Las Vegas Sands is looking ahead to Parisian Macao to further perfect a destination retail strategy that is on track to deliver $500 million-plus in revenues in 2013
Las Vegas Sands made more money in the third quarter from sales of watches, jewelry and handbags in China than it made from food and beverage or conventions on the Las Vegas Strip, nearly as much as Marina Bay Sands delivered in room sales and nearly as much as 3,000 slot machines and 120 table games won for the company in the US state of Pennsylvania.
It was also a lot cheaper to make. The company generates this money primarily from the space it leases to its mall tenants, plus management fees and reimbursements for the maintenance of common areas and other expenditures. If we take these results from last year, the way LVS does its accounting, income after expenses was US$328.2 million on $396.9 million in mall revenues, 60% of which was generated at Venetian Macao, Four Seasons Macao and Sands Cotai Central. It worked out to a whopping 82 cents of operating profit on every dollar.
So it’s no surprise that LVS, through its 70%-owned Sands China subsidiary, is duly excited about the potential of the Shoppes at Parisian and has the full-court marketing press rolling two years in advance of the $2.7 billion resort’s slated opening.
Sands China CEO Ed Tracy and Senior Vice President of Retail Development David Sylvester kicked it off last month at the suitably upscale Four Seasons Hotel Hong Kong on Victoria Harbour, where a Peak view room will set you back HK$5,100 a night. But then just across the delta in Macau, Sands China’s Shoppes at Four Seasons turned the equivalent of HK$34,000 in sales per square foot last year, so it’s all relative. The point is that affluent China’s love affair with France and the luxury brands associated with it, well-documented as this is, presents an enormous opportunity that has not been lost on Sands China or its Las Vegas-based parent, as plans for the heavily themed Parisian (a freestanding half-scale Eiffel Tower among them) suggest.
The Chinese are everybody’s favorite tourists, good for US$85 billion in overseas spending last year, according to China Daily. But for the outbound China traveler spending more than US$10,000 per trip, France is the preferred destination, even ahead of the US. Shanghai’s Hurun Report, probably the best-known of the many chroniclers of the Middle Kingdom’s boom in high net worth individuals, ranks the country’s shoppers first in the world in terms of average spend.
“Tourism reigns supreme as the number one leisure pursuit for China’s wealthy,” Hurun says, and shopping is foremost among the “deciding factors” that shape their plans, selected by 58% of HNWIs surveyed, above “culture, local cuisine” and “business potential”: this is according to the magazine’s “The Luxury Chinese Traveler,” an annual report, now in its third edition, compiled in partnership with International Luxury Travel Market, a division of Reed Exhibitions (G2E, G2E Asia) that brings elite buyers and sellers together at invitation-only events in places like Cannes and Mexico’s Riviera Maya.
In terms of spend, the report finds Chinese travelers accounting for 24% of all tax-free purchases processed by Global Blue, a venerable service that provides VAT and GST refunds mostly in Europe and in Japan and South Korea. At roughly US$1,200 on average per trip they buy more than Americans, Russians and Japanese combined, and their rate of expenditure grew by 50% last year compared with 30% worldwide.
Gifting is a big part of this, the biggest, actually, according to Hurun, which identifies it as “the number one factor driving Chinese travel shopping” based on HNWIs polled for the 2013 report. For men, watches are prized the most as gifts, followed by red wine; for women it’s jewelry and then clothing. When men buy for women it’s jewelry overwhelmingly (60% of HNWIs surveyed); clothing (28%) is what women mostly buy other women.
As for brands, of course, French and Italian luxury names top the list. For men it’s Louis Vuitton, Hermes, Cartier, Chanel, Gucci, Armani, Prada, winemaker Chateau Lafite Rothschild, US brands Apple and Tiffany, Montblanc from Germany, Switzerland’s Longines, Britain’s Burberry and from China, Moutai, a popular liquor. Among women the top three brands are French (Chanel, Louis Vuitton, Cartier), followed by Tiffany, Apple, Montblanc, Gucci, Prada, Dior and Burberry.
The ‘Young,’ the ‘Affluent’
This basically is what Shoppes at Parisian will be selling into with more than 130 outlets across 300,000 square feet at full build-out. It’s an enviable prospect any way you look at it. Sands looks at it, interestingly enough, as a point of departure, an opportunity to differentiate Parisian’s offering from the sizable retail inventory the company already has in place on Cotai. There are, the Retail division says, “new and creative forces” stepping onto the world’s catwalks, as exhibited in recent times at events like Paris Fashion Week, and these will be the inspiration, and the Shoppes intends to showcase them, some of them never seen before on a shelf or mannequin in Macau. “The luxury brand mix will reflect a new direction,” the literature states. “These new brands to Asia will sit alongside some of the biggest powerhouse brands” in what it calls a “more avant-garde approach to merchandising”.
Mr Sylvester, who has been involved in more than 40 retail projects over a 22-year career in the region, 12 of them as Asia head of International Retail Leasing for Jones Lang LaSalle, wants Parisian focused more on these “directional luxury brands,” as he calls them, which speaks to a way of thinking about big box retail that has grown increasingly strategic in recent years, and in the case of Shoppes at Parisian will be aimed, he says, at an “ever increasing new generation clientele”.
