Luxury retail market hit by declining gaming revenue in Macau

Posted by | January 12, 2015 | Uncategorized

Luxury retail market hit by declining gaming revenue in Macau
Source: ©The Moodie Report
By Elly Glendenning
MACAU. Despite increased tourism numbers, Macau’s casinos posted their first annual revenue decline in 2014, a fall that hit the luxury retail market and which is expected to continue well into 2015.

Macau’s Gaming Inspection and Coordination Bureau last week released data showing a -2.6% fall in total annual revenue to MOP351.5 billion (US$44.1 billion).

The Chinese government’s campaign to curb excessive spending and corruption was a key contributor to the decline, alongside changing visa rules, a slowdown in the Chinese economy and tougher credit conditions. This has deterred many high-stakes gamblers from the Mainland, in turn denting luxury retail spend.

“The VIP heyday is over,” Philip Tulk, an analyst at Standard Chartered in Hong Kong told Bloomberg. “The anti-corruption crackdown doesn’t look to be a short-term phenomenon.” Tulk said that funds flows between the Mainland and Macau were being much more closely scrutinised, thus deterring many gamers.

Bloomberg pointed out that the crackdown has particularly deterred high rollers, who account for two-thirds of Macau’s casino receipts.

Shopping makes up 49% of visitor spending with Shoppes at The Venetian (pictured) among the luxury destinations
Macau, the only place in China where casinos are legal, enjoyed a decade of spectacular growth that saw it become the world’s largest gambling hub. In the process it enticed high rollers from Mainland China and elsewhere, prompting a related luxury retail boom.

However, gross monthly revenue growth from ‘Games of Fortune’ (gaming tables and slot machines) began to slip early in the year before sinking into negatives from June with a -3.7% fall year-on-year. October and December saw the largest monthly declines of -23.2% and -30.4% respectively.

Shopping spending distribution Q3 2014; Source: Government of Macao Special Administrative Region Statistics and Census Service Visitor Expenditure Survey

While revenue has declined, data from the Government of Macao Special Administrative Region Statistics and Census Service showed that visitor arrivals to Macau grew by +8.4% from January to November with Mainland Chinese visitors up +15.3%.

However total visitor spending for Q3 2014 increased by just +5% year-on-year to MOP15.5 billion (US$1,940 billion).
This recent edition of The Moodie Report e-Zine features a key interview with the world’s largest integrated resort operator, Las Vegas Sands Corp, focusing on its latest Macau developments including The Parisian. Click here to read.
A recent survey by the Government of Macao Special Administrative Region Statistics and Census Service showed that per-capita expenditure (excluding gambling) fell -1.4% year-on-year in the third quarter. With shopping making up nearly half total per-capita spending, sales of high-demand products such as watches, jewellery, food and leathergoods were affected.

Investment bank Nomura said today that it expects the decline to continue through Q1 2015 as premium mass gamblers follow VIP players and reduce their spending. If the daily revenue rebounds to MOP800 million (US$100.2 million) Nomura believes the market will stabilise and maintains a +8% gross gaming revenue increase estimate for 2015. However analyst consensus is still expected to point towards a downwards shift.

Bloomberg last week cited analysts Fitch, Credit Lyonnais Securities Asia and Wells Fargo & Co as forecasting that gaming revenue will continue to fall during 2015.

The agency’s report quoted Wells Fargo & Co Analysts Cameron McKnight from a note: “With revenue trends still decelerating sequentially, it is now unlikely that the overall Macau market will grow in 2015.”

However, new casino resorts opening later in the year offer cause for optimism. A prime example is The Parisian (see The Moodie Report e-Zine cover story, pictured), which is set to open in late 2015, featuring a luxury shopping offer that includes a beauty store from Dufry/Nuance.

On a similarly positive note, some believe that Macau remains relatively unpenetrated by Chinese visitors (one source said that just 4% of Mainland Chinese have visited Macau) and that a bright future for the gaming sector lies in the relatively untapped mass market sector.
Outlets such as Pacifica Gaming at Sands Cotai Central are drawing big crowds but overall gaming revenues have slipped in recent months

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