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SURE BET

Casino-retail a potent brew, developers find

BY JOEL GROOVER

Gambling generated little buzz at the grand opening of the $2.7 billion Wynn Las Vegas resort and casino last month. Instead, it was the development’s 75,000-square-foot retail esplanade that stole the spotlight, with such high-end icons as Christian Dior, Louis Vuitton and Oscar de la Renta. These, plus a store selling Ferraris and Masseratis, attracted media, celebrities and shoppers to what developer Steve Wynn touted as the final word in Las Vegas luxury shopping.

The Wynn Las Vegas is the latest example of a casino resort attracting retailers. But the trend is becoming a two-way street these days.

The proposal to build a gambling resort at the famed Mall of America in Bloomington, Minn., for example, will be closely watched by both industries, says Jim Domoracki, senior vice president of hospitality at Las Vegas-based Pinnacle Entertainment, which owns casinos and card clubs in six states.

For a Nordstrom or even a Wal-Mart Supercenter to rake in $1 billion a year is a tall order, after all. But a new study speculates that a casino at Mall of America would hit this 10-figure jackpot within four years of opening. “It would be quite a coup,” Domoracki said. “In my opinion, it would be the start of many [similar developments] across the country.”

If the concept of bringing gambling to retail still hangs in the balance, the process of bringing retail to gambling is well under way — and accelerating. In Las Vegas, Atlantic City and smaller markets in between, new casino-oriented retail projects are already in the pipeline, from outlets to big-box stores to rows of chic boutiques. Meanwhile, New York City-based Gordon Group Holdings, creator of Las Vegas’ The Forum Shops at Caesars, is talking with top casino companies about the potential for future collaborations, says Scott Gordon, president and director of development and the son of the firm’s founder.

In the interests of spurring casino-oriented retail, Gordon Group recently signed a joint development agreement with Taubman Centers. “We’re really excited about the partnership and expect a lot more of these types of projects to come down the pike,” Gordon said. “Frankly, we expect to do more of them concurrently, rather than one-by-one.”

Taubman has acquired a 30 percent stake in The Pier at Caesars, a 575,000-square-foot redevelopment set to open next year on Atlantic City, N.J.’s Boardwalk that could be described as a Forum Shops for the Eastern seaboard. Gordon Group is developing the $175 million project for Las Vegas-based Caesars Entertainment. It will contain nine restaurants, a sky bridge to Caesars casino, a three-level water, light and music show and 90 elite retailers, including Burberry, Gucci, Hugo Boss and Louis Vuitton.

Gordon predicts that the Pier’s sales per square foot will exceed $600 and could one day rival the Forum Shops’ legendary numbers — among the highest in the country at $1,300 per square foot. (By comparison, the national average for regional malls is only about a quarter of that, at $341 per square foot.)

The Pier at Caesars comes at a time when Atlantic City is working hard to transform itself into an entertainment destination on a par with Vegas. Combined gaming revenues at the city’s 12 casinos continue to rise (they totaled $396 million for March alone, up 1.9 percent over March of last year). But to make its 38 million annual visitors stay longer and spend more, Atlantic City still needs a greater variety of nongambling attractions, says Richard Santoro, president of the New Jersey Retail Merchants Association.

First and foremost, Santoro says, the city needs more retail. “It’s one of the major components that has always been missing,” he says. “Atlantic City has always been about the casinos and nothing more. People would visit for a day or two and then, when they were finished gambling, just go home.”

That began to change in August when the Baltimore-based Cordish Co. opened a project called Atlantic City Outlets — The Walk, a 320,000-square-foot outlet mall between the convention center, the Atlantic City Expressway and the Boardwalk. Gamblers weary of feeding the slots can now stroll through 45 shops at the fully leased center. Tenants include Brooks Bros., Coach, Gap, H&M, Liz Claiborne, Nautica and Polo.

