By  on October 16, 2007

From Las Vegas to Macau, the synergy between stores and gaming presents myriad opportunities.

Not long ago, it would have been difficult to imagine Robert Taubman, chairman and chief executive officer of Taubman Centers Inc., strolling down the Atlantic City , N.J., Boardwalk. He's not a gambler and his highly productive shopping centers, which at $540 a square foot lead the real estate investment trust industry, are primarily situated in affluent urban and suburban settings, including Los Angeles and Short Hills, N.J.

But there's a new dimension to the portfolio and it's growing. Last year, Taubman Centers took a 77.7 percent stake in The Pier Shops at Caesars, which juts into the ocean off Atlantic City's Boardwalk and has attracted luxury players Burberry, Bottega Veneta, Gucci, Scoop NYC and Salvatore Ferragamo, as well as many more moderate-priced retailers.

In addition, Taubman is developing a 920,000-square-foot studio-retail complex at the $2 billion Macao Studio City project on the Cotai Strip, scheduled to open in mid-2009, and leasing a 500,000-square-foot retail setting for CityCenter, MGM's $7 billion "vertical city" on the Las Vegas Strip in late 2009.

"It's become very clear that casino-retail relationships are very, very synergistic," Taubman said in an interview. "We're seeing some of the highest performing retail stores, especially at the higher end, the luxury tenant, sitting in these gaming markets."

That's true for Salvatore Ferragamo, which operates 25 retail stores in the U.S. "Our Las Vegas store generates about two-and-a-half times the revenue of our average mall store," said Vincent Ottomanelli, president of Ferragamo USA.

Ferragamo's 12-year-old Las Vegas store in the Forum Shops at Caesars is 5,500 square feet, versus the typical 3,500-square-foot unit the Italian brand operates. "In Vegas, all of the folks you compete with have big presentations, so in order to be successful, you must have a strong location," Ottomanelli said, adding that Ferragamo is strategically situated in a corner near Louis Vuitton and Gucci, and has "great frontage....It's the presence that we went for."

Along with its high productivity, Ferragamo's Vegas store is unusual in its breakdown of sales. Ottomanelli said the typical Ferragamo store in the U.S. does 56 percent in women's sales, 40 percent in men's, and the rest in children's, sunglasses, watches and fragrance. In Vegas, it's almost the opposite, with men's accounting for 56 percent of sales, driven by shoes, duffel bags and other large luggage, and women's 40 percent. Within women's, 25 percent of sales are handbags, with a price point average of $1,500. In a typical store, handbags represent 20 percent of women's. "That 5 percent represents a lot of business," Ottomanelli said.For any retailer in Vegas, even one with a flourishing shop in the uberproductive Forum Shops, which exceeds $1,400 in sales per square foot, a single location does not suffice. Many brands have opened or are considering opening multiple units along the Strip.

Retailers characterized the Vegas stores as among their best, surpassed only by a few world-class urban venues such as Fifth Avenue and Madison Avenue in New York, Rodeo Drive in Beverly Hills and San Francisco's Union Square.

In Vegas, Ferragamo is opening a 3,500-square-foot store in the Palazzo, scheduled to launch in January and being developed by The Venetian. Sources close to Ralph Lauren, Calvin Klein White Label and Abercrombie & Fitch said they have indicated interest in opening more locations in Vegas. Barneys New York is also launching in the Palazzo, and Bergdorf Goodman has considered developments in Sin City for what would be its only location outside Manhattan. However, the plan has been put on hold and would have to entail a larger strategy involving additional branches in other cities to make it cost effective.

In a "normal'' town, luxury retailers would have a 10- or 25-mile radius restriction on building another location, Taubman said. But in Vegas, there's a different standard. "Even if you asked [luxury retailers] for a three-mile radius, they would say 'Forget it,'" Taubman said. With minimal restrictions, retailers are encouraged to open second, third, fourth and even fifth units.

The Vegas experience is elevating the prospects for better retailing in Atlantic City and across the globe in Macau, which has surpassed Vegas in gaming revenues and has about 20 hotel-casino projects on the Cotai Strip at various stages of development with retail components. Macau generated $6.95 billion in gaming revenues last year, exceeding the $6.08 billion in Las Vegas and about $5.5 billion in Atlantic City, according to published statistics.

