Plutonomy and hotels

Reuters reports that Starwood Hotels & Resorts third quarter profits was better than what analysts expected. However the report notes that the company "which operates mostly luxury and other top-tier
properties, has been particularly sensitive to the decline in
business travel and corporate cost-cutting. It has cut average
daily rates dramatically to appease vacationers." The report goes on to quote an analyst as saying that a "recovery (has been)
priced into these stocks, and people are just sort of reading
the tea leaves from each of the companies about how and when
that's going to happen."

If the foregoing perspective is more right than wrong it foretells a very slow recovery for hospitality as a revival in luxury is an essential component of any broader lodging (and overall economic) recovery. The notion that the luxury segment as represented by the rich & super-rich consumer drives overall economic growth was first neatly encapsulated by a Citibank executive in 2005 with the term Plutonomy. The Citibank report of 4 years ago said that "the richest 20% (in plutonomic economies) may have been responsible for 60% of total spending".

Starwood's perspective notwithstanding, the luxury market in the broader economy is reporting signs of life as another Reuters news report quotes a Bain & Company report that forecasts "positive growth for 2010 and quotes a partner in the firm as saying that "luxury goods markets are stabilizing (and) we are seeing less discounting and mark-downs (unlike in Starwood's report) and more signs of increasing consumer confidence." It is not all positive though as Bain predicts "luxury sales in mature markets show continued softness and that 2009 sales will be down 16% in America, 10% in Japan and 8% in Europe versus 2008."

Still luxury (and other) hoteliers can, perhaps, take a leaf out of some other resourceful luxury marketers seeking to overcome a major obstacle to luxury's revival: luxury shame. The Wall Street Journal reports that some are "encouraging Internet shopping, as many brands have been doing to overcome luxury shame—epitomized by the showy
act of walking out of a fancy store with a big shopping bag—is one of
the main reasons for the estimated 20% jump in online luxury sales this
year as per Bain & Co." Another tactic for "taking some of the guilt out of shopping—offering a charitable-giving component—is gaining traction as well."

While hotels can't have guests stay virtually in their properties they can promote their properties and seek to alleviate any guilt from luxury shame amongst guests by offering to donate to their guests' favorite charity a ratio of the room rate at the end of their stay. Another move could be to incorporate more plebeian cars instead of Maybachs and Rolls Royces as part of their transportation stable as a way of alleviating luxury guilt.



Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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