Retail is an important part of gaming, yet it's a bit different from other amenities. Whereas food, beverage and entertainment have been organic components of gaming, retail has a separateness about it. For example, you could have a casino property without retail, but it's highly unlikely to have a casino without food and beverage. As a result, many of us may not be as aware of retail in gaming relative to other amenities more seeded in it. This article is designed to broaden our understanding of how to properly build a retail component in a casino property. We include the best and the brightest of the pioneers who have developed retail components on gaming properties. They weigh in from every perspective of retail; from strategic planning to retail real estate development to buying behaviors to living the life of a merchant. They describe the building blocks of knowledge and how to use them to build a successful retail component.

Building Block 1
Looking Back and Going Forward

If you were to trace the history of amenities as an important feature of gaming, you would find the path to be marked by staggered and mercurial growth.

Industry veteran Alan Feldman, senior vice president of public affairs for MGM Mirage, believes it started with Jay Sarno and his brainchild, Caesars Palace:

"Jay Sarno first put into place the notion of a themed property and at its core, the experience of visiting for its theme as opposed to just a casino," Feldman explains. "From 1966 when he opened Caesars to '89 when the Mirage opened, no one else took up the mantle."

The Mirage changed the way the gaming industry did business, according to Feldman.

"Caesars had proven that people come to Las Vegas to see, do and experience things they can't at home," he says. "They came because this was a fantasy land, and what we learned in the 20 years since are really ways to express that in a business strategy."

Fast-forward 20 years and gaming has boomed in Las Vegas, Atlantic City, tribal and regional properties, and around the world. But the road map that has been followed originated with the Las Vegas experiment.

Offering non-gaming amenities in a casino resort environment in some cases contributes more than 50 percent to its revenue base. They broaden a property's customer base, enhance the guest experience, lengthen their time of stay, while reinforcing their loyalty and the property's brand. Amenity portfolios have driven the growth of the gaming industry and include such items as signature-chef restaurants, world-class spas, golf and tennis amenities, Broadway shows, convention facilities and, of course, retail. Retail has been as varied as a convenience/logo store to a world-class mall.
 

Building Block 2
How to Develop an Amenity Portfolio

Deciding what to offer and how much of your property should be dedicated to a particular amenity is a science and an art. The trick is to strike a delicate balance between the two. To create a strategy, some companies bring in the experts.

Jason Spillerman, principal of the Philadelphia-based Vibrant Development Group, along with his partner, Chuck Bragitikos, served as "strategic advisers" to the development of the Quarter in Atlantic City, a 200,000-square-foot retail, entertainment and dining complex that anchors the Tropicana Casino Resort. The team specializes in developing amenity portfolios for hotel and gaming operators.

Developed in the mid-1990s, the Quarter was a first for Atlantic City, and they served as pioneers in changing the destination landscape.

"In Atlantic City, until we did the Tropicana and the Quarter, it was very much like Las Vegas before the Mirage opened," says Spillerman. "Atlantic City was very gaming-centric. There wasn't anything else for people to do."

The team worked with senior casino management in prioritizing needs and the owner's ideas.

"We get very grounded in what the owner's goals are for the development," says Spillerman.

Beyond the dollars and cents analysis, which include evaluating critical mass and critical mix, they develop a strategic development plan, which, upon approval, they execute with the cooperation of casino management.

Feldman observes that the strategic thinking process varies across the industry depending on a property's size and experience. But at heart, it is "trying to strike the right balance between what's new and exciting, and what's realistic, achievable, affordable," he says. "It's a very complex matrix. There is nothing easy about it. There are very tough decisions to make along the way."

Even in the breakthrough days of developing the Mirage, management relied on a team of professionals from in-house executives to research firms and market analysts. To this day, those same approaches are employed by MGM Mirage.


Building Block 3
Retail in Context to Other Amenities

In strategically thinking about retail, executives need to consider the goals of retail in their property. Ask the question in the context of how retail will interact with other property amenities, and what they should accomplish.    

