New York Hospitality by Vijay Dandapani

Revamping recession marketing

Harvard Business Publishing has an article by Mr.Umair Haque entitled "Why Traditional Recession Tactics Are Doomed To Fail This Time". While the article is directed at boardrooms across industries it has clear pointers for the hotel industry as well. It begins by noting that traditional recession measures such as "budget-paring, personnel-slashing, and portfolio-trimming" simply won't cut it as the current economic headwinds are "no ordinary squall, but a once-in-a-lifetime gale ripping up the very foundations of the global economic order". While the language may be weighty with grim portends it is hard to argue with the substance of it.

The author suggests that decision makers address the problem at threee levels.

1. Mr. Haque begins by noting that there is a change underway in the patterns of investing, consumption and savings. In his view the global macroeconomic picture calls for "overconsumption in developed countries to slow sharply, and capital to be redirected to long-run investment, especially in public goods". Equally, he calls for "emerging markets to shift from financing consumption in developed countries, and begin investing in the basic institutions of a vital microeconomic environment and power long-run growth".  For the US he uses Starbucks as an example and says of they "want to grow  via new stores and new products, its corporate strategy must support the clear macroeconomic need to shift overconsumption to long-run investment. That means relying less on Vivannos, and more on, for example, Starbucks as a platform for communities to build and invest in local resources".
2. Corporate strategists should focus on creating long-run value and not merely indulge in "arbitrage or gamesmanship" which is "too often confuse(d) for strategy. "Games of off-balance sheet accounting, currency hedging, capital structuring, so-called labour arbitrage. Corporations who play this game of economic musical chairs are in for a rude awakening as the music just stopped". Once again the author resorts to Starbucks for an example saying they "tried to grow by selling us more junk we don't need -- music, mugs, and mouse pads. That was orthodox, textbook, industrial-era strategy: grow by seizing share in adjacent markets". The hotel industry too indulged in some of that with some chains going so far as to ramp up a near full-service retail offshoot to sell products found in hotel rooms. Perhaps that the new recession could imply a rethinking of its core mission - that of providing the best guest experience.
3. The third and "deepest level" calls for strategists to discover new sources of advantage as old ones fade and decay. Further once value is created strategists must learn how to sustain and maintain it. He notes that "brands (are not) what they used to be and as the investment banks just showed us, neither is scale, proprietary knowledge, or top-notch relationships". Once again the article highlights the point with a Starbucks example saying that "if Starbucks wants to survive the 21st century, it must get radically experimental, learn to tap the power of network effects, shift to becoming resilient, develop and live a sense of purpose, or learn to occupy the creative high ground".

The author closes by observing that "industrial era (the past) DNA was built to power a nakedly competitive advantage; one that's deliberately blind to being unfair, unsustainable, or flat-out imaginary". Whereas "discovering new sources of advantage depends on new DNA - on building new kinds of institutions with entirely new capacities. Because, at root -- and as we'll discuss at length shortly -- the macro crisis isn't really a financial crisis, an economic crisis, a liquidity crisis, or a solvency crisis. It's an institutional crisis: the economic institutions of capitalism are in shock".

Halloween hotels

Reuters has a report on a website called professionaltravelguide.com that has compiled a list of hotels that seek to lure clients seeking a ghostly experience to go with halloween. The themes include from "suicide, murder, untimely deaths, all set the grisly stage for macabre stories of hauntings". Since Halloween is celebrated most widely in the US all except one of the nine hotels on the list are found in the US.

They include Hotel Del Coronado, Coronado, California where "Kate Morgan's (an Iowan) body was found six days after she checked into Room 302 of the Hotel del Coronado to meet her estranged husband on Thanksgiving Day 1892. He reportedly never showed up. Room 302 is now known as Room 3312, but Kate's spirit is said to roam the entire hotel. The story at the Sagamore in Bolton Landing, New York is about "the ghost of a boy from the 1950s. The boy would collect lost golf balls and sell them to the pro shop for extra cash. Running after a ball one day, he was fatally struck by a car. Apparently, guests still see the boy on the golf course sometimes". For a decidedly more blood curdling experience guests could consider the Hotel Provincial in New Orleans,LA where "part of the hotel was once a Confederate hospital. Maids have reported bloodstains mysteriously appearing and disappearing. Once, as the elevator opened on the second floor, the vision of an entire hospital apparently came into view"!

