New York Hospitality by Vijay Dandapani

Bartering to tide over the recession

Adam Smith, the Scottish philosopher noted in his seminal work "The Wealth of Nations" that "the propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals". Bartering may be defined as a medium in which goods and/or services are directly exchanged for other goods and/or services, without the use of money. It has been around for millenia in non-monetary societies and the internet offers a vibrant 21st century as seen in Craigslist.

The depth of the recession has crimped the cash balances of many firms including in the hospitality industry leading to a revival of barter. These Chicago area hotels, for instance, are bartering a range of items including advertising and dry cleaning for hotel rooms. One of them, The Talbott Hotel, a 149-room boutique hotel near North Michigan Avenue, gave nine room nights to What’s Happening, a community newspaper chain, in exchange for Valentine’s Day weekend advertising. Companies receiving room nights often use them as employee incentives. The 355-room Hotel Sax Chicago on North Dearborn Street is trading 20 to 30 rooms per month for advertising—up 20 percent from last year.

Others such as the Barter Business exchange claim, somewhat unsurprisingly, that bartering is not limited to adverse economic times and note that "a hotel might have an 8 percent vacancy rate and can fill those empty rooms by trading for cleaning services. In bad times, the hotel might have a higher vacancy rate, but still fill those rooms through trades with other businesses low on cash".

Barternews.com reports that "a wide range of properties -- from the Riviera Resort & Spa in Palm Springs and Marquis Los Cabos in Cabo San Lucas, to urban hotels such as Affinia Hotels in Manhattan and Chicago, and even spa resorts like The Lodge at Woodloch -- are using barter as a strategic financial tool, with the assistance of specialists such as Innovative Travel Marketing. These hotel companies tap the equity of their empty accommodations to expand their cash flow and their ability to buy advertising, product or soft goods. For example, by taking just 1% of potential room revenue, a hotel can realize a significant credit to purchase advertising or merchandise that would increase sales".

Barter is not without its negatives though and they include the high cost of transactions (eg.maintaining accounts for diverse vendors) and the lack of transparency (room rate on the sell side and pricing on the buy side). While it may work for individual (typically small companies) it probably will not do much for any of the hospitality majors.

Cost cuts in a recession: cutting one's nose to spite one's face?

The Wall Street Journal reports on how employers continue to make cuts despite a belief that an upturn is near at hand leaving a few enlightened analysts wondering whether these reductions will prove costly when the recession ends as unhappy workers look for new jobs. The report notes that "Kitchen & Bath Center, a maker of cultured marble and granite, will stop offering employees health care. In March, the company did away with its 401(k) program, and before that it placed employees on reduced schedules. A new Hewitt Associates survey of 518 large U.S. companies found that 54% believe the economic upturn will begin at the end of 2009 or early 2010. Nonetheless, a large percentage have plans for further layoffs, salary reductions, medical-benefit cuts and changes in 401(k) matches".

The New Yorker magazine recently had a compelling piece on an era that is frequently evoked in today's trying economic times, the great depression. The article notes how Kellogg and Post, two cereal companies in what was then a nascent market embarked on radically different strategies in response to the onset of adverse economic conditions. The article notes that "Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal". As a consequence, decades later, Post remains a distant second to Kellogg. Similarly, the article notes how "a McKinsey & Company study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them".

The foregoing is arguably true for most if not all industries with the hospitality industry no exception. The good news is that there still are some hotel companies that have persisted with renovations over the past year and continue to do so as seen in this initiative by Sheraton and Marriott. Holiday Inns also announced renovations although on the backs of franchisees. Hotels have also,to a degree, stayed off from some of the widespread layoffs seen in other industries as well as marshaled their advertising dollars to better effect using internet as opposed to traditional print media. One area with little data is training - those that invest in it in a downturn are likely to reap the most as and when the upturn comes.

Uncool lux?

