The Las Vegas Metropolitan region's economy is one of the few in the U.S. that historically does well in severe economic downturns and even recessions.
For example, only once--until now--have gambling revenues in Las Vegas' casinos fell since 1970, despite periods of serious bad economic times and recessions over the 38 years.
The last time was after the September 11, 2001 terrorist attacks, when casino gambling revenues fell 0.5% in the midst of the severe economic decline following the attacks on New York's Twin Towers and the Pentagon in Washington, D.C., according to statistics compiled by the Las Vegas Convention and Visitors Authority (LVCVA).
However, things are looking much worse at present. During the first three months of this year, casino gambling revenues are down by 4%, according to the convention and visitors authority.
Should that trend continue into the second quarter and beyond, even with a smaller percentage decline in gambling revenue, Las Vegas city officials, gaming industry executives, retailers and others are concerned the economic glow might just finally be off Las Vegas in terms of its recessionary immunity for all these many decades.
The first quarter drop in Casino revenue--always a key economic indicator in Las Vegas--isn't all the data that's pointing to the region's not being immune to the current recessionary climate in the U.S.
In the first quarter of 2008, the number of conventions held in Las Vegas has dropped 10.4%, and average daily room rates were off 3.8%, according to the latest data from the LVCVA.
Tourism, including conventions, are the lifeblood of the Las Vegas Metropolitan region, even though the area has diversified its economy considerably over the last 15 years.
However, tourism and gaming are what draws revenue into the city to support its primarily service-based economy: restaurants, entertainment and even to a certain degree food retailing, because so many area consumers work in the service industries. In fact, with new housing construction at a near standstill in the region, compared to the fact it was the Las Vegas area's biggest growth industry just two years ago--the service economy is even more key at present.
Over the last two decades, the huge Las Vegas gaming, convention and tourism sector has transformed the city and surrounding region from the land of cheap buffets and inexpensive hotel rooms, to an upscale convention, leisure and shopping destination.
Nowhere is this more evident than in the upscale and opulent casinos and resorts that have been built in Las Vegas during this era. Casino resorts like the Ballagio, the Paris, the Wynn and the MGM Grand, are just four examples of today's high-end Las Vegas.
However, according to officials at a number of these upscale casino/resorts, the poor economy is being reflected in their quarterly results. MGM Mirage, Inc., which operates two of these big, high-end properties, the MGM Grand and Bellagio, recently reported weaker than expected results in the first quarter of this year.
"Were seeing some softness in Las Vegas for the first time in quite some time," MGM Mirage, Inc. CEO David Simon recently told analysts.
The softness also is being seen in the retail sector, in both the upscale and outlet center sectors. Simon Property Group, Inc., which operates the luxury Forum Shops at Ceasar's Palace, along with two outlet centers in Las Vegas, recently reported its centers are experiencing a drop in sales which it attributes to the multiple economic factors mentioned earlier in this piece, all having to do with the recessionary U.S. economy.
The drop in tourism, conventions and gambling revenues couldn't come at a worse time for the Las Vegas Metropolitan region. Over the past 15 years, Las Vegas and its suburbs have experienced a residential housing boom, which has nearly doubled the area's residential housing stock and its population. The Metro area today is home to nearly 2 million residents.
Housing values--and thus costs--have more than doubled over this same period. However, Las Vegas is one of the regions hardest hit by the housing foreclosure and credit crisis currently going on in the U.S. In just the last two years, housing values have plummeted by 30-40% in the region, and local real estate experts say they expect further drops between now and mid- 2009.
The Las Vegas region also has seen a massive commercial development surge over the last decade. This includes new major casino and resort projects like the Wynn by Steve Wynn and many others, numerous new retail shopping and retail lifestyle center developments, and an influx of scores of new retail stores and restaurants.
All this building activity has been a boon to the region's economy, allowing some significant diversification from the service sector to the building trades and related sectors, including real estate, banking, insurance and retail.
But the bloom is now off the residential and commercial building sector. New residential building starts are at a near standstill. Further, while there are a number of commercial developments in the pipeline--including 40,000 new hotel rooms set to become available in the next two years--being completed, developers aren't planning any major commercial projects of note presently because of the bad economy.
Concerned about those first quarter number we reported above, Las Vegas' gaming and tourism industry has began a discounting campaign to lure more tourists and trade shows to the city.
Keith Schewer, director of the Center for Business and Economic Research at the University of Nevada at Las Vegas, says discounting is going to intensify in Las Vegas as it is clear the region needs to win back more tourists, even if that means cutting margins for the gaming and tourism industry operators.
Schewer adds that "cheap" might just be back in in Las Vegas, at least until the economy improves.
Fresh & Easy Las Vegas
Tesco currently has about 11 of its small-format, convenience-oriented basic grocery and fresh foods grocery stores in the Las Vegas Metropolitan region. The retailer is in the process of opening 10 more of the stores, converting 10 former Rite Aid drug stores it acquired into its Fresh & Easy food store format.
The drop in economic activity could be both good and bad for Tesco's Fresh & Easy. With less money to spend because of rising unemployment, diminished housing values, the credit crunch, near $5 a gallon gasoline, and stagnant wages, Las Vegas region shoppers could look to Tesco's Fresh & Easy with its fairly low everyday prices as more of a primary grocery shopping venue than they are currently.
On the other hand, nearly doubling its store count in the Las Vegas Metropolitan region during such difficult economic times could be a mistake for Tesco, although its clear the retailer is looking at a longer term strategy in doing so.
In Fresh & Easy Buzz's analysis, the time is perfect for Tesco to launch a value-based advertising campaign for its Fresh & Easy grocery stores in the Las Vegas Metropolitan region, playing on the theme of how shopping at the stores saves money for a variety of reasons: low everyday prices, use less gas because you don't have to drive out to a Wal-Mart Supercenter, those $5 coupons of course (good for any grocery order of $20 or more) and a number of other value propositions.
Fresh, Easy...and Cheap, might be a good advertising tag line?
However, we've seen no such effort by Tesco in the market to date.
Other than a public relations campaign, its once-every-three-week store advertising circular, leafleting neighborhoods with flyers with the $5 coupon attached, and what has been reported to be a tiny bit of paid media advertising, Tesco hasn't introduced a comprehensive advertising campaign to properly introduce the stores, generate new customer trial, and begin building the Fresh & Easy retail brand in the Las Vegas Metro market to date.
It would seem the time is right to do so. Tesco says the Fresh & Easy stores are everyday low-priced basic grocery stores with a fresh and specialty foods twist, positioned for "everybody." This is at its core then a value-based proposition rather than a specialty store one.
Therefore, there seems no better time in the Las Vegas food and grocery market--when economic bad times are finally hitting the once immune area--for a food retailer with a value proposition to market and communicate it. Doing so likely would gain much needed business for the current and upcoming Fresh & Easy grocery stores in the region even at a time when most other retail sectors of the economy are experiencing the opposite--reduced sales.
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