The sole non-US hotel on the list, the Shieldhill Castle, Edinburgh, Scotland is rather tame in comparison. Guests tell stories of "The Gray Lady" who is said to haunt the hotel. According to legend, she was the daughter of the family who owned the castle until the mid-20th century. She is said to have fallen in love with one of the hired hands. When her father disapproved of the marriage, she committed suicide.

Halloween may well result in "ghost" hotels in parts of the US owing to the severe economic contraction under way. In order to avert a rash of empty rooms some chains are offering to open their doors to halloween revelers by offering "freshly-baked chocolate chip cookies to anyone who walks in". Anything to keep the ghosts out and the guests in ought to be welcome.

Sars redux?

A travel slowdown akin to what occurred in the wake of "SARS" (Severe acute respiratory syndrome) is coursing through the industry's veins. Only this time the pathogen is financial according to two independent reports mentioned in the Wall Street Journal blog "The Middle Seat Terminal". The Journal blog notes that IATA has put out a "strongly worded press release" comparing September travel numbers with the SARS care of 2003". Headlined “Alarming Drop for September International Traffic”, IATA notes that the "deterioration in traffic is alarmingly fast-paced and widespread". Another report by Deloitte references the British hotel industry which again used the SARS analogy while saying “September was the worst month since August 2003 when SARS scares reduced travel.” The Journal blog has an interesting and (in the opinion of this blog) an accurate analysis of, perhaps, extraneous considerations in the alarmist language used. The WSJ notes that "Clearly it seems a consensus is growing about a slowdown in global travel — along with the worldwide economy. But even so, there are a couple things worth pointing out about IATA’s press release. For one, IATA is in the midst of making a pronounced push for governmental change on airline regulation, so airlines might have an interest in painting a dark picture of the industry as they urge politicians to act. But sinking traffic might also be due, in part, to higher fares from carriers, which could actually result in better financial prospects for airlines — even if planes are emptier". That airline travel is getting pricier is unambiguously the case from this report amongst others. Nevertheless, a steep decline in international travel combined with a strengthening of the dollar and widespread economic uncertainty almost certainly means a significant slowdown for the hotel industry.

Giving away the store?

Virtually every lodging industry conference this year has had the same refrain when it came to discussing the stalling economy - operators urging each other not to discount during the downturn. Without price collusion - which is clearly illegal - it is hard to ensure such an outcome as it behooves operators to offer "bargains" in a bid to fill their rooms with customers who presumably don't live in a time warp and are aware that demand exceeds supply.

The early empirical evidence points precisely such an outcome - yet again. The New York Times reports on a range of hotels in New York offering bargains. The report begins by noting that as "New York City’s economy starts to experience ripple effects from the Wall Street meltdown, visitors to the city might finally be getting the upper hand when it comes to overpriced hotels, overbooked restaurants and over-the-top spas, with prices being slashed and special deals suddenly being offered". The industry's oft-maligned third party websites have been quick to roll out offers to their consumers with sites such as "Orbitz.com offering as much as 20 percent off many New York hotels, including Le Parker Meridien, the Sheraton Manhattan at Times Square and the Westin New York. Quikbook.com, a New York-based hotel discount site, has been featuring periodic sales with rates for as many as 20 Manhattan hotels cut by 15 percent".