With average sales per square foot of $400 and a waiting list for tenants, the Walk is now set to double in size. In April Cordish announced plans to add a $155 million, 350,000-square-foot expansion of outlet shops, offices and residential units to be completed sometime in 2006. When the second phase is completed, the entire project will span 12 city blocks at a total cost of $300 million.

Meanwhile, The Quarter, a 220,000-square-foot expansion of the Tropicana Casino and Resort’s nongambling amenities, has thrived since opening in November (one Atlantic City insider says its shops and restaurants already earn about $1,000 per square foot). The $280 million project includes restaurants, clubs, a spa, an Imax theater and 25 upscale retailers in a three-story, Old Havana-themed streetscape.

It may seem obvious today that casinos’ sheer drawing power makes them a natural fit for retail. But in the late 1980s, longtime mall developer Sheldon M. Gordon, now Gordon Group’s chairman, had to struggle to woo retailers to the proposed Forum Shops. This despite the fact that he had conceived the project based on his observation that Caesars foot traffic trumped even Macy’s on West 34th Street in New York City.

“My father ran up against quite a bit of resistance from retailers who believed gamblers wouldn’t shop where they gamble,” Scott Gordon recalls. “They thought they would spend all their money and time at the slots or the tables and do their shopping at home.”

In fact, gamblers are more likely than everyday consumers to make tangible purchases, says William N. Thompson, a professor at the University of Nevada, Las Vegas, who studies gambling. “When people win, they feel it is someone else’s money, and they’re more amenable to spending it,” he said. “When they lose, it helps to take something home.”

Las Vegas’ throngs of conventioneers, too, spend freely, says John L. Bucksbaum, SCSM, CEO of General Growth Properties. “They’re not necessarily working all the time, and they may bring their spouses with them,” he said. “Shopping on vacation is a very popular pastime. People are somewhat geared to shop while in Las Vegas.”

The city’s burgeoning convention business was part of the reason the Chicago-based REIT acquired The Grand Canal Shoppes at The Venetian Hotel & Casino for $766 million in April 2004. The upscale shops and restaurants along its cobblestone corridors now earn sales per square foot in excess of an average $1,000 a square foot per year, Bucksbaum says.

Tremendous population density makes Las Vegas a special case, he says. Grand Canal Shoppes sits within walking distance of more than 10,000 hotel rooms, for example. And the attractions keep coming, including MGM Grand’s plans to develop a multibillion-dollar “urban metropolis” on the Strip.

Smaller-scale casinos elsewhere in Las Vegas and elsewhere in the country have embraced this emphasis on nongambling amenities, and that creates opportunities for the retail industry, says Pinnacle’s Domoracki.

Take the Silverton, a short drive south of the Strip on Interstate 15. In January the 60,000-square-foot casino completed a renovation that included a 175,000-square-foot Bass Pro Shops Outdoor World. The Silverton’s owners, Los Angeles-based Majestic Realty Co., reportedly plan to build a large retail development on the remaining 80 acres that will be comparable to Santa Monica’s Third Street Promenade or Irvine (Calif.) Spectrum Center.

On the Tulalip Indian Reservation in Snohomish County, Wash., the Tulalip casino shares its site with The Home Depot, a 24-hour Wal-Mart Supercenter and the recently opened Seattle Premium Outlets.

At such developments, casinos and retail stores work together like the two poles of a magnet, proponents say. No wonder the Ghermezian family, majority owners of Mall of America, pounced when Gov. Tim Pawlenty floated the idea of bringing an Indian casino to the Twin Cities area.

The Ghermezians say they hope to add the gambling resort as part of the mall’s $1 billion second-phase expansion. At press time the casino proposal faced an uphill battle in the Minnesota Legislature, which would have to amend state law for the project to move forward.

Nonetheless, the question remains: Could the mall anchor of the future offer not fashionable clothes or discount hard goods but blackjack, roulette and no-limit Texas hold ’em? Place your bets.