The answers lie in identifying your property: a resort destination, a "stay-cation" facility or a day-tripper property. Some properties answer to all three functions while others are a hybrid of each. Most important, understand the target audience-current customers and potential customers. In summary, five key factors should always be at work in determining what amenities you should offer

• The selection has to be approached strategically with decisions made by key executives.
• Amenities do not work in a vacuum but together to maximize revenue and brand recognition.
• Know the customer and target audience.
• Understand the competition.
• And know how much is enough.

There is a difference between offering retail as an amenity and offering it as a destination experience. The retail amenity is composed of limited square footage designed to keep the guest on the property longer.

Retail as a destination is designed to keep the current guest engaged on the property and to encourage new customers to visit. Destination retail opens revenue potential exponentially relative to the amenity model. Not all properties, however, lend themselves to a clear decision.

For Frank Volk, Las Vegas-based executive vice president of the national retail real estate advisory firm, Robert K. Futterman & Associates, the model for consideration starts with looking at a hotel as a neighborhood and then at the market in which it is situated.

"Your hotel is your neighborhood," Volk says. "You are essentially building it vertically and it changes every 3.5 days, but generally you know the demographic of the hotel so you can tailor the tenant mix to that demographic. You can stop right with the neighborhood model and offer retail as an amenity to your guests."

To use retail as a draw to bring people into the property, according to Volk, executives must take a market perspective and build a critical mass of stores that are synergistic to the demographic you wish to attract.

"The reality is, there is a square footage that you need to achieve in order to run a full gamut of merchandising mix and restaurants outside of the programming of the hotel that would attract folks to your hotel as a destination," he says.

According to Dan Sheridan, executive vice president, General Growth Properties, Inc (GGP), who is responsible for GGP's Canal Shops at the Venetian and Shoppes at Palazzo, there is no set formula for deciding how much retail is appropriate.

"We look at many factors: the size of the resort, number of hotel rooms, the convention/meeting component, the location (isolated or part of a condensed area like Las Vegas Boulevard), the target audience and a few more. These factors will determine the amount of retail these things can support."
 

Building Block 4
Do It Yourself or Call in an Expert?

The answer depends upon your property's amount of experience in retail. Further, there are varying types of expertise necessary to developing retail. There is the retail real estate expertise, which offers property development, leasing and management, and there is merchant advisory expertise, which offers market research, experience in consumer buying behaviors and retail operations. Then, there is the combination of the two, as evidenced by a casino having an in-house retail department. In this instance, the department can work alone and/or call on a third party. An example is a resort that owns multiple properties featuring numerous stores per property and that has retail experience such as MGM Mirage; or a property that has a sizeable retail component such as the Water Club and the Borgata in Atlantic City or the Mohegan Sun.

The industry tends to use retail real estate expertise and merchant advisories when a property is planning for multiple stores. Sheridan echoes the best advantage of bringing in a third party retail real estate expert.

"We know the retailers that the casino might be interested in, whatever their target for their resort we have the relationships in the retail industry to help bring that together," he says.

Jordan Covell, executive director of retail operations for the 18 stores at the Borgata and the Water Club, says a merchant adviser has a wide knowledge of retail, including how to set up the stores and their operation, and can help determine the scope of retail.

"You always need studies of what your demographics are, what your customer range is, and what kind of merchant they will be attracted to," he says. "All these things need to be discussed and understood before beginning an operation. So third parties for the most part are qualified to understand these things and can bring a wealth of knowledge to opening the proper operation."
 

Building Block 5
Avoid Making Common Mistakes

The pitfalls begin when a property with no retail experience wants to do it themselves and tasks an executive with other responsibilities, typically in operations. In this scenario, the executive has a narrow window of time as he is juggling other responsibilities.

"With third parties," Volk observes, "you get an extra set of eyes using people who are familiar with deal structure. You should be saving money and achieving better returns on the capital. The retail mix might be broader in scope, or at least you should touch a wider pool of potential tenants than

if you just tasked an executive doing something else for the hotel."