Other cities are not far behind. The San Francisco Chronicle reports on a dizzying array of deals at Sin City that according to "rumors increasingly repeated about $400-a-night hotels discounting their rates, on occasion, to as little as $100". Third Party resellers have predictably been active there too with "Hotwire.com published an offer of $119 per night midweek and $159 per night weekend for a five-star suite at the always elegant Venetian Resort-Hotel-Casino, on select dates from now until Jan. 25. Using Hotwire, you can snare the $119 rate on seven days in October, 11 days in November, 14 days in December and nine days in January. You get the $159 rate on at least three weekends in each of those months".

While hotels nationwide are in for a rocky year (or longer) ahead, customers are likely going to see a surfeit of choices.

Small letters = big dollars

The New York Times notes how hotels are jumping on to the "fine print" bandwagon pioneered by airlines.

The author of the Times article notes that he had to cancel a booking at a hotel in Aspen, Colo only to be told that the entire two nights stay he had paid in advance was non-refundable. The hotel's reservation procedure had forewarned him and the penalty clause was in "fine print" on the second page of his reservation. The hotel in question was an upscale hotel and, as the author notes, hotels in the mid-market segment have relatively painless (and costless) cancellation policies. The article quotes a Mr.Joe Brancatelli, who publishes the business travel Web site Joesentme.com who said that some "hotels had become more aggressive in adding extra charges. Hotels saw the airlines getting away with it, and they’re just doing what airlines do". And the Times rightly notes that "Airlines, of course, have been raising or adding fees, including fees for changing an advance-purchase restricted ticket".

The latter's tactics include a range of arguably misleading add-ons such as a $20-50 fee for calling their toll-free number, cancellation fees that many times equal the discounted fare. Others clubbed as catch-all taxes, fees and surcharges (typically fuel) often times add up to a two-thirds of the "fare". It is little wonder that service in airlines has proven to be none too popular with their customers and in emulating an industry that has historically exemplified service at its worst, hotels run the risk of garnering short term gains that likely will result in long term pain.

Big workplace ideas for small businesses

The US Small Business Administration defines a small business as "one that is independently owned and operated and which is not dominant in its field of operation" and most hotels, franchised or not, easily slip under that umbrella definition. While the small business nature of the industry has many positives, finding best practices to combat high turnover among employees is a perennial challenge in the industry in many parts of the world.

The Wall Street Journal runs an annual contest of sorts in conjunction with Winning Workplaces, an Evanston, Ill., nonprofit that helps small and midsize companies create better work environments, to identify 15 small employers that have built exemplary workplaces. As the Journal report notes "it's never been harder to create a great workplace. With all the turbulence in the economy, business owners are spending more time trying to boost sales and cut costs than fretting about the well-being of their employees". That's a description that lends itself quite easily to the hotel industry even in better times and some of the measures taken by the "winners" (none of whom were from the hospitality industry) could just as easily be applied by hotel employers.

The measures vary widely across a number of employee focused areas. They include "100% employee-ownership enabled by an employee stock-ownership plan". Most hoteliers would probably balk at that but a way to consider it is to set vesting based on tenure and set aside a finite ratio for employee ownership as opposed to a majority of shares that a conventional and traditional owner retains so as to not be concerned by control issues. Asset sales can be addressed with a proviso to ensure delivery of 100% of shares in the event the asset is sold. Another company chose to address it by setting aside a fixed ratio of pre-tax profit for employees with no dilution of shares thereby giving a real feel of "ownership" to all employees.

Another area addressed by best practice companies is the annual bonus where it was done as a ratio of one's salary as opposed to the seemingly arbitrary flat bonus. Unfortunately, all too often, many hotels have no bonus policy for its employees.

Employee feedback formed a highly important component of another firm and was done very frequently and in a highly structured manner. When combined with on-site and off-site training it almost always engenders employee loyalty not to mention upward mobility within the company.

Encouraging employee suggestions or changes and rewarding as well as implementing the good ones is an excellent employment practice. A trucking company (traditionally a high turnover business) cited in the Journal article not only had the usual employee of the month and year awards but also quarterly $100, $50 and $25, rewards for suggestions.

