By and and  on August 6, 2008

LAS VEGAS — Retailers are hitting the wall in this longtime bastion of free spending and indulgence.

And the luxury sector, which found a desert oasis as Las Vegas became one of its fastest growing markets, is feeling the pain.

“Las Vegas is probably about our most difficult market,” said Alex Bolen, president and chief executive officer of Oscar de la Renta, which has a store in The Wynn Las Vegas along with Chanel, Christian Dior, Cartier and Alexander McQueen, among others. “We are flat and our plan called for us to be up 15 percent. [The market] appears to have been very soft recently.”

Construction cranes dotting the horizon still evoke a boomtown image, but the optimism and audacity that built Las Vegas into a gambling and entertainment metropolis are being tested. There is no immunity from the impact of inflation, tight credit, job cuts, falling home values and other woes that have stalled the U.S. economy.

Gambling revenue through May was down 5.6 percent compared with last year, hotel occupancy has slipped about 2 percent, convention business is off 0.1 percent and the number of visitors is flat, according to the Las Vegas Convention and Visitors Authority. The unemployment rate increased to 6.4 percent in June from 6.2 percent in May. It was 5.7 percent in April.

To be sure, Vegas hasn’t turned into a ghost town. High rollers are still patronizing boutiques and casinos and the $9 billion CityCenter project under construction has signed retail tenants such as Louis Vuitton and Tiffany & Co. Some moderate-price merchants here appear to be getting traction.

But in the face of flat tourist volume estimated at 16.3 million through May by the convention and visitors authority, the average daily hotel room rate has sunk 4.3 percent, to $133.24, and occupancy is down 1.9 percent to 89.2 percent. The number of passengers using McCarran International Airport through May had fallen 2.4 percent to 19 million from about 19.5 million last year.

“Basically, the economy is not doing well here,” said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. “Most places look at their retail as servicing locals, but because of the large number of visitors, we actually sell at retail for visitors…people who do come are paying more to get here. So once they get here, they have less to spend.”

In an effort to attract more budget-minded customers, Dior has given additional floor space at its Forum Shops at Caesars Palace store to men’s ready-to-wear, which has a lower price point. Dior also operates stores at The Bellagio and The Wynn.

“We are seeing the effect of a decrease in local customers and a decrease in tourists,” said Pamela Baxter, president of Christian Dior’s U.S. division. However, international traffic in Las Vegas “is up from last year.”

Citing previous economic downturns, Baxter, who also is president of LVMH Moët Hennessy Louis Vuitton’s Perfume and Cosmetics Group, said, “This is no different than any other recession the U.S. has been through. Those who have the money are still spending it.…Business is up, but not booming like it was. We are not selling as many units, but they have higher price points.”

Aspirational shopping in Las Vegas has “dropped off considerably,” she said. “The aspirational shopper has really pulled back.”

The caution signs are hard to miss.

Citing the poor economic outlook, Boyd Gaming Corp., which operates 15 casino and entertainment facilities in six states, said last week it is delaying Echelon, a more than $4 billion, 63-acre hotel-casino complex on the Strip that had been set to open in 2010.

The decision reflects “the challenges we, and many other businesses, face in today’s uncertain business climate,” said Keith Smith, president and ceo.

Lake Las Vegas, a $3.8 billion, 3,592-acre residential and resort community with retail, hotel and casino components, filed for Chapter 11 protection last month in what could be one of Nevada’s largest bankruptcies.

With gambling revenues on the Strip off 5.6 percent through May, to $2.7 billion from $2.86 billion during the same time last year, Moody’s Investors Service downgraded the bond ratings of casino operators, including The Wynn and Harrah’s. And casino company stocks are taking a beating.

Along with the slowdown, Las Vegas is getting more competition from international venues such as Dubai in the Middle East and Macau in Asia. The economic implosion in neighboring California, from which Las Vegas draws the most visitors, is another challenge.

“People are buying what they need, not what they want, and this is a store of wants,” said Sylvia Cisneros, manager of Burberry in The Shoppes at The Palazzo hotel and casino, who has tried e-mail and phone call outreach to bring customers in the door.

Summer Holl, West Coast district manager for Intermix, said the store in the Forum Shops at Caesars Palace has had to change its strategy, aggressively courting local residents and setting markdowns because of“a difference in terms of the caliber of the customers.” Overall, Holl described the mood of Las Vegas retailers as downbeat. “They have never had to work so hard for their sales,” she said.

Merchants are finding that even when customer traffic is robust, it doesn’t necessarily translate into profit.

“July 4th was one of the highest-trafficked July 4ths we have seen in years,” said Susan Houck, vice president of marketing for General Growth Properties, owner of The Shoppes at The Palazzo, The Grand Canal Shoppes at The Venetian and Fashion Show Las Vegas mall, which includes Saks Fifth Avenue, Neiman Marcus, Nordstrom, Bloomingdale’s Home, Macy’s and Dillard’s. “It wasn’t always turned into immediate dollars, but as long as people are coming we are feeling good.”

