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Best of Benjamin Spillman

Gaming Guru

Benjamin Spillman
 

Shiny new Shoppes at Palazzo

18 January 2008

LAS VEGAS, Nevada -- Consumers feeling poorer, a major Strip resort project mired in default and a looming national recession are conditions fancy retailers on Las Vegas Boulevard would like to avoid.

But those are situations they're confronting head-on today at the opening of the Shoppes at Palazzo, a 450,000-square-foot mall that's part of the Strip's newest resort.

"I don't think anyone would dispute now is probably not the ideal time" to open a mall, said Michael Kammerling, senior vice president for retail at Grubb & Ellis in Las Vegas.

The opening comes after retailers nationally completed their worst holiday season in five years; owners of the Cosmopolitan, a $3 billion Strip resort project, announced they are in default on a $760 million construction loan; and near-record oil prices are making it costlier to visit Las Vegas.

Palazzo retailers are betting the drawing power of Las Vegas and the novelty of 34 new-to-market stores and restaurants will be enough to overcome the glum business headlines.

Customers who spend $670 on Barbarella boots by Alexandra Neel at Barneys, $125 on T-shirts at Tory Burch and $5,000 on wine at Charlie Trotter's tend to weather hard times better than most.

"We all know those people tend to be a little more impervious to fluctuations in the economy," Kammerling said.

The Palazzo Shoppes are 90 percent leased, said Dan Sheridan, executive vice president of General Growth Properties, which will own and operate the mall. It's the second-largest real estate investment trust in the country and also owns The Grand Canal Shoppes at The Venetian and the Fashion Show, Meadows and Boulevard malls in Las Vegas.

As part of a $1.9 billion resort project, the Shoppes at Palazzo were planned on a much longer time frame than the current business cycle. Only a fraction of the projected 60 stores are open so far.

"It is a long-term play for those tenants," Kammerling said. "They sign the leases and expect to be there a long time."

For now, Palazzo retailers are focusing on the lucrative Las Vegas customer base, not sweating a potential recession.

"I love the fact that Las Vegas attracts visitors from all over the world, but also has such a sophisticated and cultured local community," fashion designer Tory Burch said by e-mail. "Las Vegas has clearly become a center for luxury retailing, and we are thrilled to be opening stores there."

Burch, who opened her first store in New York City in 2004, plans to open a store in the Forum Shops at Caesars later this month.

She says her merchandise is for women who want chic and sophisticated clothing and accessories but don't want to spend a lot of money.

But Burch, and everyone else at Palazzo, need to do enough high-end business to pay what is likely some of the highest retail rent in the country.

None of the retailers interviewed would say how much it costs to lease space in the mall, but Kammerling estimated it could be as much as $300 per square foot.

That's more than space at Fashion Show or the Forum Shops at Caesars, two prominent malls on the Strip, and much higher than the $40 per square foot The Wall Street Journal reported as the national average for rent in a regional mall.

"I always like to keep the overhead down, but they do draw a lot of people and I think they are our kind of people," said Dave Bauman of Bauman Rare Books, said of the cost of rent at Palazzo.

In February Bauman is scheduled to open a 2,300-square-foot store in Palazzo that will carry items such as the first newspaper copy of the Constitution, a book once owned by Thomas Jefferson, manuscripts and historically significant books and documents. Prices for the merchandise vary but generally range from $500 to $350,000, Bauman said.

He doesn't worry about doing business during an economic slump.

"We've been in business 35 years," said Bauman, who has stores in New York and Philadelphia. "We've seen the economy go through all sorts of gyrations."

He said the rare-book market holds up well when times are bad. That's because collecting books can be cheaper than hobbies such as buying art.

"It is a very conservative, low key market that affords very good value," Bauman said. "For the price of a painting you can have a library."