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Gaming Guru

Arnold M. Knightly
 

CityCenter's Crystals luxury center will face challenges

10 December 2009

LAS VEGAS, Nevada -- To fully comprehend all the challenges facing CityCenter's Crystals luxury center, you probably don't have to look any further than at what has happened to one of the retail and entertainment center's anchor tenants.

Jewelry retailer Tiffany & Co., which opened its flagship store at Crystals on Dec. 3, recently reported store traffic at its U.S. stores was down and retail sales fell 9 percent in the third quarter.

Vice President of Investor Relations Mark Aaron said during Tiffany's third-quarter earnings call Nov. 25 that his company blames the declines on fewer customers spending less in its stores.

Angela Moore, U.S. commentary editor for MarketWatch, wrote Nov. 25: "Like other luxury purveyors, Tiffany has been hard hit by the recession as shoppers scale back on discretionary purchases. And as the economy turns, it's unlikely shoppers will revert to their crass consumption habits, at least not right away. They'll be attracted to classic brands that hold their value."

And this is the market environment that Crystals, a high-end mixture of luxury retail stores, is entering.

Even though many of Crystals' stores boast prices that will make some consumers blink twice to make sure they are reading the price tag correctly, MGM Mirage Retail President Frank Visconti is confident the retail center will succeed.

Luxury shoppers like the ones Crystals is targeting are more interested in quality than price, he said. And not only will they visit Crystals, they will return to shop again, he predicts.

"Everybody talks about luxury like it's just the price, and it's not," Visconti said. "Yes, price is a product of what you use, and ultimately it is a bit more expensive than other stuff, but it's about the materials and fabrication, and, ultimately, about the service. It's the timelessness of some of those products. And there are consumers in the world that want that."

Kate Newlin, New York City-based author of "Passion Brands" and principal owner of a self-titled consulting firm, agrees.

"Why is one pair of shoes worth $39 and another $690?" Newlin asked. "It's not about the buckle on the loafers, it's about investment grade purchases, buying shoes worth repairing."

Some real numbers, however, may undercut their belief that Crystals' luxury market is as free-spending as it was just two years ago.

Luxury sales at other high-end Strip properties have declined, according to numbers available through publicly traded companies.

Retail revenue for MGM Mirage, which includes high-end retail at Bellagio, The Mirage and Mandalay Bay and midmarket shops at properties such as MGM Grand, dropped 11.9 percent in 2008, and another 22.4 percent the first nine months of 2009.

A better gauge for Crystals, however, might be retail venues at Wynn Las Vegas and Encore, which cater to the same luxury market targeted by Crystals.

Wynn Las Vegas and Encore have a combined 101,000 square feet of luxury retail including three shops found at Crystals -- Louis Vuitton, Cartier and Dior. Revenues at the two properties dropped a combined 7.2 percent in the first nine months of 2009, even with the first full year of Encore's operations.

Wynn Las Vegas retail revenues dropped 9.6 percent in 2008 after climbing 19.5 percent in 2007.

Although luxury retail sales are down, there are some signs of stability in the high-end market.

Tiffany & Co. reported that same-store sales, which are sales at stores open at least a year, declined 10 percent in the third quarter, following declines of 34 percent and 27 percent in this year's first and second quarters. A closer look reveals improvement in the third quarter with an 18 percent decline in August, 7 percent in September and a 5 percent decline in October.

The 500,000-square-foot Crystals opened Dec. 3 with nearly 40 percent occupancy. Tiffany was one of 23 stores that opened the first day; nine more stores will open Dec. 16 when the Aria hotel-casino opens.

Many of the properties opening at Crystals will be flagship stores, such as the one for Italian fashion designer Roberto Cavalli and luxury leather goods maker Louis Vuitton.

About 40 tenants have been signed to open at the center through next summer, with room for nearly 20 more shops.

Visconti is confident Crystals will be fully occupied by this summer.

Angeline Close, assistant professor of marketing at the University of Nevada, Las Vegas, said the phased opening of stores at Crystals might not be bad for the center either. The initial opening could attract customers who believe they'll get better service because of the smaller crowds, while a smaller number of people will wait until the center is at full capacity before visiting, she said.

"There's a segment of people who have to be first," Close said. "Those are the people who stand outside in the cold to buy a Wii. It's more of a personality trait where you want to be the first and you want to be able to tell your friends that not only did you get this at Louis Vuitton, but you got this at the new Louis Vuitton."

Some tenants at Crystals already have shops elsewhere, including Tiffany, Dior, Hermes and Bottega Veneta, all at Bellagio.

Visconti doesn't think any of those shops at Crystals will be stealing customers from the other locations.

"There are customers (at Bellagio) who are comfortable with the staff and the store," Visconti said. "We believe Crystals will grow the market in the long run, not take away from existing stores."