Unlocking Innovation: Rethinking Luxury Hotels and Residences

Disclaimer: Opinions expressed are solely my own and do not express the views or opinions of my employer or any other institution. Any information shared on a publicly listed company or digital assets is for informational purposes only and is not a recommendation of an investment strategy or to buy or sell any security or digital asset.

My related article: Restoration Hardware (RH) — Disrupting the Luxury Hotels, Residences, and Travel Industry

This article focuses on the luxury hotel industry as a whole, not any specific brands. Many of these brands have loyal customers and unique properties, but attracting the next generation of travelers is getting more competitive.

Unraveling Innovation Dilemmas in the Luxury Hotel Industry —

Luxury hotel and travel industry leaders have been providing conventional, exclusive hospitality services for years. Despite the absence of (any real) industry-wide innovation, the luxury hotel market’s expansion persists due to its recession-resistant clientele. As the overall luxury travel sector continues to expand, the luxury hotels and residences market is drawing unexpected competitors, resulting in intensified competition.

To distinguish themselves in the market, some established players have incorporated charter plane and yacht services into their luxury hotels and residence offerings. However, these additions may not qualify as effective innovations to fend off competition.

Since COVID-19, a number of incumbents have turned to chat-based apps, connecting customers with human representatives on the other end. This approach is being touted as their latest innovation to serve luxury customers.

“Life is like riding a bicycle. To keep your balance, you must keep moving.”, Albert Einstein

Einstein’s words resonate here, as the luxury hotel industry races ahead, potentially leaving management disoriented amidst the rush to innovate and achieve meaningful market differentiation.

Many luxury hotel leaders are aware that embracing digital change, technology, and data will help them tap into market growth. However, it’s essential to keep in mind that while technology brings efficiency, forming genuine new human bonds is always challenging. Based on my research, effectively integrating technology to enhance guest experiences, prioritize privacy, and foster quality time with loved ones will be some of the key differentiators to succeed in the future.

Market Size — a quick snapshot

Luxury Hotels —

• Source 1 — The global luxury hotel market size was valued at $128.54 billion in 2022 and is anticipated to grow from $140.28 billion in 2023 to $293.61 billion by 2030, exhibiting a compound annual growth rate (CAGR) of 11.1% growth during the forecast period of 2023–2030. Read the full report — https://www.fortunebusinessinsights.com/luxury-hotel-market-104408
• Source 2 — The Global Luxury Hotel Market size was valued at USD 93.4 billion in 2021. The market is projected to grow USD 238.4 billion in 2030, at a CAGR of 10.5%. Key Players: ITC HOTELS, Marriott International Inc, Accor S.A, Belmond Ltd, Hyatt Corporation, Belmond Ltd, Four Seasons Hotels Limited, InterContinental Hotels Group PLC, Rosewood Hotels & Resorts, Ritz-Carlton Hotel Company LLC, Shangri-La International Hotel Management Ltd. And Others. Read the full report.

Global Travel —

• The global luxury travel market size was valued at USD 1.20 trillion in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 7.6% from 2022 to 2030. Source
• By 2033, travel is set to become a $15.5 trillion industry — accounting for more than 11.6% of the global economy. This represents a 50% increase over its $10 trillion value in 2019 when travel represented 10.4% of the world’s gross domestic product. Source: Bloomberg Pursuits, 21 Aug 23.

Current State of the Luxury Hotels & Residences space —

This segment delves into the broader industry landscape, going beyond individual brands. Many companies have established some level of loyal customer base by incorporating distinctive hotel properties into their portfolio over time. However, the new generation of travelers expects more from their hotel stays, seeking a richer and more memorable experience.

Key differentiators:

1) Location

The primary distinctive asset or a form of competitive advantage that luxury hotel and residence brands can provide lies in their “location.” Luxury travelers are drawn to distinctive, secluded, or historically significant places that offer privacy and uniqueness. In popular travel destinations, finding new properties can be challenging. Long-term contracts with current luxury property owners are valuable for hotel brands. It’s important to mention that many luxury hotel brands don’t own every property under their portfolio; these hotel properties are often owned by high-net-worth individuals, families, or investment funds with a franchise agreement.

Here are some examples of distinctive, private locations (images below) —

• Banyan Tree — AlUla, Saudi Arabia. According to Architectural Digest, it is a glamping experience in the Saudi Arabian desert that is a gateway to a 200,000-year-old civilization.
• A first-of-its-kind resort in Bhutan with five lodges across its central and western valleys is called Amankora by Aman Resorts.
• Raffles London Hotel, part of Accor group — an Old War Office (OWO) building that was once home to legends such as Sir Winston Churchill and Lord Haldane. A seven-year, $1.76 billion renovation, this building’s history is associated with spies and espionage as MI5 and MI6 had operations here during the 20th century.