Sheridan observes the property is apt to "make the wrong assumptions of who their customer would be. People who are in the gaming business have a tendency to read and merchandise according to what they want as opposed to really understanding who their customer is going to be."

Covell thinks a gaming resort would not be fully aware of the retail competition and what they're doing and selling. 

"Most people tend to exaggerate or over-predict sales volumes," he says. "You have to be very careful of that. You also need to understand that gaming is a very regulated industry. There are compliance issues, so you have to make sure that a vendor is secure and can supply things in a timely fashion in this environment."

On the other hand, complete reliance on a third party can be an even greater mistake. The perception of a customer or visitor is that all the amenities of a property are being delivered by single management, a single entity, a single brand. They don't know that the property may have leased or sold an amenity to a third party. If the customer does not have a positive, seamless experience, you have a problem.

"It's important to remember that you own your brand and your customer will hold you accountable for everything that happens within your brand," says MGM Mirage's Feldman, "and so no matter what the relationship is with your retail or restaurant space, your customers will still hold you accountable. No matter who you want to turn it over to, it is still yours, and to relinquish too much control could be a huge problem."

For GGP, whose retail developments are on Las Vegas Sands properties, constant communication with Las Vegas Sands is the key to a successful and seamless relationship with the customer.

"As a very practical matter," says Sheridan, "we are tied to each other. To the extent that the Grand Canal Shoppes is successful, that's good for the larger Venetian and Palazzo resorts. And to the extent that Venetian and Palazzo are successful, that's good for the Canal Shoppes."

Building Block 6
Determine Retail Placement to Maximize Revenue

A retail component has to work in concert with all other amenities. The footprint has to be designed to maximize revenue on every level of the guest's experience. At the heart of this process is recognizing that a property has an energy level which changes throughout the day and that your customer profile changes commensurately. The best blueprints for amenities are drawn with this knowledge.

Master architect team Tom Wucherer and Jon Sparer, principals of Las Vegas-based YWS Architects, have practiced this approach. Their specialty is building total leisure-oriented projects.

"Often, retail is one of these things that really works best grouped together for you get a real synergy happening," says Sparer. "The really successful casino properties, certainly in Las Vegas, have major corridors for people to walk from one place to the other. You don't want retail at a dead end; that's the death for those shops."

Part of understanding where retail gets placed, according to Wucherer, "is understanding where retail is in context to the other amenities. It's not just about retail, it's about how it interacts with other amenities in this mixed-use environment."

From the merchant's perspective, retail is all about location, regardless if a store is in a mall on Main Street or in a casino property. So a merchant will not be satisfied if he cannot achieve traffic and revenue in a location that also serves the casino's purpose.

"Where you strategically place your retail is all about location and it doesn't change in this environment either," says Covell. "You may place a gift shop or convenience beverage and snack store in a less convenient location because people may have to find it if they really need something that is only sold in that store. You really have to have the right plan when you roll out your retail structure of what you think or believe will be successful for your entire retail establishment."

Building Block 7
Create a Compelling Merchant Mix
 
To have a successful retail component, an operator must know his market, his property's brand and offer a compelling merchant mix that is synergistic with the demographic of the casino's target audience.

Would you place a series of high-end luxury stores on a mid-market property? Probably not. The stores' price points do not coincide with the spending profile of the customer.

Would you place mid-market stores on a high-end property? The answer is not as clear-cut. Today's luxury shopper is buying both at Neiman Marcus and Wal-Mart. In this scenario, the magic should be in designing a merchant mix that still reinforces the property's brand as high-end and yet it is peppered with a few mid-market stores in categories that do not compete with the categories filled by the high-end collection. The mid-market stores may serve a purpose in filling a void to complete the retail property-for example, a drug store or a convenience store.

