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Wynn Resort Case
Wynn Resorts Case Analysis
The combined effects of an aggressive new resort development strategy, continued partnering with the Chinese government to stabilize and grow the investment in Macau, and the continual refining of the existing properties has led to FY2010 being one of significant turn-around. With $1.5B in current assets and $160M in Net Income, Wynn Resorts Ltd. (WYNN) is in an excellent position to profitably grow over time. Despite this impressive turn-around in financial performance, which is also reflected in the financial ratio analysis shown in Appendix A, Wynn still faces challenges globally, both in the form of potential opportunities and threats. The intent of this analysis is to define the company's strategic leadership issues, complete a SWOT analysis of the company, and define the suitability of the company's business strategy to its current situation. The analysis concludes with suggestions for improving Wynn's strategy given the constraints of environmental forces impacting the firm.
Analysis of Strategic Leadership Issues
The last five years have been very challenging the company, yet despite the difficult economy conditions of 2008 and 2009 that led to drastically reduced revenues and earnings, the company was able to significantly improve profitability. Appendix A shows the trending for all key financial ratios in the liquidity, activity or operations efficiency, performance, profitability, financial leverage and divided performance. Most significant is the increase in operating margin before depreciation, which increases from a low of 17.3% in 2006 to an all-time high of 24.4% in 2010 (Yellig, 2011). This is due in part to the greater level of Inventory Turns achieved in the Macau and Las Vegas properties, according to the latest filings the company has made with the Securities and Exchange Commission (SEC), specifically the 10Ks and 10Qs (Yellig, 2011). Operating cycles have also seen major improvement since the recessionary periods of 2006 when they were at 51 days, drop[ping to 27 days for the latest fiscal period. This is an indication that the strategies of greater operational efficiency mentioned in the case study are highly effective in converting Accounts Receivables into cash and payments. This also signals that the occupancy problems the company faced in the past are being alleviated through more effective marketing and targeting of the high-end consumer (Cendrowski, 2009). Another strategic leadership issue is the recognition on the part of pricing and revenue management teams internally that the higher-end consumer is not price elastic in how they choose a hotel room in any of the properties. The rise in hotel room rates actually saw an increase in bookings and also a higher per-guest spending rate compared to the previous recessionary periods, indicating that consumers are not driven by price in Wynn Resort, they are driven by experience. This is a significant strategic leadership finding because it further supports the positioning of the resort as offering a highly unique, luxurious experience over being driven on price competition across the luxury markets. The reliance on customer experience is critical for the successful positioning of any service business, as customers' expectations must be continually met and exceeded for the business to grow (Gopalani, Shick, 2011).
Wynn Resorts SWOT Analysis
The greatest strength the company has today is the turnaround in profitability as shown in the Operating Margin, Net Profit Margin and significant increase on Return on Equity (ROE) and Return on Investment (ROI) as shown in Appendix A. In conjunction with this aspect of their financial strength, the company has been able to accumulate $1.5B in current assets (Yellig, 2011). Another strength is the customer loyalty from the higher-end recreational gamblers and tourists who have higher per capita incomes and have proven to be driven less by price and more by loyalty to a given luxury brand (Cendrowski, 2009). Wynn Resorts has an innate strength in delivering a highly differentiated, unique customer experience that attracts the higher-end tourist and recreational gambler, the majority of whom are middle aged and male (Cendrowski, 2009). This has been a powerful catalyst of the rapid growth in revenue and profitability in FY2010. Another strength is the leadership of Steve Wynn who has led the expansion into new markets including Macau. The position of Wynn Resorts with the Chinese government is a major, strategic strength in the world of global gaming and resorts.
Despite the remarkable turn-around the company is experiencing in their latest fiscal year, both reflected in their filings with the SEC and also in Appendix A, the company runs the risk of expanding too fast. The key ratios based on analysis of the data in the case study and from current filings Wynn Resorts has made with the SEC indicate that Working Capital Per Share is declining or at best flat-lining. This indicates the company is potentially in danger of expanding past its limits from an equity standpoint, which could dilute its stock over the long-term. Another weakness is the lack of insight into why their loyal customer base over the long-term, there is not enough of a focus on analytics to better understand the dynamics of what makes them so price insensitive (Cendrowski, 2009). Opportunities include continuing to invest heavily in the customer experience management strategies that are driving up occupancy rates and serving to differentiate their brand relative to other luxury hotel and casino resort providers. The opportunity to further distance themselves from competitors with more effective customer experience management audits for example has proven to be very effective in comparable industries (Gopalani, Shick, 2011). The most significant opportunity continues to be the conversion of the Macau property in 2017 to a continuing operation, capitalizing on the land investments made. Macau is the Chinese Communist Party's experiment with the purest form of capitalism, with are casinos and gambling operations (Friess, 2004). Estimates from venture capitalists and industry experts report an increase of between 42% to 50% in revenues associated with casinos and gambling on Macau in the last year alone (Wall Street Journal, 2010). The Chinese government is clearly interested in this as a means to also fuel their economy as well (Wall Street Journal, 2010). The threats are most significant in the area of global expansion as well. If the Chinese government chooses to not allow Wynn Resorts to continually operating after 2017, the costs and loss would be financially significant, draining up to 18% of total revenue s according to the latest SEC documents filed by the company. It would also mean the company could face even greater competition moving into Shanghai and other high-growth economic areas of interest as well. Finally the overhang the company has of their equity positions relative to capital accumulation rates show that they could "overheat" their equity levels if the Chinese government chose to take ownership. There is also the overall threat of another economic recession which would drop revenues and depress margins as was the case in 2008.
Business Strategy Assessment
The business strategy Wynn Resorts has chosen shows calculated risk globally yet solid growth domestically. The decision to invest heavily in resort and casino operations in Las Vegas is prudent, as these operations generate cash very quickly as shown by the Operating Cycle metric in Appendix A. It takes just 27 days to cycle cash from operations today, which is above average for the casino industry (Wall Street Journal, 2010). The strategies in Macau are fraught with risk however and investing in lobbying efforts with the Chinese government, increasing the focus on Corporate Social Responsibility (CSR) that the case alludes to as part of their taxation modules and strategies would be a good direction to take. Wynn Resorts need sot invest so heavily in CSR that they become indispensible to the infrastructure of the region. That's the best approach to ensuring the 2017 issue gets resolved in their favor.
Recommendations for Improving Wynn's Business Strategy…[continue]
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Wynn Resorts Ltd. is a premium destination world class Casinos and Resorts that was founded by Steve Wynn. The founder of this company is regarded by many as a visionary who has transformed the City of Las Vegas through establishing one casino at a time. In its initial years, Wynn Resorts Ltd. operated at small stakes in 1967 in the Frontier Hotel in which it was a newcomer to Vegas.
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