Dark Omens Underpinning Recent Hotel Trends
With numerous financial analysts all over the world already pointing this out, it isn't difficult for me to point the nearly unparalleled breath of the current economic growth period we find ourselves in as well as the much-anticipated market correction.
While said individuals may be far more qualified in explaining how this downturn might inevitably arise, I'd like to call attention to how one such condition may have subtly given rise to several prominent trends in hospitality, as well as offer a bit of advice for how to prepare your property.
The basis for many recent developments in our industry appears to rest on the concept of real wages rapidly narrowing relative to inflation, and in particular amongst younger generations. Put another way, the average person nowadays has less cash on hand available than, say, two decades ago and they've all grown accustomed to making lemonade out of lemons.
An easy example towards understanding this encompassing movement is to look at the rise of entertainment streaming services, with Netflix as the most conspicuous of this cohort. It's undeniable that these platforms offer incredible value and convenience over both cable packages and going out to the theaters, but would they have risen so fast without the average consumer becoming more spendthrift and actively seeking out a cheaper alternative? Ditto for the proliferation of Amazon when compared to the decline of the physical retail store.
I always think back in these situations to the adage of, "If it isn't broken, don't fix it." Such a phrase glibly states underpins why human inertia is so prevalent in that we only really address issues when they start to become tangible, DEFCON2 problems. Another such proverb would be, "Better the devil you know." With this one, the fundamental emotion is not laziness but fear of the unknown.
Both of these mental qualities can be applied to the world of hotels where so many of our operations basically run on autopilot until such time as there is a clear and present need for disruptive change. The previous recession (for those who still remember 2008 and 2009)- and all of the group contract renegotiations and pessimistic pace reports that came about - demonstrated this principle with the aftermath resulting in line-by-line expense analysis, increasingly frugal approaches to management and shrewd corporate restructurings.
Looking at the Trends That same economic downturn also helped give rise to such industry innovations as alternative lodgings, micro-hotels and high-end hostels.
For the first of these three trends - as immortalized by its leading provider, Airbnb - what largely allowed home sharing to bloom from low-rent couch-surfing to mass adoption was the heightened perceived value of its listings relative to traditional guestrooms. Marketed as being unique spaces with kitchens and other hot selling amenities, one understated driver for the success of these platforms is that the rental cost per square foot is often well below what you would pay for a typical hotel in the same territory.
But with our collective tunnel vision, we hoteliers have failed to evaluate what would motivate the average person to try out these new channels while taking into account the new aforementioned adages and the human characteristics implied. In other words, when times are good and the money is flowing free, it's all too easy for a consumer to stay with what you currently know - that is, a traditional hotel. But throw a wrench in someone's salary or stock portfolio and they'll start looking to cut corners, whether that entails streaming television over going out to the movies, using an on-demand transportation platform like Uber instead of leasing a second car or finding cheaper accommodations while traveling.
To touch upon the second of these trends - the micro-hotel as exemplified by emerging brands like Moxy, citizen or Yotel - while many have proclaimed it as a sweeping victory for major chains, I see it less as a 'golden' solution than as a 'gilded' one. Namely, it's coated in the luster of a precious metal and lauded as such but hiding the narrowing real wage gap affecting billions of people and that there is simply far less money going around than there was a decade or two ago.
While owners and corporate pundits have extolled how micro-hotel concepts can, for instance, squeeze 120 'functional' rooms out of a building conventional designed for 80 as well as how the modern traveler craves social spaces over larger private ones, I see it more as an extension of this lemonade-out-of-lemons system of entrepreneurship.
As humans innately want large open areas to spread out, who in their right mind wouldn't opt for a larger guestroom over a smaller one, save for a financial need to do so? Like frogs in water that's slowly heated up, at first this latter notion of 'cozy' rooms is one that you bite the bullet and tolerate, but then over time you become acclimatized and don't waste your energy with complaints.
What Can You Do? Congratulations, I've become yet another harbinger of doom in that I've shown how we've all adjusted to diminishing returns and how the end of our current bullet market is nigh. What does this mean for your hotel and what steps can you take to recession-proof yourself?
As a start, recognize that your groups business can make or break your property because of how it bolsters midweek occupancies and because of how much less work is required for each sale on a per guest basis. If the next downturn is lurking just around the corner, you need to lock in contracts for the upcoming calendar year now rather than in the same quarter as their actualization.
Secondly for transients, know that loyalty and repeat visits hinge not just on the nightly rate but also on guest service and operational improvements. If there's nothing exciting about your hotel then I would bet that your guests are already searching for somewhere else to book their next vacation. And even more critically, if you have recurrent problems in such departments as housekeeping or maintenance, these will all become monstrously detrimental towards achieving your rate and occupancy goals in the face of so many other competitors who have these hospitality basics solved.
The bottom line here, like before, can best be expressed through a third and final saying, "An ounce of prevention is worth a pound of cure." We all know the next recession is coming and as I've shown it has already been affecting us for quite some time, so you better start taking action now.
