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The Honolulu Advertiser
Posted on: Sunday, October 27, 2002

Hawai'i retailers mining 'new frontier': Las Vegas

By Andrew Gomes
Advertiser Staff Writer

One might not expect Honolua Surf Co. to sell surfboards in the middle of the Nevada desert, but it does.

The ABC Stores' first outlet in Las Vegas opened in November and is doing so well that more are in the works.

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The Maui surf accessories retailer, which in March plans to open a second Las Vegas store, has found what a growing number of Hawai'i merchants are discovering: that Vegas, despite stark differences, is a fertile and somewhat natural expansion area for Island retailers.

"It's like the new frontier for Hawai'i-based companies," said Carol Pregill, president of the Retail Merchants of Hawai'i trade association.

Among recent Hawai'i retail and restaurant exports to Vegas: Hilo Hattie, L&L Drive-Inn, ABC Stores, Cheeseburger at the Oasis (known locally as Cheeseburger in Paradise), Maui Divers and Roy's Restaurants.

Other Hawai'i merchants with more than a couple years of experience include Crazy Shirts, Endangered Species, Lamont's Gift shops (a Kalama Beach Corp. operation) and fine jewelry maker and seller The Sultan Co.

Next month, Hawai'i apparel shop Cinnamon Girl plans to open a Las Vegas store. Others evaluating the market include Hawaiian furniture manufacturer and retailer Martin & MacArthur.

Douglass Smoyer, founder and chairman of Honolulu-based consulting firm Retail Strategies Inc., said Las Vegas unquestionably has become the city with the highest concentration of Hawai'i-based retailers outside the state.

Smoyer, whose firm has helped local merchants expand to Las Vegas, said he began seeing a trend solidify over the last couple of years, as businesses catering primarily to tourists sought growth at a time when visitor arrivals to the state either were shrinking or only growing slightly.

The number of Hawai'i visitors in 1998 and 1999 lagged below the 1997 mark of 6.9 million, before rising to almost 7 million in 2000. Last year the number fell to 6.3 million because of the terrorist attacks.

By comparison, Las Vegas increased its visitor count by almost 6 million between 1997 and 2000, from 30 million to 36 million.

The number of visitors to the city last year slipped to 35 million, but those tourists still spent $31.6 billion, slightly more than the previous year.

On shopping alone, visitors to Las Vegas spent about $3.7 billion last year, or $107 per person per trip — a 68 percent increase from five years ago, according to the Las Vegas Convention and Visitors Authority.

"We've just changed dramatically in the last five years," said Rob Powers, an agency spokesman. "Although we still are a gaming destination, more and more people come here to do more than just gamble."

In fact, international visitors recently ranked shopping as their No. 1 activity in Las Vegas, Powers said.

Robert Taylor, chief executive officer of Maui Divers, began looking for Las Vegas store locations early last year and could not deny the attraction. "We see tremendous opportunity there with 35 million tourists," he said.

The Honolulu-based jewelry maker opened a Maui Divers Jewelry gallery at the Desert Passage shopping center in the Aladdin Resort and Casino last month. A second store, an upscale Island Pearls, is scheduled to open Nov. 1 at the Fashion Show Mall.

Much of the interest in Las Vegas from Hawai'i retailers has corresponded with the buildup of malls at the gambling and entertainment mecca.

In the past decade, developers have built several million square feet of retail along the Las Vegas Strip. Another 1.5 million square feet — about the size of Ala Moana Center — is under construction or planned, including expansions to the stand-alone Fashion Show Mall and the Forum Shops at Caesars Palace, retail space in the planned megaresort Le Reve and a new mall linking the Mandalay Bay and Luxor resorts.

Pregill of Retail Merchants of Hawai'i said some local retailers interested in expansion have to look outside the Islands because of limited local retail real estate.

"We're running out of land," she said. "We're not building as quickly as Las Vegas. They go there and there are openings."

ABC had about 40 stores in Waikiki when it decided to expand to Las Vegas with its first store last November.

Company president Paul Kosasa would not disclose sales, but said he's pleased with the new store despite competition from giants not found in Hawai'i, such as CVS and Walgreens.

Two ABC stores are scheduled to open next month at the Fashion Show and Desert Passage malls. More are in the works.

Smoyer said Las Vegas is a natural market extension for Hawai'i retailers, some of whom have decades of experience catering to visitors. He said he expects interest in expanding there will only grow.

"Anybody who's doing well in Hawai'i and is capable of running an operation 2,500 miles away should consider Vegas if the visitor is their customer," he said. "It's the same customer that we have here, only there are more of them."

Cheeseburger in Paradise operator Cheeseburger Restaurants Inc. expects to do more than $4 million in sales in its first year in Las Vegas, compared with first-year sales of $3.5 million in Waikiki and $2.3 million at the company's original Lahaina restaurant.

Michael Conti, company chief operating officer, said he expects annual sales for Cheeseburger at the Oasis to reach $8 million in five years, $2 million more than sales at the Waikiki restaurant after the same period.

Conti said he found that the restaurant, which affixed a large A-L-O-H-A to the outside of its seven-story tower in the Desert Passage mall as a tribute to Aloha Tower, hired numerous Hawai'i transplants to convey the aloha spirit to customers.

Many customers, he also found, reported that Las Vegas is their second-favorite vacation destination after Hawai'i.

"It's a perfect market for us," he said. "We want at least two more (restaurants) in Las Vegas."

Reid Fujita, co-owner of Cinnamon Girl, said he plans to target the huge tourist base there as well as the fast-growing resident population, including Hawai'i transplants who may already recognize the Cinnamon Girl name.

His own leisure visits to the area also gave him a sense of familiarity with the market. "It didn't seem super far away to us, even though California is physically closer," Fujita said.

The distant market doesn't pan out for everyone. Honolulu-based Artlines about two years ago expanded to Las Vegas only to withdraw from the market. But Smoyer said most Hawai'i retailers are doing well in Las Vegas.

"Hawai'i retailers are a good group of retailers," he said. "They can go to any resort environment."

Smoyer added that Guam, Orlando and other resort areas don't have the ability Las Vegas has to give retailers more than a few store locations in close proximity and sales high above the rough industry average of $330 a square foot.

George Connor, senior vice president of retail properties for Colliers International in Las Vegas, said per-square-foot sales can range from $600 at the Aladdin to $1,400 at the Forum all the way to $2,000 for some retailers.

Rent at resort malls along the four-mile strip generally ranges from $50 to $300 a square foot.

Smoyer said area rents in general are comparable to those at Hawai'i's two largest visitor-attracting malls, Ala Moana Center and the Royal Hawaiian Shopping Center, as well as prime retail space on Kalakaua Avenue.

Cinnamon Girl's Fujita said rent at the Fashion Show Mall is high, but that the site is better than other retail locations he passed over in Southern California.

Fujita said he'll have to see how it goes after opening day Nov. 1 before considering whether to expand further. "We're totally untested up there," he said, while also admitting that other malls up and down the Vegas Strip are very attractive.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.