The Grand Canal Shoppes and Fashion Show mall, estimated to both generate in excess of $1,000 in sales a square foot, are “flat or up” slightly, Houck said.

She acknowledged that The Shoppes at The Palazzo, unveiled in January, got off to a slow start because the 60 stores didn’t launch at the same time. The Shoppes are now about 80 percent open, with Catherine Malandrino and Fendi among those that will soon join a retail roster featuring Barneys New York, Chloé, Tory Burch, Jimmy Choo, Piaget, Bottega Veneta, Burberry and Van Cleef & Arpels. “Long term, it is going to be a phenomenal property,” Houck said.

The Forum Shops at Caesars Palace, owned by Simon Properties and frequently ranked among the nation’s most productive shopping centers with sales of more than $1,400 a square foot, also is flat this year, said spokeswoman Maureen Crampton.

“We have definitely seen some peaks and valleys; the peaks outweigh the valleys,” she said.

But a tour of some of Las Vegas’ major shopping complexes suggested that not everyone is in a buying mood, despite markdowns of as much as 70 percent at Ann Taylor and 75 percent at French Connection, for example. Several store managers and executives said summer discounting had started earlier than usual.

Midtier and affordable luxury shops appeared to be popular choices, with Victoria’s Secret, Lacoste, Brooks Brothers, Gap and Coach dominating shopping bags. Shoppers said they were value-conscious, and economic worries played prominent roles in their choices.

While taking a break from browsing the Fashion Show, Rebecca Finch, a 50-year-old retiree making her 15th annual visit to Las Vegas, spoke about the deterioration of the auto industry in her hometown of Flatrock, Mich., and indicated she would spend conservatively this year.

Palazzo window shoppers Kimberly Hamer, 22, and her sister Stephanie Steiner, 23, coveted $795 Christian Louboutin heels, but had only purchased a shirt at White House|Black Market in the Miracle Mile Shops, a 170-store center. “If I win $800 [at the gaming tables], I might have those shoes tomorrow,” Hamer said.

“People are opting more for lower price point denim than the $200 or $300 pair of jeans,” said Yvonne Rodriguez, who with her husband David owns PINK the Boutique, which has locations in Lake Las Vegas, as well as nearby Boca Park at Summerlin and the District at Green Valley Ranch. Bucking the trend, partly because of its price point variety, PINK the Boutique’s year-over-year sales have increased 10 to 30 percent, depending on the location.

Miracle Mile Shops, which includes Bebe, H&M, Quiksilver, Metropark and True Religion Brand Jeans, has benefited from customers’ price sensitivity. Before Boulevard Invest, an investment partnership of RFR Holding and Tri Star Capital, bought the center formerly named The Shops in Desert Passage in 2004, it was mockingly called Deserted Passage.

After a $75 million facelift, the property has increased year-over-year annual sales a square foot by 14 percent to $735. Traffic year-to-date is up 12 percent, said Miracle Mile’s executive vice president and general manager Russ Joyner.

“During these times, people are looking to get the most out of their visit,” Joyner said. “We are very relevant to address those needs.”

Designer and specialty merchandise may be less relevant in a Las Vegas full of bargain hunters. Meital Grantz, founder of three-unit Las Vegas retailer Talulah G, has responded by shifting her Fashion Show location’s assortment from designer to street clothes.

“The core of that [Fashion Show] business was tourists,” she said. “They wanted to come in and get a bejeweled T-shirt.”

Jesus Garcia, acting manager at Sephora’s Grand Canal Shoppes store, said sales seesaw from day to day. “We have a lot of people in, but nobody buys anything. Some days we have less people in and out, but each ticket is higher,” he said. “This is very odd for us. It’s inconsistent.”

Garcia said international customers are giving the store a boost. The weak dollar has been especially enticing for Canadians, Mexicans and the British.

The challenges in Las Vegas retailing also include oversaturation. Luxury brands such as Louis Vuitton and Tiffany have multiple locations. They could be overstretching by opening in new developments, particularly CityCenter, a joint venture by MGM Mirage and Dubai World, and the Cosmopolitan Resort & Casino, a $3.5 billion property controlled by Deutsche Bank that is slated to have 50 brand-name shops.

“There’s so much luxury here, I’m surprised they can find luxury brands,” said Wendy Albert, Miracle Mile’s senior director of marketing. “I mean, how many Cartier watches can you own?”

Despite the storm clouds, there is an underlying belief in Las Vegas’ ability to take a punch. “Las Vegas is a survivor,” said The Forum Shops’ Crampton.

“Certainly, there are some challenges now, but I am confident it will rebound in the long run,” said Daniel Lalonde, president and ceo of Louis Vuitton North America, which has five stores in Las Vegas and is to open the sixth at CityCenter. “We have a long-term perspective on plans and investments in Las Vegas.”

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