Less than a year ago, retail in Atlantic City seemed to boil down to fur coats and jewelry for high rollers, or pawnshops for losers. There were a few dining options — most visitors, especially the busloads of senior day-trippers, settled for the all-you-can-eat buffets.

While Las Vegas had transformed itself from a gambling town to an all-purpose entertainment hot spot, Atlantic City seemed stuck in a time warp. At the same time, the seaside resort's core $4.8 billion annual gaming business has been flat while new East Coast gambling venues, such as Foxwoods and Mohegan Sun in Connecticut, siphoned off gamblers and now rake in $2.8 billion a year. The next few years could bring additional gambling to resorts in Pennsylvania's Pocono Mountains and New York's Catskills.

But Atlantic City is fighting back — with hot new casinos like the Borgata Hotel that are drawing a younger, wealthier crowd. And, finally, they have a choice of shops and restaurants where they won't run into their grandparents. In the past 12 months, 500,000 square feet of new retail has opened near the Boardwalk.

The Walk, which encompasses seven city blocks, contains 320,000 square feet of retail and opened in August. Then Aztar Corp. opened the $245 million Quarter extension in November, which included 500 additional rooms, a parking garage and 200,000 square feet of retail. And Gordon Group Holdings LLC, which co-developed the Forum Shops at Caesars Palace with the Simon Property Group and helped turned Las Vegas into a retail destination, has come to Atlantic City. This time, it has partnered with Taubman Centers Inc., on The Pier at Caesars, a 320,000-square-foot retail and entertainment center being built over the Atlantic Ocean, which will house a wedding chapel, nine restaurants and, retailers like Hugo Boss, Gucci and Louis Vuitton. Also on tap is a $155 million expansion to the Walk, announced in April; a $65 million New Orleans-themed resort called Showboat and a multiphase expansion of the posh, $1.1 billion Borgata mega-casino.

It's About Time

“I think it's long overdue,” says Richard Santoro, president of the New Jersey Retail Merchants' Association, a lobbying group of more than 3,500 retailers. “I think the folks in Atlantic City have recognized that retail is one of the components missing and that it is a good market.”

Indeed, the state of New Jersey, which counts on its share of the billions of dollars in revenue that the city makes in gambling receipts, is now counting on a younger, more affluent Atlantic City clientele. “Our strategy is to be a full-service resort with gaming as an important amenity, but not the only thing to do in the market,” says Curtis Bashaw, executive director of the Casino Reinvestment Development Authority (CRDA), a state agency that reinvests gaming revenues in education and housing. Since 1984, the authority has helped pay for an $83 million high school, a $268 million convention center and a $14.5 million minor league baseball stadium. It has also helped fund casino hotel construction.

Just Build It

Another major catalyst has been the success of the Borgata Hotel Casino and Spa, which opened in 2003 as the first ground-up casino built in Atlantic City in 13 years. In addition to gambling and entertainment the Borgata has upscale restaurants, such as Suilan by Susanna Foo and fashion retailers including Misura and Bambino. “The Borgata proved very clearly that there is a younger, more affluent demographic that wants to come to Atlantic City,” says Bashaw.

The Borgata was an immediate success, raking in $636 million in its first year of operation, making it second only to Bally's. The owners, joint venture partners MGM Mirage and Boyd Gaming Corp., now plan a $500 million expansion that includes condominiums and a Wolfgang Puck restaurant.

Other casinos are fighting to keep up. Harrah's Showboat is building a $70 million House of Blues, while Caesar's is bringing in The Pier. With The Pier already 65 percent pre-leased, the Gordon Group believes it can recreate the success of the Forum Shops.

“Within six months after opening, the Forum broke $1,000 a square foot,” says Scott Gordon, Gordon Group president and director of development, who believes that The Pier can match those results. “The potential is there, the market is right, the demand is there and I think we have the right recipe.”

Taubman Centers, which has a 30 percent interest in The Pier, will also assist with leasing and administrative support. “If someone asked would you want to be an investor of Caesars in Las Vegas and you know how it turned out, wouldn't you invest?” says William Taubman, executive vice president.

Taubman has made an initial investment of $4 million. The two companies also have agreed to develop other casino-related retail projects in the future.

New Wave

Cordish Co. paved the way for new development with its Atlantic City Outlets at the Walk.

“There are literally only a handful of downtowns that can compare to the critical mass of national retailers we have brought to Atlantic City,” says Gary Block, Cordish vice president.

The Walk opened last August with more than 40 retailers. It spans seven blocks between the Convention Center and the Boardwalk and contains 320,000 square feet of shop space. In April, Cordish unveiled a $155 million expansion that will add 350,000 square feet of stores, restaurants, entertainment and office and residential space. Upon completion, the total development will amount to $300 million.

