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Shopping becomes sure bet in Macau's move away from gaming

Although a sustained gambling slump appears to be over in Macau, the odds have already shifted in favor of secondary sectors such as retail and hospitality to define a new, tourist-friendly image for the Chinese territory.

Gross gaming receipts in Macau, the world's largest gambling market, rose for a 12th straight month in July, growing 29.2% to 22.96 billion Macanese patacas, according to data from the city's Gaming Inspection and Coordination Bureau. It also marks the sector's biggest monthly gain since February 2014, which ended year-on-year declines that lasted more than two years.

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However, industry experts told S&P Global Market Intelligence that focusing only on gaming revenue would be short-sighted, because Macau's future lies in noncasino ventures as the city transitions into a global tourism hotspot.

"The central government actually wants Macau to shift away from a center for gambling toward a destination for family-oriented tourism, and conferences and exhibitions," TF Securities gaming analyst Pianpian He said in an interview.

A Portuguese colony until it was handed over to Beijing in 1999, Macau is the only Chinese location where casino gambling is legal.

But Beijing's clampdown on corruption, money laundering and capital outflows starting in 2012 took a toll on mainlanders' gaming activities in the city, forcing casino owners to diversify and rethink their target audience beyond high rollers, according to He.

Key players such as Galaxy Entertainment Group Ltd., MGM Resorts International and Wynn Resorts Ltd. have been developing attractions to appeal to a wider array of visitors, with their newest projects having a far smaller casino footprint than older properties.

The MGM Cotai, a HK$24 billion, jewelry box-inspired project slated to open in the second half, has only about 12% of its floor space dedicated to gaming, with the remaining area going to approximately 1,400 hotel rooms, meeting and retail spaces, a high-end spa, a theater, and food and beverage outlets.

Another resort, Galaxy Macau, is expanding with third and fourth phases in which virtually all floor areas are allocated to nongaming functions, primarily targeting entertainment, shopping, family facilities, conferences and exhibitions.

"What used to be more of a complementary component to the casinos is elevating in importance," He said.

The new developments also use elaborate themes and features as a selling point. The Parisian Macao by Sands China Ltd. and parent Las Vegas Sands Corp., which opened in fall 2016, features a half-scale replica of the Eiffel Tower and a shopping mall resembling famous streets in Paris such as the Avenue des Champs-Élysées. Nearby, the Wynn Palace, which opened in August 2016 at a cost of US$4.2 billion, features cable cars in addition to fountains synchronized to music, an attraction made famous by Las Vegas' Bellagio resort.

The construction and openings of new megaresorts in Macau come with significant amounts of new retail space, a trend in line with the vision of the city's top officials, Oliver Tong, associate director of retail at property consultancy JLL Macau, said in an interview.

In his policy address in late 2016, Macau Chief Executive Fernando Chui said the city's 1.9 million square meters of retail space needs to grow another 360,000 square meters by 2025 to support its transition to a global tourism destination.

"With several new megaprojects scheduled for completion, there will be even more store location options for retailers," Tong said.

Among retailers that recently doubled down on Macau, L Brands Inc.-owned Victoria's Secret launched a 15,000-square-foot, full-range store at The Venetian Macao. The Wynn Palace, meanwhile, welcomed international brands such as Chanel, Prada SpA and Kering SA's Saint Laurent to its Esplanade luxury shopping area spanning 18,580 square meters and featuring more than 50 brands.

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The store openings coincided with rebounds in Macau's tourism industry and retail market. In the first half, tourist arrivals in the city grew 5.4% on the year. Visitors from mainland China, the pillar of Macau tourism, rose 6.1% to more than 10 million over the six-month period.

They appear to be visiting for more than just gambling, as Macau's retail sales value in the first quarter grew 12.0% to 16.59 billion patacas, according to the latest data from the city's Statistics and Census Service. The increase marked the first year-over-year growth in Macau retail sales since the second quarter of 2014.

Industry experts expect visitor numbers to jump higher with the completion of major infrastructure projects in two to three years, including a bridge linking Hong Kong, Zhuhai and Macau; a light-rail transit system in Macau; and an extension of the railway in mainland China's Guangdong province to the border with Macau.

"Look at Las Vegas — it took two decades to transform from Sin City to a global tourism destination," He said. "Macau's nongaming patrons will also have billions of dollars of growth potential, as it follows the [Chinese] central government's policies closely and benefits from China's consumption upgrades."

As of Aug. 14, US$1 was equivalent to 8.06 Macanese patacas.