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The expansion of luxury retail in Macau gives concessionaires pause for thought

Macau's concessionaires may have witnessed another decline in gaming income to begin the year, but retail is on the upswing, with Galaxy Entertainment Group reporting its second best retail quarter ever in 1Q22.

Bernstein analysts Vitaly Umansky and Louis Li said in a note following GEG's Q1 earnings call on Thursday that the company's results were bolstered by success in retail, notably in the luxury category. The March quarter was GEG's second-best retail quarter ever, behind 1Q21.

It also follows a similar performance in retail by fellow Macau concessionaire Wynn Macau Ltd, whose CEO noted that the company had seen new customers coming to Macau from mainland China with "different customer motivations than perhaps historically we've seen – shopping motivation, leisure motivation, and so on."

“Part of the reason that’s the case is because Hong Kong hasn’t been accessible but that really piques our interest when we think about what the future development of Macau might be from a non-gaming perspective,” Billings added.

GEG’s retail results come with the company pivoting its gaming product away from VIP following the collapse of Macau’s junket industry in recent months. As highlighted in its 1Q22 results announcement, Galaxy Macau is the only of GEG’s Macau casinos to offer a direct VIP business with the focus now on “reallocating resources and marketing efforts to mass gaming customers, including promoting hotels, restaurants and other non-gaming amenities,” Bernstein said.

GEG said on Thursday's results call that it is in "no haste" to open Galaxy Macau Phase 3 despite just finishing development. This is despite the fact that non-gaming revenue is strong.

“Phase 3 will likely begin with the Raffles Hotel area opening, followed by the Andaz and [Galaxy International Convention Center], and then the arena,” Bernstein said.

“Management indicated flexibility to reallocate existing labor to support Phase 3 opening (e.g. bring gaming staff into hotel and non-gaming), and headcount will be dependent on demand.

“We would not expect all Phase 3 to open in 2022.”



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