Kevin Clayton
Facing a “new norm”, gaming operators are adapting to the latest and decisive push by the government to diversify the economy, which for casinos means an order to expand their offerings from their core business as Cotai 2.0 starts to shape up. Galaxy is the first to “test the waters” with the opening tomorrow of their Galaxy II and Broadway properties.
“We’re the first new property to launch since 2012, Sands Cotai Central. And we are the first property to launch across a number of properties that’ll be launching over the next two to three years. We are excited, no doubt. We’re genuinely excited about the vision for Macau. We’ve got the greatest confidence in this marketplace,” Kevin Clayton, Galaxy’s Chief Marketing Officer (CMO) told Macau Daily Times in an exclusive interview a couple of days ahead of the opening.
As we walked past Galaxy Macau to the new properties, we had to cross through the huge “backstage” operations area where hundreds of staff were conducting their business or taking a lunch-break at the canteen and food-stalls area, in order to reach the premises of The Marriot Macau where the interview would take place. For the untrained eye, it seemed like (orderly) “mayhem” descending upon us.
At the same time, the newest addition to the world class JW Marriot brand looked like it was in operation already, with “guests” queuing up at reception, while others were being escorted to their rooms or elsewhere by supportive attendants, valets and concierge staff. It was simulation day and all seemed to be going smoothly – a thousand smiles welcomed us, as we entered Cotai 2.0, a crucial test of Macau’s gaming and hospitality industry, which has to adapt to a “new norm” where non-gaming is the name of the game.
“95% of our investment has actually gone into non-gaming facilities. Without question, the vast majority of our revenues at the moment are generated through obviously a casino environment. But actually the larger proportion of our investment has been in non-gaming facilities. No different in Broadway. So, yes, we are following the vision and the values of the Macau government, and its vision for wanting to be a world class leisure and entertainment destination.”
Simulation day at JW Marriot
So far so good. According to Mr Clayton percentage occupancy rates are “in the high 90s” and “the take up in the [new] hotels for the first few weeks of launch is already reaching a point where we’ve got demand that exceeds supply.”
“And for good reason,” says a confident CMO. “Ritz Carlton is a world-class hotel. JW Marriott is a world-class brand in its own right. And we’re one of the first destinations in Macau that has six world-class hotels in a single destination. But not just the hotel stock, also the diversity of experiences that can be had in our property here. We’ve got to feel bullish about the market. I think the market needs people to feel bullish about [it].”
Lately, however, investors have been all but bullish on Macau. The almost year-long decline in revenues, the caps on visitors and on tables along with the government determination towards a full smoking ban in casinos have dragged confidence down and raised doubts about the rate of return from the large investments on the Cotai Strip.
Mr Clayton recognizes that the days of “open it and they will come” are over, but “we believe that we generate a sufficient return for our shareholders at this moment in time. And we don’t see that as shifting into the future. We believe that we’ll continue to deliver a good return to our shareholders and shareholder value.”
The cap on tables imposed by the government resulted in Galaxy’s new properties being allocated only 150 gaming tables.
Mr Clayton sees that as “a challenge” that must be “actively” addressed.
“We will now actively work towards yielding those assets [gaming tables] in the best way that we can. That will mean utilization; it will be key across the main gaming floor as well as other rooms across the property. And we will continue to optimize our assets by moving those assets around depending on where we get the greatest return. That will be a continuous process.”
With less gaming comes a new balance for the integrated-casino-resorts: the gross floor area (GFA) ratio at Galaxy stands now at “about a 90:10 split, in terms of the GFA associated with non-gaming and gaming, in favor of the non-gaming assets.”
And at Broadway Hotel some 90 meters away – linked to Galaxy Macau by a footbridge – “the actual footprint for the casino is incredibly small relative to the size of the property and once you go in there you’ll be amazed at the sheer size of the property, and the diversity of its offering for food and entertainment.”
This diversity in offering that operators, especially concerning their properties on Cotai 2.0, have to promote in order to compensate for the lower gaming receipts is meant to give visitors reasons to stay longer in Macau. In 2014, the average overnight stay was as low as 1.8 days per visitor, but that paradigm has to change dramatically.
After 8 years working in the city’s gaming industry, Kevin Clayton sees an opportunity here, because “the Asian consumer is far more discerning than they were 5 or 8 years ago. They’re far more considered in terms of how they make their reservations and how they make their bookings; about the decisions that they make around their destination. You know, destination first, hotel second. And really what they’re looking for is value, no doubt, but when they’re looking for value, they’re also becoming more discerning. They want to go on the journey with brands. They want to go on the journey with resort brands. So they want to come to destinations where they can go on this journey of discernment around shopping, lifestyle, experiences around lifestyle associated with fun and entertainment. They want to go on the journey when it comes to cuisine, and the choice around cuisine; they want to feel as though they’re going to a destination that can provide them with a real sense of diversity, but quality at the same time, matched with authenticity. And we believe that Galaxy does that, and I think Broadway at Galaxy will do that better than any other party in Macau,” Mr Clayton promised.
Along with offer diversification, Galaxy is also putting efforts on diversifying inbound markets. “At this moment in time Macau generally draws about 65% of its visitation from mainland China, approximately 15% from Hong Kong and then the vast majority of the remainder are from South East Asia and North Asia. We are actively promoting Galaxy Macau and Macau across Taiwan, Korea, and Japan in the context of Okura.”
Mainland China is not to be left out. The day we talked to Mr Clayton he was just back from a road show touring 19 cities on the mainland. He found “enormous interest” there from people wanting to come to Macau, but “they think it’s not the proper moment to do it. It’s all about perceptions and sentiment,” he states.
For Mr Clayton, despite the recent crackdown on lavish lifestyles in China, “there’s always a place for prestige, there’s always a place for luxury goods. The market whilst facing some headwinds more recently – and I think headwinds generally are due to sentiment in China, not just to the crackdown [on corruption] – global sentiment has shifted in terms of luxury goods, not just in China. So we’re facing some headwinds globally as well as regionally at this moment in time. But think about this logically: what’s the size of the luxury and the prestige market now to what it was 5, 8 years ago? It’s still a huge market. It’s still a huge market in Hong Kong, it’s still a sizeable market in Macau.”
Kevin Clayton similarly talks the world about Galaxy’s association with top-end car brands. “We are the leader in Macau in terms of partners, and automobile partners in particular are quite selective in terms of where they do their major launches and they have selected Galaxy over the last 12 to 18 months – Galaxy as being their preferred destination. I think that’s testament to the partnerships that we build not just with automobile companies but in terms of technology companies as well as luxury goods in general.”
Moreover, “Galaxy Macau is and will be, at the forefront of indulgence, style, fun and privilege,” Clayton says.
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