Retail at Indian Casinos: The Why, When and Where
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46 Indian Gaming December 2011 Retail at Indian Casinos: The Why, When and Where by James M. Klas PROPERTY DEVELOPMENT W hy put retail in a casino complex? Of course you probably want to have a little gift shop with some sundry items and a few logo gifts, everybody has that. But why bother with more? After all, you want people to spend their money on the slot machines and they make more anyway, don’t they? Not all that long ago, this was the prevailing attitude in the casino world. When the Forum Shops at Caesar’s were being developed, many predicted a failure and few predicted a smashing success. But a funny thing happened. The Forum set records for retail sales per square foot, became a must see attraction, and spawned a series of “me too” projects to the point that major, high-end retail developments are now an expected part of Las Vegas Casino resorts. There are actually many reasons why retail works well in an Indian gaming environment as well. From the retail standpoint the biggest attraction is foot traffic. Casinos attract large numbers of people year-round, often from outside the local area, providing concentrated foot traffic that retailers need to succeed. Often they accomplish this more easily, more depend- ably, and less expensively than any retail only concentration in the same location could. From the casino perspective, foot traffic can also be an important reason to add retail. Many specialty retail stores have high name recognition, strong brand loyalty and the ability to draw patrons that might not otherwise come, at least as often. Retail also can meet the needs and wants of customers on-site, giving them reason to stay longer and leave more dollars behind. Expanded retail offers a proven and popular way to generate more revenue from a site when more space is available than is needed by the gaming operation. It can diver- sify economic activity, add employment, provide opportunities for tribal entrepreneurs, meet the shopping needs of tribal members, and develop experience and a knowledge base amongst tribal leadership that can be leveraged into further on or off-reservation economic development initiatives. Indian casinos have one additional unique “why” that other casino operators lack. As governmental entities with taxing authority, tribes can make additional revenue off of retail operations whether or not they operate them directly. They can also choose to forego a portion of the tax revenue to allow the retail operations to offer discounted prices and increase their drawing power. While the ability to tax provides a powerful added incentive to consider retail development, it can be complicated to execute and may require tax compacts with the state and consideration of tax impacts on other on-reservation tribal businesses. When should you consider expanding retail at your casino? Space availability is a critical issue in whether and when to add retail. If the size of the site is limited, gaming and other direct supporting amenities (basic restaurants and bars, along with hotel rooms if appropriate) must be allocated sufficient space to maximize their performance potential. Once those compo- nents have been accommodated, other components such as expanded retail, specialty restaurants and bars, entertainment facilities, function space, and other recreational amenities come into play. There are actually several different types of retail that can be offered that coincide with the different reasons why customers might choose to buy. Convenience retail caters to the immediate needs of patrons for items they forgot, ran out of, or consume quickly. Impulse retail caters to many of the same shoppers but with items that they want rather than need, and that often have higher markups. Souvenir retail caters to shoppers seeking to find a tangible item to enhance their memories of their visit and to show others where they have been. Indulgence retail provides luxury items to patrons wanting to do some extra celebrating. General retail caters to the on-going regular needs of patrons whether on a weekly, monthly, yearly, or longer term basis. Destination retail can incorporate one or more of the other types described but has the unique charac- teristic of offering patrons from a wider area products that are highly desirable, usually specialized, and not readily available from other sources, at least not with the same price, quality, selection, or atmosphere. When to add any of these types of retail depends heavily on when it is reasonable to expect sufficient foot traffic of the type of customer needed. Except for destination retail, the neces- sary foot traffic must either come from the patrons already being drawn by the casino or from other local residents with demon- strated need. If the patronage will not be coming directly from casino customers, it must be of the type that can provide spillover business to the casino and will not disrupt other gaming customers. Otherwise it will be counterproductive to the primary business of the complex. Whether the casino is generating enough foot traffic to support expanded retail will depend in turn on its size, drawing radius, and presence of lodging and other supporting amenities and attractions. Destination retail by definition can be expected to supply its own customer base, provided the demand from within its reasonable drawing area is sufficient. Other casino customers will then provide added demand to the retail operation but not necessarily the largest component. It is even more important
Transcript of Retail at Indian Casinos: The Why, When and Where
46 Indian Gaming December 2011
Retail at Indian Casinos: The Why, When and Where
by James M.Klas
PROPERTY DEVELOPMENT
Why put retail in a casino complex? Of course youprobably want to have a little gift shop with some
sundry items and a few logo gifts, everybody has that. But whybother with more? After all, you want people to spend theirmoney on the slot machines and they make more anyway,don’t they? Not all that long ago, this was the prevailingattitude in the casino world. When the Forum Shops atCaesar’s were being developed, many predicted a failure andfew predicted a smashing success. But a funny thinghappened. The Forum set records for retail sales per square foot,became a must see attraction, and spawned a series of “me too”projects to the point that major, high-end retail developmentsare now an expected part of Las Vegas Casino resorts.
