46 Indian Gaming December 2011 Retail at Indian Casinos: The Why, When and Where by James M. Klas PROPERTY DEVELOPMENT W hy put retail in a casino complex? Of course you probably want to have a little gift shop with some sundry items and a few logo gifts, everybody has that. But why bother with more? After all, you want people to spend their money on the slot machines and they make more anyway, don’t they? Not all that long ago, this was the prevailing attitude in the casino world. When the Forum Shops at Caesar’s were being developed, many predicted a failure and few predicted a smashing success. But a funny thing happened. The Forum set records for retail sales per square foot, became a must see attraction, and spawned a series of “me too” projects to the point that major, high-end retail developments are now an expected part of Las Vegas Casino resorts. There are actually many reasons why retail works well in an Indian gaming environment as well. From the retail standpoint the biggest attraction is foot traffic. Casinos attract large numbers of people year-round, often from outside the local area, providing concentrated foot traffic that retailers need to succeed. Often they accomplish this more easily, more depend- ably, and less expensively than any retail only concentration in the same location could. From the casino perspective, foot traffic can also be an important reason to add retail. Many specialty retail stores have high name recognition, strong brand loyalty and the ability to draw patrons that might not otherwise come, at least as often. Retail also can meet the needs and wants of customers on-site, giving them reason to stay longer and leave more dollars behind. Expanded retail offers a proven and popular way to generate more revenue from a site when more space is available than is needed by the gaming operation. It can diver- sify economic activity, add employment, provide opportunities for tribal entrepreneurs, meet the shopping needs of tribal members, and develop experience and a knowledge base amongst tribal leadership that can be leveraged into further on or off-reservation economic development initiatives. Indian casinos have one additional unique “why” that other casino operators lack. As governmental entities with taxing authority, tribes can make additional revenue off of retail operations whether or not they operate them directly. They can also choose to forego a portion of the tax revenue to allow the retail operations to offer discounted prices and increase their drawing power. While the ability to tax provides a powerful added incentive to consider retail development, it can be complicated to execute and may require tax compacts with the state and consideration of tax impacts on other on-reservation tribal businesses. When should you consider expanding retail at your casino? Space availability is a critical issue in whether and when to add retail. If the size of the site is limited, gaming and other direct supporting amenities (basic restaurants and bars, along with hotel rooms if appropriate) must be allocated sufficient space to maximize their performance potential. Once those compo- nents have been accommodated, other components such as expanded retail, specialty restaurants and bars, entertainment facilities, function space, and other recreational amenities come into play. There are actually several different types of retail that can be offered that coincide with the different reasons why customers might choose to buy. Convenience retail caters to the immediate needs of patrons for items they forgot, ran out of, or consume quickly. Impulse retail caters to many of the same shoppers but with items that they want rather than need, and that often have higher markups. Souvenir retail caters to shoppers seeking to find a tangible item to enhance their memories of their visit and to show others where they have been. Indulgence retail provides luxury items to patrons wanting to do some extra celebrating. General retail caters to the on-going regular needs of patrons whether on a weekly, monthly, yearly, or longer term basis. Destination retail can incorporate one or more of the other types described but has the unique charac- teristic of offering patrons from a wider area products that are highly desirable, usually specialized, and not readily available from other sources, at least not with the same price, quality, selection, or atmosphere. When to add any of these types of retail depends heavily on when it is reasonable to expect sufficient foot traffic of the type of customer needed. Except for destination retail, the neces- sary foot traffic must either come from the patrons already being drawn by the casino or from other local residents with demon- strated need. If the patronage will not be coming directly from casino customers, it must be of the type that can provide spillover business to the casino and will not disrupt other gaming customers. Otherwise it will be counterproductive to the primary business of the complex. Whether the casino is generating enough foot traffic to support expanded retail will depend in turn on its size, drawing radius, and presence of lodging and other supporting amenities and attractions. Destination retail by definition can be expected to supply its own customer base, provided the demand from within its reasonable drawing area is sufficient. Other casino customers will then provide added demand to the retail operation but not necessarily the largest component. It is even more important