alaxy Entertainment Group Ltd. is now rewarding big shoppers with free hotel stays and access to resort facilities, some of the perks once reserved for high-rolling gamblers. “A VIP can be either a big gambler or a big shopper,” Chief Marketing Officer Kevin Clayton said in an interview. While high-stakes gamblers remain an important source of income in Macau, the company is redefining its VIP label, he said.
The move comes as Galaxy’s operating margins shrink amid an outflow of high-end customers.
While VIP gamblers from China helped Macau leapfrog Las Vegas to become the world’s largest casino hub over the past decade, the segment has nosedived since 2014 as China President Xi Jinping’s crackdown on corruption scared off the high-rollers. Macau has been trying to reinvent itself to attract more tourists and recreational gamblers.
Hong Kong-listed Galaxy fell as much as 0.8 percent to HK$23.90 on Thursday, extending its decline so far this year to 2 percent, compared with the 3 percent drop in the city’s benchmark Hang Seng Index. Galaxy’s shares had plunged 44 percent in 2015, in line with the Bloomberg Intelligence Macau Gaming index’s 46 percent drop.
Galaxy Macau, the Hong Kong-based operator’s flagship property that completed a major expansion in May 2015, this month started to reward customers who spend more than 10,000 patacas ($1,252) a day with shopping vouchers and free use of the resort’s facilities. Those who spend triple that amount enjoy a complimentary night in its hotels.
The promotions come as projects introduced in the past year, including Galaxy’s two new casinos and Melco Crown Entertainment Ltd.’s $3.2 billion Studio City, failed to bring about a recovery in Macau’s gambling receipts. Melco will switch gears from its recent focus on leisure gamblers, as Studio City readies to open its first VIP gambling rooms, according to people familiar with the matter.
Galaxy’s “VIP shoppers” may help it to drive traffic and boost revenue from retail, a business with one of the highest profit margins in Macau, said Bloomberg Intelligence analyst Margaret Huang.
If stores in Galaxy’s properties generate more sales through the latest promotion, it will help boost the operator’s bargaining power when rentals come up for renewal, she said. These big shoppers are likely to gamble as well, Huang said.
Macau casinos are due to start announcing second-quarter earnings from later this month, and the operators are expected to show declines in gaming revenue, China visitors, and VIP patronage during the period, Huang said in a note Thursday. Sands China Ltd. will kick off the reporting period when parent Las Vegas Sands Corp. holds its investor call in late July, she wrote.
Macau’s gaming industry needs to adjust by boosting its revenue share from recreational players in order to develop the city in a sustainable way, Paulo Chan, head of the Gaming Inspection and Coordination Bureau, the government regulator, said Wednesday.
The city plans to increase the proportion of casinos’ non-gaming revenue to nine percent by 2020 from 6.6 percent in 2014, according to the city’s five-year development plan.
Resorts in Macau need to refine the collection of retail brands in their malls to get the right mix, said Clayton, who used to work for Galaxy competitor Sands China Ltd. and Australia-based gaming company Tabcorp Holdings Ltd.
In addition to top luxury stores for high-spending clients, stylish brands similar to that by British designer Alexander McQueen will be introduced in Galaxy’s properties to capture the “significant growth” of middle-class Chinese shoppers, he said.
Capturing the fancy of China’s middle-class will be an uphill struggle, as Chinese consumers can now spend on an expanding buffet of options, including leisure trips to neighboring Japan and a new Disney resort on their doorsteps. Shanghai Disneyland, which opened June 16, is a concern for Macau as it could result in fewer visits by the Chinese due to overlapping customers, according to a Morgan Stanley research note this month.
“With gambling and retail, Macau is a one-night stay destination. It needs to provide more entertainment,” said Jacques Penhirin, partner and head of Greater China of management consultancy Oliver Wyman on Wednesday. “We need big concerts, big shows and conventions.”