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Leading Hotels Focuses on Luxury in a Down EconomyNovember 17, 2008 By: Ruthanne Terrero
Travel Agent was on location in Boston last week for The Leading Hotels of the World’s (LHW) Annual Convention, which brought together top-level representatives of member hotels from all over the world. The conference’s general session on Thursday touched on a number of hot topics, particularly how the failing economy is impacting the luxury side of the business.
Jean-Jacques Gauer, LHW chairman, didn’t mince words after welcoming guests. “The luxury business-traveler segment is going away with great speed,” he noted. “The current troubles are twice as marked for luxury.” Fueling this downturn, he said, is the fact that the number of luxury rooms throughout the world have doubled to 80,000 over the past 10 years.
For that reason, LHW, after years of record growth, ended the month of September 10 percent lower than the same period in 2007. That trend continued into October and November, according to Gauer.
Taking an overview of the entire luxury segment, Gauer noted that the super rich are spending regardless of the economy. Of note, he said, is the fact that the number of Asian billionnaires on the Forbes list jumped by one-third this year.
“As for the more traditional customers who provide the bulk of LHW’s business, they will expect good service and there will be a flight to quality,” said Gauer. As a result, luxury brands will be more important than ever, he said. “There is also a flight to authenticity so hotels should train their staffs to provide authentic service. This is a time to redouble our efforts.”
Paul McManus, who is retiring in his role as president and CEO of LHW, but who will take on the new title of vice chairman of Leading Ventures, provided a personal retrospective of his 10 years of leading the organization (he's been with the company for 16 years overall).
McManus said that one of his proudest accomplishments was founding The Leading Hotel Schools program, which has placed 450 students in 200 hotels around the world. "This industry is facing a human resources crisis,” he said, adding that fostering young talent will continue to be a focus of his.
Ted Teng, Leading's new president and CEO, pledged that he would continue to make it feasible for the hotels in the Leading system to run independently so that they can provide their guests with unique experiences without trying to imitate what the chain hotels are doing.
"We are the 'indies,'” said Teng. "We are not going to try to out-Four Season the Four Seasons. Having an intimate and engaging relationship with our hotels and our customers is our goal."
Teng also said that growing the LHW system is not the most important strategy for the organization right now but that "leading more and better revenue to [its hotels] is."
As for the economic downturn, Teng said the decision to discount room rates is a decision that is up to the individual hotels but that, in his experience, "discounting to existing customers brings negative rewards." Having said that, he admitted that if existing, lucrative group accounts are demanding discounts, “hotels may have a difficult time."
Additionally, he noted that, in a downturn, top accounts tend to narrow down the list of suppliers with whom they do business. As a result, Teng advised, “if you're not already on their list, this is not a good time to try to get on it." Instead he suggested that hotels should focus on existing business. "During tough times, good relationships are founded," he said.
Keynote speaker Oscar de la Renta, who is one of the world's most famous fashion designers as well as the owner of a luxury resort in the Dominican Republic, gave his take on what luxury— an oft-overused word— means to him. "Luxury is very simple," he said. "It's not about riches. It's a place where you feel an inner peace about yourself.”
De la Renta, who is an owner, along with Julio Iglesias, Frank Ranieri and Theodore Kheel of the Punta Cana Resort & Club, said the group will begin building an additional boutique hotel next year and that it is looking to expand to other locals in the Caribbean as well as Central and South America.
De la Renta, who designs for the wealthiest people in the world, also gave his take on the current economy."There is a lot of money out there but people are holding onto it,” he said with confidence. "Once we build a sense of confidence, we will be over this phase. [The recovery] will happen very quickly in the United States.”
Robert Frank, senior writer for The Wall Street Journal and the author of “Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich,” concurred in his presentation to the audience that “there is a lot of money out there. There are now 9 million households in the United States that are worth more than $1 million.” Having said that, Frank pointed out that “we are seeing the fastest wealth destruction in history, it’s worse than the dot-com decline.” Along those lines, Soethby’s and Christie’s just had their worst auctions ever, with some blockbuster-level of art receiving no bids at all, said Frank. “The wealthy are holding onto their money,” he said, again agreeing with de la Renta.
Frank also pointed out the fact that many of today’s wealthy individuals have less savings than one might imagine. Starting out as members of the middle class, they obtained their affluence by selling off their companies or going public. The lifestyles they subsequently adapted require a tremendous amount of upkeep, with butlers, housekeepers, grounds keepers, etc., not to mention the yachts, Ferraris and wine cellars they must upkeep. Frank predicted those who once owned jets will now charter them instead, he said, to avoid the cost of maintaining their own plane. He did not expect them to return to commercial airlines, however.
This year, the wealthy are changing the way they operate, Frank said, going from conspicuous consumption to conscientious consumption; from “stuff and status” to “memories and moments;” from indulgence to health and wellness and from Hummers to Priuses.
“Philanthropy and self-improvement are saturating everything the wealthy do,” he added. “We are moving from a ‘wants’ to a ‘needs’ society. People want education and experience; they want something that reflects their values.”
Because simply being wealthy tends to isolate an individual, the affluent will be seeking to reconnect more in the future, he said.
In closing, Frank predicted that 2009 “will be a wash,” in terms of the economy “because there are still a lot of bad assets out there,” but that “2010 may be better. Service matters now more than ever,” he advised. “That is what people value now.”