There are actually many reasons why retail works well in anIndian gaming environment as well. From the retail standpointthe biggest attraction is foot traffic. Casinos attract largenumbers of people year-round, often from outside the local area,providing concentrated foot traffic that retailers need tosucceed. Often they accomplish this more easily, more depend-ably, and less expensively than any retail only concentration inthe same location could.
From the casino perspective, foot traffic can also be animportant reason to add retail. Many specialty retail stores havehigh name recognition, strong brand loyalty and the ability todraw patrons that might not otherwise come, at least as often.Retail also can meet the needs and wants of customers on-site,giving them reason to stay longer and leave more dollarsbehind. Expanded retail offers a proven and popular way togenerate more revenue from a site when more space isavailable than is needed by the gaming operation. It can diver-sify economic activity, add employment, provide opportunitiesfor tribal entrepreneurs, meet the shopping needs of tribalmembers, and develop experience and a knowledge baseamongst tribal leadership that can be leveraged into further onor off-reservation economic development initiatives.
Indian casinos have one additional unique “why” that othercasino operators lack. As governmental entities with taxingauthority, tribes can make additional revenue off of retailoperations whether or not they operate them directly. They canalso choose to forego a portion of the tax revenue to allow theretail operations to offer discounted prices and increase theirdrawing power. While the ability to tax provides a powerfuladded incentive to consider retail development, it can becomplicated to execute and may require tax compacts with thestate and consideration of tax impacts on other on-reservationtribal businesses.
When should you consider expanding retail at your casino?Space availability is a critical issue in whether and when to addretail. If the size of the site is limited, gaming and other directsupporting amenities (basic restaurants and bars, along withhotel rooms if appropriate) must be allocated sufficient spaceto maximize their performance potential. Once those compo-nents have been accommodated, other components such asexpanded retail, specialty restaurants and bars, entertainmentfacilities, function space, and other recreational amenitiescome into play.
There are actually several different types of retail that canbe offered that coincide with the different reasons whycustomers might choose to buy. Convenience retail caters tothe immediate needs of patrons for items they forgot, ran outof, or consume quickly. Impulse retail caters to many of the sameshoppers but with items that they want rather than need, andthat often have higher markups. Souvenir retail caters toshoppers seeking to find a tangible item to enhance theirmemories of their visit and to show others where they have been.Indulgence retail provides luxury items to patrons wanting todo some extra celebrating. General retail caters to the on-goingregular needs of patrons whether on a weekly, monthly, yearly,or longer term basis. Destination retail can incorporate one ormore of the other types described but has the unique charac-teristic of offering patrons from a wider area products that arehighly desirable, usually specialized, and not readily availablefrom other sources, at least not with the same price, quality,selection, or atmosphere.
