How we’re preparing ourselves to withstand the pandemic and upcoming recession
The pandemic represents an unprecedented challenge to the world economy and the travel sector specifically, with the hospitality industry experiencing sharp revenue declines as the virus spreads and further containment measures are taken. No one can accurately predict the depth and duration of this crisis — and while we’re hoping for the best, we’re drumming up efforts to be ready to withstand the worst.
Beyond the health and safety of our stakeholders, our strategy is simple: to move rapidly and aggressively to counter the cash impacts of the slowdown of revenue we’re experiencing.
One of Sonder’s greatest strengths is our ability to rapidly innovate and execute at scale. This will be our biggest challenge yet, but in a short time window we’ve already set in motion several initiatives that will maximize our odds of success amidst an intense slowdown of travel demand and an increasingly likely global recession.
Today, our goal is not only to mitigate headwinds on liquidity, but also to demonstrate that our business has the potential to drastically outperform the market in a downturn — a proof point that will drive value for years to come. In this post, I will outline how we plan on coming out of this challenging time as an even stronger business that’s ready to bounce back on the upswing.
New Demand Initiatives
While our core business is to welcome travelers in our beautiful spaces for stays of 7 nights or fewer, we realize that our offering is uniquely great at fulfilling the needs of those who need a place to stay for a week, a month, or more.
The pandemic has given rise to an urgent need for temporary shelter, including travelers who are stranded, students without housing, or emergency personnel such as doctors and nurses. Our spaces are professionally cleaned, serviced digitally, and have fast WiFi with most offering full kitchens, living rooms, and washer dryers. These self-contained environments allow us to operate with fewer on-site staff, which results in limited in-person interactions.
We’ve opened our doors to those affected by offering a 40%+ discount for stays over 14 days, and so far have seen a very positive response. Partnerships are currently in the works with a wide range of institutions who are in urgent need of our spaces. Within the last 10 days, our bookings for 14+ day stays have grown by an order of magnitude, helping us mitigate part of the revenue shortfalls experienced by the industry at large.
In addition, we understand that our guests need more flexibility. We’ve introduced full refunds in the form of Sonder credits for all bookings on sonder.com, no exceptions. We’ve also made the decision to uphold applicable cancellation policies for third-party generated demand, due in part to our limited capacity to utilize Sonder credits as currency for refunds.
Despite our best efforts, we unfortunately won’t be able to make up for the lost demand resulting from the containment efforts. In order to continue protecting the business from this crisis, we’re taking a hard look at every expense.
The most difficult decision we’ve had to make is to conduct layoffs and furloughs for the first time in the company’s history. We’ve also instituted salary cuts and hours reductions for a minimum of three months. We believe that Sonder’s operating model means it will be subject to far less extensive staffing changes than what we’re seeing across our sector. But it pains us nonetheless. We hope to soften or adjust these measures as the magnitude of the impact on our business becomes more clear.
We’re also taking the measures outlined below to further lessen the impact on our business by reducing expenses.
Temporary rent reductions and contractual downside protections. We’ve been planning for a downturn for the last 18 months and have contractual rent reductions built into 60% of our live properties (and over 80% of signed properties). Some leases allow free rent at our election — we are exercising those now. And since it’s highly likely that we’ll be experiencing a technical recession with GDP falling 2 quarters in a row, the balance of 60% of our leases will automatically get some amount of reduced rent.
We’ve also initiated conversations with nearly all of our landlord partners within the past week and have been humbled by their empathy and spirit of collaboration. Many of them are also investors in Sonder and committed to our long-term vision and long-term success.
Pause on new lease signings and delayed openings. We’ve paused new lease signings for at least 30 days unless specific deal terms are met. We believe we’ll have a lot more information over the next few weeks, and with that will come better decisions. We’ll also delay the opening and lease commencement of several planned properties. These measures will allow us to delay capital outlays and protect our balance sheet.
Other expense reductions. As we learn more about the depth and duration of the crisis, we’ll re-examine all of our cost drivers to ensure we spend carefully. While we don’t control revenues, operating costs are at our discretion and we’ll respond proportionally to the magnitude of the revenue hit.
Moments of adversity reveal one’s true colors. It’s been spectacular to see our entire team step up to the plate in the face of this challenge, delivering exceptional work under compressed timelines. Never have we seen our organization so intensely focused on delivering results at record speed. You have our commitment that whatever can be done to ensure we make it through and fulfill our vision — however demanding — will get done. And with enough focus, hard work, and a bit of luck, before long we’ll be recounting the epic tale of how a hospitality startup managed to make it through the most dramatic economic shock its industry ever faced.