Left to right — 1) AlUla, Saudi Arabia, 2) Amankora, Bhutan, 3) Raffles London Hotel (The OWO), Image source: Hotel websites

2) People

This is true for any business, but crucial in the hospitality industry so they can offer consistent service and a sense of familiarity to their returning loyal luxury customers. In this industry, having long-tenured experts with an understanding of local dynamics, past failures, and which experiments are worth trying without damaging their reputation is key to long-term success.

Positioned as differentiators but mostly replicable —

1) Food

Luxury brands invest significantly in “culinary delights” to create a sense of differentiation. This is a crucial area where luxury brands cannot afford to make mistakes. This area is high risk and high reward for some of the top luxury brands in the world. Based on my research and travel experience, I included the food category as broadly replicable. The culinary field now boasts extensive culinary schools, a rising number of experiences offered by emerging chefs trained by celebrities, and self-taught chefs with diverse skills in innovative, organic fusion cuisine. While Michelin-star restaurants and chefs can offer exclusivity, a closer look reveals that numerous chefs worldwide prefer to opt out of this competition due to various personal and business considerations. Certain brands also promote their skill in procuring regional treasures, such as Japanese steak and Italian truffles, in their social media campaigns to stand out. However, this isn’t a true differentiator, as other brands can also easily obtain and present these delicacies in their respective regions.

Here is a selected list of culinary programs that are growing in popularity —

• Uccelin Foundation — a five-month scholarship program founded by Chef, Andreas Caminada (Schloss Schauenstein by Andreas Caminada and Marcel Skibba, Restaurant, and Boutique Hotel, 3 Michelin stars 2022).
• Food and Finance High School, New York — a four-year CTE program with opportunities to work and learn the skills and talents to be active leaders in the Culinary Industry.

2) Experiences

In response to the flourishing experience economy, nearly all luxury brands have ventured into crafting their distinctive encounters. These range from savoring local culinary delights in unique settings and enjoying private chef services to indulging in limited-edition wine tastings and immersing in local cultural activities. However, the majority of these experiences can be replicated by other luxury brands unless they are deeply tied to a specific location (like Norwegian hot springs) or possess historical significance (such as the Egyptian Pyramids). An illustrative example of a location-based experience offered by the Four Seasons Resort Maui is the Fire and Wine experience, set on an estate with historical ties dating back to the rule of King Kamehameha III.

In my view, many of these experiences prioritize exclusivity or private access, with few focusing on storytelling, reliving history, or evoking emotions and memories that create a lasting impression on the customer.

Here’s an experience I personally curated for my partner and me in April 2023. We visited Dario Cecchini (images below and Instagram), a third-generation butcher from Panzano in Tuscany, Italy, whose story and restaurant were showcased on the Netflix series ‘The Chef’s Table.’ The warm hospitality extended by Dario’s team made us feel as though we were attending a large family gathering. Our culinary adventure, featuring locally prepared Florentine steaks with generational recipes, created memorable moments (shared as my LinkedIn post too).

Dario Cecchini (Restaurants — Panzanese, Solociccia, Officina della Bistecca)

3) Amenities

Luxury brands inherently provide high-end amenities, making it challenging to differentiate them based on industry-standard offerings such as swimming pools, spa services, sports facilities, and local therapies. Similarly, akin to unique experiences, some amenities can be regionally exclusive, offering a potential avenue for distinction. Nevertheless, these distinctive features may also diminish in appeal as time goes on. For instance, even the introduction of luxury yachts and private charter planes is no longer sufficient to stand out, as numerous other brands have begun to adopt the same approach. Here are a few —

• The Four Seasons — Private Jet and Yacht Experience
• Restoration Hardware (RH) — Spaces: RH Planes and Yacht, a luxury furniture company. See my article: Restoration Hardware (RH) — Disrupting the Luxury Hotels, Residences, and Travel Industry.
• The Ritz-Carlton — recent attempt to fundraise for a luxury Yacht — Ritz-Carlton Yacht Collection Targets $400 Million Fundraise (source: Bloomberg Pursuits).
• Aman Group — to keep up with the competition recently raised $360 million from UAE Investors, valuing Aman at $3 billion (source: 8 Sept 23, Bloomberg Pursuits)

4) Digital Presence

During my research, I uncovered that the overall digital presence across key luxury hotel brands lacks core brand distinction and is also inconsistent across various digital channels. Some notable areas that stood out were —

• Design language — The design language used by luxury hotel brands appears to be appropriated from luxury fashion, including the prominent use of black, white, grey, and gold colors across their digital properties. Below, you can see an example where I have attempted to anonymize three luxury hotel brand names with screenshots of their landing pages for hotel properties in Europe.