Before Cordish started the Walk, retailers such as Gap, Banana Republic, Tommy Hilfiger and American Eagle weren't ready to set up shop there. “Perhaps the biggest challenge was overcoming perceptions — unfair as they may have been — about the market being a one-trick pony focused on gaming, and concerns about the vitality of the downtown,” says Block.

Worse yet, the Walk didn't have the blessing of any casino. So the company turned to the CRDA, which has been essential to creating Atlantic City's new retail buzz.

The authority bought up land between the Convention Center and the Boardwalk. It now leases that land to Cordish under a 99-year agreement.

In 2001, the New Jersey legislature also allowed the CRDA to provide incentives for retailers. The agency can designate any non-gaming construction over 150,000 square feet as a retail/dining district and allow sales tax exemption on construction costs, which can save up to 6 percent. The agency can also rebate as much as $2.5 million each year for 20 years on sales taxes.

“Five years ago, when we put together the plan for the Walk, it was a very different marketplace,” says Bashaw. “The incentives were essential to getting the project done.”

Incentives spurred new retail development, but so did a rumor: Vegas whiz kid and Mirage-builder Steve Wynn was coming to town and going to plop a billion-dollar behemoth right in Donald Trump's backyard. The Borgata was built, although by then MGM Grand had bought out Wynn's Mirage Resorts.

It remains to be seen how Trump will react to this development. Trump Hotels declared bankruptcy last November after being saddled with $1.8 billion in debt. And in April, a U.S. bankruptcy judge approved a reorganization plan for Trump Hotels & Casino Resorts. The company will give $17.5 million in cash to shareholders and part of the proceeds from the sale of the former World's Fair Casino in Atlantic City.

Trump will then be able to tap in to a $500 million line of credit to renovate and expand his three Atlantic City properties. Discussions have already begun regarding the addition of another hotel tower to Trump Taj Mahal. Whether retail is also in the works remains to be seen.

The Tropicana, one of Atlantic City's oldest casinos, knew it had to change. So parent company Aztar Corp. opened the $245 million Quarter extension this past November, including 500 additional rooms, a parking garage and 200,000 square feet of retail.

Modeled directly after the Forum Shops and the Canal Shoppes at the Venetian, the Quarter houses more than 40 tenants such as Chico's, Cache and Zinman in a setting themed on Old Havana.

“The Walk is an upscale outlet shopping, but the Quarter sort of took it up a notch,” says Bashaw. “Whereas the Walk has a Brooks Brothers outlet, the Quarter has the real deal with a Brooks Brothers store.”

Incentives from the CRDA helped to cut $60 million off the cost. Aztar owns and manages the Quarter on its own. But being new to the retail business, it brought in MRA International, a Philadelphia-based retail and dining consultant, to help.

“When Tropicana approached us, no one thought of Atlantic City as a retail or dining destination,” says Chuck Bargitikos, a principal at MRA International. “You thought of it as a gaming town. But we saw the 12 casinos of Atlantic City were generating the same amount of gaming revenue as the Vegas Strip. However the dining or retail revenue was negligible, because there was no supply.”

The supply is there now. With nearly three major centers in less than two years, the first wave of retail has hit. The question remains whether there will be a second. “More may come,” says Joseph French, senior investment adviser for Sperry Van Ness. “Is it necessary? I'm not so sure. I don't know how compelling a fourth center will be.”

No new retail plans have been announced as developers and casinos wait to see if the Pier delivers on its promise.

Traffic numbers seem to suggest that Atlantic City could support more retail — a lot more. Last year, Las Vegas received 38 million visitors, while Atlantic City had 33 million. The Las Vegas Strip has about 5 million square feet of retail, says Gordon. Even after the Pier, Atlantic City will have less than a million.

“Our philosophy is that the market is still underserved,” says Bargitikos. “When you look at Vegas, they have had three expansions at the Forum Shop, and a lot of other stuff like the Aladdin and Bellagio. There's a ton of stuff out there that's still not available at Atlantic City.”

Market Profile/Atlantic City

DEMOGRAPHIC OVERVIEW

  • Number of tourists in 2004: 33 million
  • Number of tourists in 2003: 32 million
  • Average age of visitors in 2004: 52
  • Average age of visitors in 1998: 54
  • Percentage of visitors who are female: 67 percent
  • Average household income of visitors: $55,000
  • Number of hotel rooms: 18,000
  • Number of hotel rooms added in 2004: 959
  • Total casino revenue 2004: $4.8 billion — 7 percent increase from 2003

Sources: Casino Control Commission, Atlantic City Convention and Visitors Authority