Signs and symptoms of an approaching recession are all around the hotel industry.
As numerous financial analysts all over the world already have pointed out, the nearly unparalleled current economic growth period is a much-anticipated market correction.
While those analysts are far more qualified to explain how this downturn might inevitably arise, I’d like to call attention to how one 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 has less cash on hand than two decades ago and has grown accustomed to making lemonade out of lemons.
To understand this, 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 and movie theaters, but would they have risen so fast without the average consumer becoming more spendthrift and actively seeking out a cheaper alternative?
I often think back to the adage of, “If it isn’t broken, don’t fix it.” Such a phrase glibly 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 mindsets exist in the world of hotels, where so many of our operations basically run on autopilot until there is a clear and present need for disruptive change. The previous recession 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.
What largely allowed home-sharing to bloom from low-rent couch-surfing to mass adoption was the perceived value of its listings relative to traditional guestrooms. Driving the success of these alternative accommodations 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.
When times are good and the money is flowing, it’s all too easy for consumers to stay with what they know, 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.
Many have proclaimed the micro-hotel—as exemplified by emerging brands such as Moxy, citizen or Yotel—as a sweeping victory for major chains. I see it less as a golden solution than a gilded one. 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.
Owners and corporate pundits have extolled how micro-hotel concepts can, for instance, squeeze 120 “functional” rooms out of a building conventionally designed for 80, and how the modern traveler craves social spaces over larger private ones. But 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, guests may tolerate this notion of “cozy” rooms at first, and simply become acclimatized to it over time, deciding not to waste their energy to complain.
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. 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 can best be expressed through another saying, “An ounce of prevention is worth a pound of cure.” We all know the next recession is coming and it has already been affecting us for quite some time, so you better start taking action now.
One of the world’s most published writers in hospitality, Larry Mogelonsky is the principal of Hotel Mogel Consulting Limited, a Toronto-based consulting practice. His experience encompasses hotel properties around the world, both branded and independent, and ranging from luxury and boutique to select-service. Larry is also on several boards for companies focused on hotel technology. His work includes five books “Are You an Ostrich or a Llama?” (2012), “Llamas Rule” (2013), “Hotel Llama” (2015), “The Llama is Inn” (2017) and “The Hotel Mogel” (2018). You can reach Larry at email@example.com to discuss hotel business challenges or to book speaking engagements.
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