Combating nasty and wasteful instincts in a work place was addressed by another company by getting "employees (to) meet for a "scrum" -- a short get-together where they're briefed on company news, do yogalike exercises and then play a quick brain-rousing game that forces them to think on their feet". Monday morning GMs meetings could arguably incorporate some aspects of it particularly the latter.

Other morale boosting methods include finding fun and communal ways for employees to be involved; internal and leadership development programs; hosting annual soccer games, athletic contests and recreational trips; and enabling administrative staffers to take on challenging projects that "forge a fulfilling career path (with)in the organization".

Gizmo laden hotels

Networkworld, a magazine with a focus on network technology, has an article entitled Geek hotels: places a traveling techie will love. The article begins by noting that "hotels are increasingly becoming high-tech. And with good reason: People want their 24/7 connectivity and other techie requirements even when they're away from home. So hotels that want to become (or stay) successful are making sure they offer amenities like wireless or even the latest video games". While that observation is no surprise to savvy hoteliers, the article goes on to rate their nine best techie hotels based on objective criteria saying that "these hotels have found a way to go above and beyond standard hotel niceties. Some offer both luxurious surroundings and futuristic tech conveniences, some have found a way to offer tech amenities at a reasonable rate, and some are using technology to bring people together".

The magazine used a range of categories such as "Modular High-Tech" naming the CitizenM hotel in Amsterdam's Schipol hotel saying that it is hi-tech both in construction (used modular construction) and features (self check-in, RFID key cards etc.). The Gansevoort in New York's meatpacking district comes under "luxury and hi-tech" with "free wi-fi, 42 inch LCD TVs, CD players and alarm clocks with iPod docking stations. They also offer in-room safes for your laptops or purchases at the area's many designer boutiques. Of course, the Meatpacking District is also home to trendy restaurants galore, and guests can choose to work off those meals the high-tech way: By requesting a Wii console delivered to their room and working up a sweat playing one of the sports games". Others like Seattle's Hotel 1000 come under "Motion Detection at Your Service" where "video phones allow guests to see when the valet delivers their car to the hotel entrance". Quite nifty. Overseas in Japan the Peninsula, Tokyo merits a mention as "Tech Pampering in Japan" where the rooms offer a host of amenities: wall panels that show outdoor weather conditions; in-room fax machines, nail dryers and espresso machines; and Internet radio automatically programmed to the guest's country of residence". Others finding mention are the Hotel Sax in Chicago which offers guests a lounge to play Xbox, the Pod Hotel in New York as the Facebook" Hotel with its i-pod docking stations and the Best Western Hotel Tomo in San Francisco's Japantown as " J-Pop Décor, Games and Tech" with its J-pop and comics inspiration with graphic murals in each room.

Fast vanishing premium guests

The Wall Street Journal reports on woes in the airline industry with an article headlined "Economy Takes Toll on Premium Airline Passengers. The financial crisis has hit, among others, British Airways which has a lot of exposure to the banking sector on its London-New York route and its flights to other finance centers, including Hong Kong and Tokyo. The airline has lost first- and business-class traffic by as much as 9% in September from a year earlier. That slowdown has impacted other travel areas such as Asia as well.

The same report notes that the 'lodging business hasn't escaped unscathed' with some higher-end hotels making inventory available to segments like airline crews, government travelers that. That "cannibalizing" of business heretofore spurned, can only have a negative cascading effect on hotels that made do with that end of the customer continuum.

The New York Times also has a report with a stark headline that reads "Travel Industry Shaken By Economic Downturn". The article notes that domestic hotel occupancy down 5 percent from the previous September and "the higher-price segment of the hotel industry, which had been holding its own, now also seems to be feeling the pain". Adding to that economic pain has been the faster rate of cancellations of existing reservations which are now running about 50 percent above normal at full-service hotels according to Bjorn Hanson, of the Tisch Center for Hospitality, Tourism and Sports Management at New York University.