"Our Vegas stores are very different from traditional mall settings; there's an intensity," said Tom Lennox, vice president of communications, Abercrombie & Fitch Co. "They tend to be extremely high-volume, heavily trafficked, strongly profitable stores driven by tourists. We've become very comfortable adding stores in Vegas. Rather than being in our stores to buy flip-flops or a pair of shorts, shoppers are in our stores to experience the brand. They buy a wide range of products. People travel to Vegas for entertainment and shopping and some bring extra luggage," to take home packages.Asked about other gaming venues, Lennox said, "Macau is another interesting opportunity, however the company is focused on pursuing opportunities in Europe first, where there are many."

Casinos have always blended well with shopping, including outlets that are often near Indian reservations that offer gambling, said Gary Ragusa, executive vice president of The Greenberg Group, an advisor to retailers on real estate issues. He cited the Cabazon outlet center in Palm Springs, Calif., as one of the top five outlet centers in the U.S., drawing $650 in sales per square foot. Another outlet center, Tulalip, which is north of Seattle, is also a popular destination.

"In Vegas, people usually go to one or two casinos, where they are staying or near where they are staying," Ragusa said. "Some people walk farther, but higher-end people really stay in one or two casinos tops, so if as a retailer, you only put a store in The Wynn and not in Caesars, you may be missing out on the Caesars crowd."

"There are 40 million visitors a year coming to Las Vegas," observed John Bucksbaum, ceo of General Growth Properties Inc., which owns the highly productive Fashion Show mall, the Grand Canal Shoppes in The Venetian, the retail portion of the Palazzo, and other major projects in the metro area.

Perhaps even more significant than the total head count is how fast people come and go in Vegas. "The people within your primary trade area are turning over every three days," Bucksbaum said. "That's very unique compared to a typical regional mall where there could be 250,000 people in the primary trade area but they are permanent residents. People tend to shop more when they are on vacation. They have more time to do it. And if they are attending a convention, there's a good chance they brought their spouse or significant other who will have time to go shopping."

In addition, retailers in the casino-hotels stay open later than stores in traditional malls or on streets, and will operate as late as 11 p.m. or midnight. "They do far more business late into the evening," Bucksbaum noted. "The situation for a Las Vegas store is much different from 98 or 99 percent of the other stores in the chain."Cushman Wakefield, which has a global retail leasing business, has been working on the leasing at three major properties in Macau: The Venetian Macao, Cotai Central and The Four Seasons.

The Venetian launched Aug. 28, with 80 percent of the stores open and almost 100 percent of the space leased. There's a range of apparel, accessories and food at different price points in about 1 million square feet of retail space.

The Four Seasons, scheduled for a 2008 opening, will have 211,000 square feet of retailing angling toward luxury brands, and Cotai Central will have 800,000 square feet of retail space incorporating larger boxes of as much as 20,000 square feet to try to differentiate from other retail settings nearby.

Gene Spiegelman, executive vice president of Cushman Wakefield, said he is meeting with 14 different retailers, including Calvin Klein, Nike Inc., Victoria's Secret, Urban Outfitters Inc., Steve & Barry's, Forever 21, J. Crew, American Eagle Outfitters Inc., Borders and American Rag Cie to get more U.S. brands to Macau.

Citing published statistics, Spiegelman said that, by 2009, there will be 4.2 million square feet of retail developed on the Cotai Strip, as well as 18,200 hotel rooms. Last year, prior to The Venetian opening, there was about 300,000 square feet of retail space and 11,700 hotel rooms.

"We are very interested in Macau," Ferragamo's Ottomanelli said. "Entertainment, gambling and retail together creates a very nice mix."

In most, but not all cases, apparently. "I sell more in Miami," said Roberto Cavalli, whose flashy, festive collections would seem to have strong appeal in any party city. "My store in the Forum Shops does very well. The people there shop a lot, but they shop for small things."

In Atlantic City, Abercrombie doesn't seem to be desperate to open. "We do not have a deal in place, nor are we pursuing a location," Lennox said.

Ferragamo's Atlantic City store "is not exceeding our expectations," Ottomanelli said. "We are doing some business, probably [at a rate] similar to most other retailers, but the casino traffic and performance is not meeting their expectations. It's a developing market. Las Vegas is a mature market."Taubman presents a more positive picture. "We believe strongly that over the next 10 years, you are going to see Atlantic City move to the Las Vegas model. There are about 10 projects in motion in Atlantic City" entailing hotels, gaming, dining and shopping, Taubman said. "I don't think it will be as dense [as Vegas]. You are not going to have six or seven Louis Vuittons. But, quite possibly over time, Atlantic City will have multiple locations for most luxury brands.

"The Pier is the main location for luxury brands and it is doing very well. Already in its first year, it's in the top third of our portfolio."

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