Hotels, COVID, and the path forward
There are challenges in the macro environment…
More than 41 million Americans have filed for unemployment insurance since start of the COVID-19 crisis according to recent data released by the U.S. Department of Labor. Jobless claims seem to have peaked in March/April and have been steadily decreasing, but COVID’s dark cloud still shadows the economy. Federal data showed 2.1 million people filed unemployment claims this past week ending 06/20. While lower than the peak, it is still historically significant.
For more perspective, since the pandemic started, the United States has lost twice as many jobs in the past two months as it did during the entire Great Recession.
Pew Research provides some perspective.
The rise in unemployed workers due to COVID-19 is substantially greater than the increase due to the Great Recession, when the number unemployed increased by 8.8 million from the end of 2007 to the beginning of 2010.
Think about that for a second.
In the past week unemployment claims made were 24% of the entire Great Recession!
Hospitality has been hit especially hard
While COVID has impacted every corner of the United States economy, few industries have been hit as hard as hospitality, and in Florida the fallout has been severe.
In a recent analysis, the data firm STR highlights since the COVID epidemic began in the U.S., hotels have lost more than $36 billion in room revenue. In April, when many believe the crisis peaked, U.S. hotel operating profits fell by 117% compared to last year. These devastating impacts on cash flow, have forced leaders in the hotel industry to make incredibly difficult decisions. The crisis has resulted in 70% of hotel workforce being laid off or furloughed, and hotel workers are losing more than $2.4B in earnings each week.
In Florida alone, over 400,000 jobs supporting the hotel industry have disappeared.
It is clear that that the impacts have been catastrophic, but with many cities around the country in the later stages of plans to reopen, many business leaders are asking, what is the outlook for the industry?
As of June 17th, not counting the thousands of hotels that have permanently closed, nearly 6 out of 10 hotel rooms were empty across the country per STR. At this rate, hotels across the country are currently on pace to lose up to $400 million in room revenue per day. In early June, revenues were 34% of what they were last year and STR is projecting revenue losses of 57.5% for the year. Individual hotels and major operators are projecting occupancies below 20%. At an occupancy rate of 35% or lower gross margins are squeezed, and many smaller hotels may simply close.
Unfortunately, it seems as though the hospitality industry has a steep hill to climb on the road to recovery.
Real-estate firm CBRE Group Inc. forecast that guest demand won’t return to pre-crisis levels until the second half of 2022, and slumping room rates will keep the lodging industry from a full revenue recovery until 2023, the firm said. Corporate travel probably won’t come back in earnest until at least 2021 and the big groups that arrive for association gatherings or company celebrations are expected to be the last to return.
Given the current state and uncertainty about future behavior, where should hotels and similar hospitality organizations focus resources?
Revisit the guest experience through a new lens
In a recent report, Sandals Resorts identified 18 key guest touch points — or points of high contact — for extra cleaning, starting with airport lounges and vehicle transfers, all the way through entering the room. Going through the service blueprint of the entire trip journey will help hospitality organizations identify new challenges and opportunities to design the best possible solutions. For many organizations in this space, digital transformation has provided a platform for quicker innovation in this process.
A good example is mobile check-in and check-out.
Since the COVID crisis began, Hilton harnessed its flexible technology infrastructure to introduce contactless check-in and check-outs at more than 4,700 hotels around the globe. While the ability to scale effectively has been key but, the most innovative hospitality organizations will not stop here. Leveraging best practice methodologies like service centered design and building sophisticated, integrated dashboards to monitor guest behavior will help hospitality organizations optimize spend on these digital tools, improve customer experience, make their facilities safer, and ultimately result in more heads in beds.
Transparency on the cleanliness process
The American Hotel & Lodging Association recently released Stay Safe Guidelines to help hospitality organizations enhance cleaning in response to COVID, but industry leaders have gone beyond these guidelines and collaborated with healthcare industry to build policies and processes to better ensure clean facilities.
For example, Airbnb consulted directly with the Center for Disease Control and the Surgeon General of the United States in assembling a 38 page playbook including a five-step cleaning process, room-by-room checklist, and more. Travelers, hosts, and policymakers can reference these guidelines to help support the safe reopening of communities and travel.
Marriott International has instituted a Global Cleanliness Council and specific guidelines highlighting exactly how rooms at the its properties should be cleaned.
Slalom’s research validates the importance of these types of policies. In our recent study, respondents repeatedly highlighted the importance of physical guideposts to confirm safety protocols have been followed. For hospitality organizations, this could be as simple as a ‘seal of clean’ placed on the crack of the door after staff is done sanitizing the room. These markers provide ease of mind to guest and help confirm the policy was followed.
Hospitality leaders must consistently reinforce the importance of following cleanliness protocols. This includes setting clear goals, designing the right incentive structures, and building a set of metrics that allows for regular measurement and improvement. Providing transparency to both the policy and execution will increase guest comfort with staying on the property.
Stage the physical environment
Hotels both large and small are taking proactive steps to re-design physical spaces to limit personal contact and enforce best practices around social distancing. As occupancy rates climb, hospitality organizations must be thoughtful about how people will flow through lobbies and engage with staff. Previous standards like bell hops and room escorts could disappear, gym equipment will need be spread out, and high-risk touch points like doorknobs and elevator buttons could be replaced by lower touch alternatives.
Much like building the digital tools to optimize this process, the best hotels will put the customer at the center of how they design physical spaces.
While redesigning the physical hotel experience may seem like a major inconvenience, especially when cash flow is tight, smart design choices have helped similar organizations gain operational efficiency and differentiate in the past.
Take Starbucks for example.
In 2007, Howard Shultz released a memo to his executive team highlighting a need for Starbucks to get back to it’s core. Starbucks had lost its in store appeal. It had made some choices based on business metrics and lost its coveted coffee shop experience. This memo drove Starbucks to rethink its café experience and enforce its ‘third place’ strategy. Since the memo, Starbucks share price has maintained a 20% CAGR and it is now widely thought of as a global leader in coffee.
Or how about Ikea?
While some might find the customer path, layout, and inventory storage to be odd. The design of the physical store is tightly aligned to it’s value proposition of good design and function at a low price. The design of the store helps keep pricing low by requiring less sales help, providing space for larger onsite inventories, and modular shipping boxes for easier transportation. These small components add up to allow Ikea to extract more return out of its value chain or as Michael Porter would say, cost leadership. This strategy has provided Ikea a global platform and made it an international furniture market leader.
While the current circumstances in hospitality are certainly challenging, the physical design of hotels and other hospitality locations has been standard for decades. COVID is forcing this to change, but in this change, there is an opportunity build a foundation for future success by designing a better customer experience and optimizing the value chain, just like Starbucks and Ikea have done.
Working through uncertainty…
Times are difficult in the hospitality industry and nobody knows what the future will hold for travel, vacations, and conferences. While reduction of COVID cases over the past month has been encouraging, recent upticks in States like Florida only make it more challenging to plan for the future. Even under all of this uncertainty, hospitality organizations cannot stand still while the surrounding world evolves. The three strategies in this essay will not solve every challenge, but they will generate momentum to help the best hospitality organizations evolve through an uncertain future.
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