Other parts of the country do not seem to be faring much better. The Miami Herald has a report headlined "South Florida luxury hotels tested in hard times". Apparently "the boom times are over for South Florida's young roster of ultra-luxury hotels as a global slowdown could show whether the region has put too much stock in wealthy travelers". The article quotes the sales director of the luxury hotel, the Setai who predicts that a sizable number of guests this winter will balk at the South Beach resort's $1,100 standard daily rate, forcing him to extend a $620 weekday special into the weekend.

At another part of the country in Beaumont, TX in a distinctly different segment a very different (and heartening) story is playing out with the Beaumont Enterprise reporting that "Hotels full; grab a room at checkout if you can". The reason Southeast Texas hotels are full has a simple explanation: Hurricane Ike. Many hotels and inns are still waiting to reopen because of damage from the Sept. 13 storm while others are filled with contractors and relief workers. The Beaumont Convention and Visitors Bureau. notes that there are"stories of people going from hotel to hotel trying to find a room. It's a crapshoot with the demand for hotels so great that the bureau receives around 30 to 35 calls a day about hotel rooms, which is up from pre-Ike average of five calls a day".

Credit crisis' impact - when green trumps green.

The impact from the financial crisis is being felt in virtually every aspect of economic activity with eco-friendly initiatives beginning to come under the budgetary axe. The Financial Times reports on how "The green agenda is at risk of being sidelined by the credit crisis, in spite of attempts to keep issues alive in the commercial property industry".

The paper notes that "a recent study of more than 100 directors responsible for real estate by Knight Frank showed that concerns about the environment and energy efficiency had fallen to the bottom of the agenda. On a list of the 10 most important factors when considering a building, sustainability was 10th. The top issues were rental cost and staff retention".

The Knight Frank survey, though limited to the UK, goes contrary to recent findings in North America where a recent survey found almost 20 per cent of travelers choose hotels because of environmental practices, including housekeeping services that only use non-toxic cleaning agents. The survey also found that "going green in the hotel industry is not just in vogue -- it's sound business to consume less energy, less water and create less waste". The Green Building Council has certified only four U.S. hotels as "green," while more than 800 office buildings already have its seal of approval.

While the Marriott Corporation arguably is at the forefront with its green initiatives encompassing the calculation of its carbon footprint with a view to aggressively minimizing its impact, others from Fairmont to Accor have taken significant steps on the green path including purchasing clean and renewable wind energy for its US hotels. All of that was before the credit crisis began snowballing. A paucity of funds and contraction of travel that seems all but inevitable likely will stifle if not abort many of the green initiatives as hotels scramble to focus on the green(back) rather than on green initiatives.

(Hot)el industry turning cold?

Major hotel stocks such as Marriott and Starwood at are at five year lows and according to some analysts the industry and per a CNN report the outlook is "is exceptionally pessimistic right now as people are very concerned about the economy". So for the year "Hotel stocks have been under siege on economic concerns with Marriott's shares down 29% year-to-date, while Starwood's stock has fallen roughly 41%". That trends looks set to continue unless there is a "reversal in economic fundamentals" that could come about if the current credit squeeze strangling the larger economy is eased with the passage of the infamously labeled "bailout bill".

A Forbes article on the same topic headlined "Hotels foresee lots of vacancies" notes how "Investors were low on hospitality Thursday morning after Marriott International reported disappointing profits and dimmed its outlook for 2009. High gas prices and the rising cost of food have shifted consumers' spending habits, causing them to spend more on necessities and less on discretionary items such as lavish vacations and lengthy hotel stays. The rising cost of airfare has also kept people at home".

As in most storms, it is hard if not impossible to see the sun. The industry has been through many a storm in the past including most recently in the aftermath of the 9/11. The silver lining, such as it is, is the industry is well girded to withstand a typical (though not extended) recession owing to large sums spent on a variety of FF&E areas during the healthy part of the cycle. Meanwhile, for hotel guests a short recession probably represents an excellent value proposition owing to some inevitable pricing pressure.