Fear of being "seen in a luxury hotel while they are perhaps laying off thousands of people or taking advantage of state aid" is leading to many corporate managers shunning high end hotels according to a senior executive of Hyatt Hotels. Short of taking a leaf out of Kathy Fuld's playbook, there are few options left for companies under fire for an ever-expanding definition of "corporate excess" but a direct consequence has been a thinning of revenues at higher end hostelry.

The Hyatt executive is sharply pessimistic saying that" the market for luxury hotels would remain depressed through 2010 and recover slowly in 2011". Similarly, as this article notes "the penthouse suite at the Four Seasons New York. With waterfalls on its walls, gold-encrusted furniture, and balconies surveying Manhattan from a perch 52 stories high at $35,000 a night" is verboten.Such negativity is not surprising but recent history (the aftermath of 9/11) offers pointers to a sharper recovery from forced austerity. Then as now customers were shunning major brands and boutiques and choosing vanilla hotels that capitalized on the sentiment against luxury by not lowering rates as rapidly as their upper crust brethren.

In the end, Luxury hotel companies now more than ever need to diverse geographically just as Bombardier, the luxury private jet manufacturer did a couple of years ago in moving away from dependence on the US corporate market. Many hotel companies are, in fact, doing just that as exemplified by these companies moving aggressively into India and the Middle East. The US, in the meanwhile, is seeing signs of life in the luxury market outside hotels - that should eventually translate into a revival for hotels as well.

Strange hotels

In what is not a first time compilation a recent issue of the Sydney Morning Herald lists some of the world's strangest hotels. The paper's choice includes the predictably named Cruise Hotel in Rotterdam, a refit of an old cruise ship with most of the rooms remade from the ship's cabin filled days; the Capsule Hotel which can move from one location to another (currently in The Hague) was originally designed as escape pods for oil rig workers; the Jumbo Hostel which this blog commented on earlier in February and a caboose converted into a cabin in DeSoto, Wisconsin.

Other sites have previously compiled lists of strange hotels including this one whose list includes tree houses in Masinagudi, Tamilnadu, India and the Woodpecker hotel, so named because it is "one of the smallest in the world, with lodging facilities for one person or a couple!".

 

Forbestraveler has also listed "Oddball hotels" that include Ngong House another tree-house hotel located in the outskirts of Nairobi, Kenya and the Kube hotel in Paris, a 41-room hotel that features guest rooms that are angular, white and accented with brightly colored furniture and opaque night tables that resemble ice cubes; a fingerprint scan opens their door". The latter probably got its inspiration from the folks at DHS, the agency which instituted biometrics for visitors to the US and is probably likely to be just as popular.

Ethical companies

The Ethisphere Institute which describes itself as a "leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability" earlier this week named  ninety nine companies it says are the "world’s most ethical" in its third annual listing "designed to encourage ethical practices within the global business community". The New York based institute sees its primary mission as one to " improve corporate behavior". Interestingly the institute does not consider "diversity, layoffs, executive compensation and outsourcing as part of the criteria" for selection.

That the insitute is New York based is perhaps a nice fillip for the Big Apple given the beating the city appears to have taken on account of Wall Street excesses but what is more heartening is to see among the names making the cut in, what ought to be a coveted list for all companies in all industries, two hotel majors Accor and Marriott. The hotel majors clearly were better than their competitors per the criteria used as "companies are chosen against their peers within their industry, as each industry operates under different circumstances". Among the factors that go into the selection process: "Corporate Citizenship and Responsibility; Corporate Governance; Innovation that Contributes to the Public Well Being; Industry leadership; Executive Leadership and Tone from the Top; Legal, Regulatory and Reputation Track Record; and Internal Systems and Ethics/Compliance Program".

The breath and depth of categories may limit some of the smaller hotel companies from submitting to the process but perhaps over time, the institute can develop metrics more suited to small business (and hotels) which constitute a major part of  the US economy whose business practices arguably are in as much need of such validation.