When to add any of these types of retail depends heavily onwhen it is reasonable to expect sufficient foot traffic of the typeof customer needed. Except for destination retail, the neces-sary foot traffic must either come from the patrons already beingdrawn by the casino or from other local residents with demon-strated need. If the patronage will not be coming directlyfrom casino customers, it must be of the type that can providespillover business to the casino and will not disrupt othergaming customers. Otherwise it will be counterproductive tothe primary business of the complex. Whether the casino isgenerating enough foot traffic to support expanded retail willdepend in turn on its size, drawing radius, and presence oflodging and other supporting amenities and attractions.
Destination retail by definition can be expected to supplyits own customer base, provided the demand from within itsreasonable drawing area is sufficient. Other casino customerswill then provide added demand to the retail operation but notnecessarily the largest component. It is even more important
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that the customers attracted bydestination retail be the type that canprovide spillover business to the casinowithout disrupting other gamingpatrons. It is also important that thecasino be large enough to accommo-date the extra demand.
Where to put the retail dependsprimarily upon what type of retail itis. Convenience retail, as the nameimplies, needs to be located where itis easiest for customers to access. If thecasino has an attached hotel, in ornear the lobby of the hotel is commonand desirable. An alternative locationis somewhere within sight of andeasily reached from the main entranceof the casino, although it does nothave to be right at the entrance itself.Impulse retail has the same basiclocation considerations as convenienceretail. Impulse retail depends heavilyon visibility, on customers seeing theinteresting items for sale. Thereforeit also needs to be in visible, high-traffic areas such as near entrances orhotel lobbies. Souvenir and indul-gence retail does not have the sameneed to be immediately visible andaccessible. Customers need to know itis available and how to get to it.However, they will be willing to travela little farther afield to get to this typeof retail outlet.
All of the categories mentioned inthe previous paragraph, even souvenirand indulgence retail, need to beconnected to the casino. The primarysource of demand for these retailcomponents is destination oriented,coming to the casino primarily forgaming, often from outside the localarea. These customers will not wantto leave the casino complex to visit theretail outlets and would be unlikely toreturn to the casino if they did.Except for convenience items, thesecustomers are also not looking forwhat they can get easily at home.
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They are looking for items that are new, unusual, different.The location profile for general retail is entirely different.
The majority of the patrons for general retail outletswill come from the local market. The goal of the generalretail operation is to provide these customers with their basicongoing or recurring needs at a good price in a pleasantenvironment. Connection to the casino is not necessary andmay not be helpful. Local customers seeking general retail wantto be able to park next to the store and get in and out withouthaving to find their way through a casino floor or a hotellobby.
If connection to the casino is a negative, why consider generalretail at all? General retail can still diversify the economic base,add employment, increase the profile of the site as an anchorfor the local community, generate at least some possiblespillover demand, and most of all, provide the added taxrevenue discussed previously. Still, general retail is perhaps theleast likely component to add to a casino setting and requiresample land to meet the location requirements described.
Destination retail is best located near or connected to the
casino to maximize the cross fertilization between the twooperations. However, destination retail usually has space,parking and access requirements that can conflict with the needsof the casino if their relative locations are poorly thought out.In order to be successful, the location of the destination retail,including visibility, access, and parking, must fit the usualparameters for the retail outlet. In order to be most beneficialto the associated casino, the location of the destination retailmust allow for maximum spillover of retail demand to thegaming operation, without impeding the access to the casinofor other gaming patrons.
Las Vegas has known for some time that retail can be avaluable addition to a casino resort complex. Indian casinos arebeginning to see the value as well. The key is to know why youare adding it , when the time is right, and where it belongs tobring the most benefit. �
James M. Klas is Co-Founder and Principal of KlasRobinsonQ.E.D. He can be reached by calling (800) 475-8140 oremail [email protected].
4132 S. Rainbow Boulevard Suite 148, Las Vegas Nevada 89103, Phone: 702.220.4562 Fax: 702.220.9784 www.apmlasvegas.com
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