It's also necessary to have a compelling mix of stores. The concept of "compelling" is directly tied to understanding the discretionary consumer and their motivations to shop on your casino property. When a casino development includes a hotel, the overnight-stay feature sets the stage for offering multiple stores on the property. The hotel may be in a destination resort such as Las Vegas or be a regional, weekend getaway, such as the Mohegan Sun. In both situations, the consumer is in a vacation-oriented mindset and as such has a pre-disposition to indulge in spending money.

Farid Matraki, vice president and general manager of Crystals, the 750,000-square-foot retail and entertainment destination at CityCenter Las Vegas, notes, "When you are on a resort property, you are already on vacation. You are looking at the mindset that you are going to spend money."

Merchants, however, must compete against a number of different diversions for the disposable dollar. Not only are they competing against gaming, dining, shows and spas, to name a few, they are also competing against the shopping in their immediate market and shopping back at the potential customer's home.

Planning a mix of stores that customers won't see at home sets the stage for getting their attention to the retail area. Then it's up to the merchant. The merchant must differentiate their products by offering unique, unusual, or great depth of variety in category that is not offered by immediate competition or the stores back home.

Ezra Bekhor, a 30-year retail veteran who is president of LV Luxury Holdings, LLC, with four high-end jewelry stores in the Grand Canal Shoppes and Palazzo, says that there is a big difference in a neighborhood store and a resort establishment.

"In a resort," he says, "you have to have the product on hand. The customer is here for two or three days. If you don't have it, it's rare that people will say, 'Order it for me.' You also have to offer them something here that they won't see back home."

Jojo Zanone-Pucci works with the customer every day as store director and buyer for Bellusso, which features unusual timepieces at the Palazzo, agrees.

"You have to not only offer what is popular at the moment, but you have to have things so highly unusual that they (the customer) cannot get it anywhere else, and that's how you keep that captive audience," she explains.

Building Block 8
Avoid the "Change Over" Trap

"Location, location, location" is the mantra seasoned retailers follow for success. Savvy merchants choose properties whose tenant mix matches their demographic. But what happens to an existing merchant if there is turnover of tenants and the replacements do not match the profile of the property as originally planned? The change can threaten the livelihood of the existing merchant, especially if they are tied to a long-term lease. Perhaps the original plan did not work because of some strategic miscalculation of the developer and thus the turnover was warranted. But then again, maybe the merchant was simply not a good business operator.

Whatever the reason, the risk exists to a merchant that change may occur when going into a new property. Bekhor has seen this over 30 years.

"It's down the line where they have some changeover of tenants and usually a changeover is because they are not successful, and you see a loosening of the standards," he says. 

As a result, it is critical that the merchant, when going to a new property, ensures that the casino developer and property management company are committed to their original plan and brand and that his fellow neighbors are solid operators.

Building Block 9
Dare to Work Smart and Be Innovative

It would be naïve to not include the state of the economy today in considering a retail component on a gaming property. Gaming and retail are two industries whose survival is inextricably tied to the consumer, whose spending habits have changed. The consumer at all income strata has pulled back on spending. Most consumers are buying what is essential and are looking for value whenever they part with their dollar.

Many retail experts believe that today's shopper is more grounded, thoughtful and less impulsive in their buying behavior, and that pattern is here to stay. Add to this reality that brick-and-mortar growth in gaming has all but stopped as the flow of cash and credit has been stunted. The result is any critical thinking about the future of retail and gaming calls for the industry to work smarter and be innovative with resources. 

By Pamela Joy Ring

Pamela Joy Ring, president  of Ring Retail Advisory, LLC, specializes in consulting resort and casino properties, retail real estate developers, retailers and consumers goods/services businesses in developing and improving their retail operations. As a business owner of a successful nationwide retail company, her 30-year track record of creating and growing retail and consumer-driven businesses is matched by her reputation for assisting clients in optimizing market reach and bottom line results. She is an author, speaker and serves on G2E’s 2009 board of advisers developing the conference’s retail curricula. Ring can be reached at 702-338-2665 or pamela@ringretailadvisory.com. Visit the website at www.ringretailadvisory.com.