Left to right — European hotel property landing page by Luxury Hotel Brands 1, 2 and 3

• Social media — The absence of clear brand differentiation in messaging, posts, and graphics among luxury hotels makes it difficult to distinguish one brand’s posts from another. This lack of clarity and low-effort generic campaigns not only dilute their brand image but also hinder their ability to stand out in a crowded digital landscape. Below, you can see an example where three different sets of social media posts from the same three hotel brands that I mentioned earlier are difficult to distinguish, especially when the brand logo is not present.

Left to right — Social media posts by Luxury Hotel Brands 1, 2 and 3

• Technology challenges — Luxury hotel brands, despite their reputation for opulence and sophistication, often exhibit a strikingly low level of technical maturity, particularly in the performance of their websites and booking experiences across various devices and browsers. This deficiency, stemming from unoptimized animations and digital assets such as property photos, videos, and social media posts, undermines brand value, leads to customer dissatisfaction in travel planning, and compels the next generation of digitally-savvy travelers to choose more technically mature competitors when booking their hotel visits. For this brief overview, I used a free website performance test tool from Pingdom to assess the performance of the landing pages I mentioned earlier. The results for the three hotel brands indicated poor performance grades (D, C, and D).

Left to right — European hotel property landing page — free performance grade tests for the same Luxury Hotel Brands 1 (grade D), 2 (grade C), and 3 (grade D)

Exploring sources of innovation for luxury hotels —

It is abundantly clear that even world-class luxury hotel brands now need a winning formula to ensure their enduring presence in the market. Drawing from my research and the rise of many disruptive players within the luxury hospitality sector, I propose a few key areas below that incumbent players may consider as a foundation for redefining their strategies.

1) How might we (HMW) foster a sense of belonging and community?

While exotic locations have traditionally been central to luxury hotel brand value, it’s now time for them to evolve and redefine ‘luxury.’ As luxury hotels reconsider their innovation strategies, they can find valuable inspiration from boutique hospitality brands like Soho House (part of Membership Collective Group Inc). Founded in London in 1995, Soho House has since expanded to 14 locations in North America, with CEO Andrew Carnie announcing plans to open an additional six in the Americas over the next two years, reaching a total of 20 by 2025. After a brief period of decline, during which shares saw a significant drop following the Wall Street IPO, the stock has surged by nearly 50% this year (NYSE: SHCO). Their approach to member-based community building has attracted approximately 176,000 members. A typical member in London pays £2,750 ($3,455) annually, while in New York, it’s $4,899 to access the global network of houses. Prospective members are nominated by existing members and placed on a waitlist (currently at 95,000) until they gain approval (source and further coverage on Soho House, read the 6 Sept 23 Bloomberg article — Soho House Wants to Crack America — Not Just New York).

2) How might we (HMW) strike the right balance across digital experiences, technology, and data?

Drawing from the insights shared above and my research involving interactions with numerous luxury brand websites and booking processes, it’s evident that the luxury hotel industry lags behind in technical expertise compared to travel industry disruptors like Airbnb and Hopper. For many brands, digital transformation is perceived as a routine internal project outsourced for checkbox completion rather than a fundamental cornerstone of their competitive edge. It’s important to emphasize that implementing large enterprise digital platforms in an unoptimized manner doesn’t constitute a successful digital transformation. Instead, luxury brands can draw inspiration from disruptive travel companies like Wander. Wander manages its properties through a single platform and provides access to its luxury homes via a customer-facing Wander app. The app offers travelers peace of mind with 24/7 concierge service and convenient features, including unlocking doors, turning on lights, and accessing the Tesla in the garage. For travel companies like Wander, a technological advantage lies at the core of their strategy, intricately woven into every aspect. This includes constructing luxury homes with seamless technology integration and enhancing the booking experience for the next generation of travelers, prioritizing both convenience and luxury.

These areas are just the starting points to help luxury hotel brands redefine their strategy. While I could explore further areas of innovation, it’s most effective when informed by a brand’s values and long-term vision. I trust this article has provided a solid foundation for luxury brand leaders, and I look forward to comments and feedback.

Useful Links -

• Other luxury hotel brands — Banyan Tree, Bulgari Hotels & Resorts, Mandarin Oriental Hotel Group
• Travel experiences — Peek
• Growing competitive landscape, boutique hotel brands — The Amaya Life (India), Hoshino Resorts (Japan)
• Global Luxury Hotel Market Size to reach USD 238.4 Billion by 2030 | CAGR 17.3%
• https://www.mordorintelligence.com/industry-reports/luxury-hotel-market
• https://www.grandviewresearch.com/industry-analysis/luxury-travel-market