship with a lot of the tour operators up in China as well. We operate a regional sales office out of Guangzhou already, with the Guangzhou Shangri-La just opened.”
One potential conflict of interest between the hotel brand owners and LVS in Cotai is guest revenues. The hotels would like guests to spend as much money in their hotels as possible, while LVS also wants them to spend freely outside the hotels at the casino, the shows, the restaurants and the shops that will make up the integrated resort.
Mr Bridle says: “We’re certainly not there to keep the person in the hotel per se. Everyone has to recognise that people are coming to Cotai because of that integrated element. We may have a guest that’s coming to see Cirque du Soleil or wants to go and see an NBA [basketball] game or whatever.
“I think the hotel is really going to fulfill its traditional function of being your bedroom, but we know that guest is not going to spend a lot of his time there.
“We recognise some of the lunch or dinner business will be looking to utilise some of the other restaurants in the complex. We also hope there will be other people in different hotels who will be looking for different experiences themselves and might come to dine in our restaurants.
“We might have a bit less usage of traditional things like telephone calls that the pure business person might be utilising. But today in our Horizon Club rooms, Internet use is a free service anyway, so we’re not taking revenue from it. There might be a slightly different mix in laundry, and what we call the minor operating departments.”
“From our perspective, we want to try and maximise revenues from the hotels, but the owner Sands is going to be looking at the bigger picture, says Mr Fry from Starwood.” “I think it’s complicated here because you’re going to have a casino, retail and restaurants – it’s going to be a fine balancing act.”
Mr Fry adds: “The pool space has been created by a world class designer and will be 12 unique. It will be between the [Cotai Strip’s] podium and the four towers. It’s a huge amount of space and will be beautifully landscaped.”
Still relatively short stay
Although Mr Adelson believes the Cotai Strip will move Macau away from the day-trip market, Mr Bridle anticipates the average stay in the Cotai Strip’s Shangri-La hotel will be shorter than the average guest stay across hotels in the group.
“[In Cotai] You may be on a one point something day stay, whereas across the Shangri-La group it’s probably 2.3 to 2.5 days,” says Mr Bridle.
Since the Cotai Strip will be a resort rather than purely a business or conference destination like Wanchai in Hong Kong, the hotel operator will have opportunities to build guest revenues in other areas, he claims.
“We [Shangri-La, Macau] are going to have a 2,000 sq. meter spa, and we think a lot of people that are coming [to the Cotai Strip], whether attending a convention, exhibition or meeting, show or shopping, will have a bit more free time to fit in. We think things like the spa will be where we might regain that revenue we might have lost.”
The spa, under the group’s CHI brand, will feature individual treatment suites, offering Chinese and Himalayan therapies. Mr Bridle says Shangri-La, Macau, will be “different” from the Hong Kong property “but will still have a Shangri-La feel”. “We’ll be looking to provide a quality environment, rather than a gimmicky approach,” he says.
Mr Bridle says room prices for both properties have still to be decided. “We will put in a general manager in the summer, with a marketing director, and that’s when we’ll start to look at the pricing. Obviously we see a price differential between the Shangri-La and the Traders, but we haven’t yet decided where we’re going to pitch the prices. Bear in mind in today’s market we don’t really set a pure rack rate any more. Hotels today tend to be on a more floating rate basis.”
The CHI Spa at Shangri-La’s Mactan Resort
Convention engine
Mr Fry at Starwood says he expects upward pressure on room rates. “If you look at the whole of Macau, Las Vegas Sands is going to control a huge part of the room inventory. There will be significant pressures to keep prices at probably the highest level possible.
“I think the other benefit that LVS has is that it will control the convention centre, and that’s the engine that’s going to drive most of Macau, so they’re going to be able to take those guests and put them into our hotels. I think we’re going to benefit from that. There’ll hopefully be so much business at the convention centre that they fill all of Las Vegas Sands’ hotels and then business will trickle off to the other hotels.”
Margie Logarta, editor of the influential magazine Business Traveller Asia-Pacific, expects service standards in the Cotai Strip hotels to be just as high as their sister properties in Hong Kong. “I don’t think it’s in the interests of any hotelier not to make their rooms and service commensurate with what’s available in Hong Kong or Las Vegas or New York, and they will charge rates to match.”
Starwood says it has three key words to convey the experience of staying in one of its Sheraton hotels: “warmth; comfort and connection.”
Mr Fry says “that philosophy is intertwined with the whole design process – in the rooms, in the public spaces and in the service delivery. It’s a challenging thing to achieve, but I think Starwood as a hotel company is much more advanced in creating different branded experiences than any of our competitors.”
Ms Logarta says that while people from the region will inevitably make comparisons between Cotai’s new hotels and what’s on offer in Hong Kong, in the future the benchmark will be Las Vegas. “What’s important now is to raise the profile of Macau to equal if not surpass that of Las Vegas in terms of products and services and image. It’s all about saving people a long plane trip by bringing Las Vegas to China. The message to the Chinese consumers is: ‘Go to Las Vegas if you must, but hey, we’re good enough here.’”
“Asia’s really lucky because the Las Vegas people are pouring in all the goods they can, knowing they will get their money back and some more at that,” concludes Ms Logarta.
The planned Shangri-La