“The target is a young, affluent demographic with a keen eye for the cutting edge in fashion and the discretionary income to acquire pieces that reflect their prosperity.”
This takes in the sensory experience as well, which is all-important in destination retail. Sands is promising a “street café atmosphere” at Shoppes at Parisian reminiscent of “the world famous shopping boulevards of the French capital … complete with authentically recreated shop fronts in a number of different themes depending on individual location.”
Timothy Jones, Mr Sylvester’s second in command, says, “We are looking forward to working with a range of luxury brand partners to enhance the retail architecture.”
Which, likewise, is emblematic of the stupendous amount of thought that goes into retailing in this hyper-engaged, technology- driven young century of consumption by the likes of behavioral research giants like London-based TNS. Some years back, an online newsletter called Retail Insights that LVS tried to get going in the run-up to the opening of Marina Bay Sands reprinted an article from TNS that spoke of the “need to manage multiple brand concepts, experiences and niche products as seamless elements of an investment portfolio where returns are maximized and risk is minimized”.
The article went on, “With buying decisions increasingly made at the point of purchase, understanding the impact of the retail environment is more important than ever before.” And it concluded, “Innovators in 2015 will be those that offer new combinations of products, experiences and services that encourage shoppers to express themselves.”
This could almost double for the strategy behind the nearly 1.9 million square feet of mall development LVS has brought to Macau and Singapore, an investment far surpassing the competition and which for sheer volume alone explains why Sands China derives a substantially larger proportion of its revenues away from the casino floor.
Retail Insights was discontinued after six issues. But it was around that time, late 2009, that LVS came up with the idea for a catalogue showcasing the retailers at The Grand Canal Shoppes at Venetian Macao. “Cool Pursuits,” it was called, and 60,000 copies of it were distributed in-room, on the company’s Cotai Jet ferries and in select locations in Macau, Hong Kong and Guangzhou. The marketing mix since then has included VIP-targeted events such as private showings of designer collections. The company still operates the region’s only purpose-built Web site—sandsretailasia.com—promoting its investment in the sector.
“It is indicative of the changing landscape in Asia and the potential for us to create major shopping and leisure destinations,” as Sheldon Adelson has put it. Not that he discovered the gold mine that retail represented for resort-scale gaming. If anyone did it was Henry Gluck, the financier who ran Caesars World through most of the 1980s and early ’90s and who pioneered the model with the Forum Shops at Caesars Palace. But Mr Adelson was just up the Strip in those days in ownership of the old Sands, and he had the Comdex computer mega-show for which he’d already built the largest privately funded convention facility in the world at Sands Expo, and certainly he’d grasped the implications. The Grand Canal Shoppes at The Venetian Las Vegas proved so successful that LVS was able to flip it, together with The Shoppes at The Palazzo next door, to General Growth Properties, a Chicago-based REIT giant, for roughly $1 billion. At $1,000-plus in sales per square foot today, three times the US average, it is still one of the most profitable malls in the country.
Plans for Macau were to be on a grander scale. Within a year of the opening of Venetian Macao, with its sights on the growing power of China’s consumers, LVS had designated a section of land it hoped to develop next door to what would become Sands Cotai Central for a 500,000-square-foot multi-story mall called Flagship Luxury, “designed as the ultimate expression of contemporary retailing for the fashion forward luxury goods sector,” according to a press release of the time.
As Mr Sylvester outlined the thinking—he had joined the company in 2005 to head the fledgling Retail Development Asia division—“It is no longer enough to simply understand the retail landscape. It requires vision and it requires the resources to realize that vision, something which happens only under rare circumstances.”
It turned out that Flagship Luxury wasn’t to be. But the vision has proven unerring.
“Demand for prime retail space in Asia from international luxury brands … is as strong as our commitment to attract the most distinguished retail concepts to our properties,” Mr Sylvester said. “I believe what we are offering those brands is a genuinely unprecedented and compelling proposition.”
He said that in the spring of 2008, eight months after The Grand Canal Shoppes opened at the Venetian and about four months before the debut of the “height of luxury retail,” as LVS would tout the Shoppes at Four Seasons. Last year, Shoppes at Four Seasons was expanded by 51,000 square feet and still ran at 92% occupancy, delivering $17.5 million more in revenue than the year before for a total of $83.4 million, a 26.5% increase over 2011 and more than twice the revenue the property generated from its 360 rooms and suites. It’s on a pace this year to surpass that and then some, with revenue in the third quarter alone up 39.4% year on year to $32.2 million. The Grand Canal Shoppes next door generated $45.5 million, a 23% increase and almost $9 million more than the Venetian booked in room sales. Company-wide, mall revenues are up 113% since 2010, the year Marina Bay Sands opened with shopping that now totals more than 637,000 square feet. More than 99% of this has been Asian money. Through the first nine months of 2013, mall revenue in Macau is up 34% over the same period last year.
