Judicious use of space within a hotel property remains key to maximising revenue and has been subject to many debates. Hotelier India takes a look at retail in hotels and whether it is seen as a money-maker today.
With average stay on the decline as business guests hop between cities overnight, having shop owners rent space at your property obviously allows your time-strapped guests the convenience of shopping within the hotel’s comfortable radius.
However, does the guest really take notice of the convenience offerred by in-house retail or would s/he rather go shopping downtown? With F&B gaining ground in our revenue models, having a guest visit the property to shop and then grab an afternoon cuppa, a glass of bubbly or a snack is a sound proposition, but is this how it works on the ground?
Does the rent earned from renting out spaces within our property to retailers justify itself or would we have earned more by introducing more F&B outlets? Would it have been wiser to rent space to corporates for office use? Do shop owners still see value in being located within a hotel with malls mushrooming around cities, promising higher footfalls?
Hotelier India posed these questions to hoteliers in various Indian cities to see what the word on the street was.
The convenience argument
Many hoteliers are of the opinon that a revenue spinner or not, it remains important to provide your guest with the convenience of some amount of in-house retail. The soon-to-open Jaipur Marriott Hotel general manager, Pankaj Birla says, “When you are looking to attract the business traveller who is not likely to have the time to go into town or to a market and shop, it makes sense to have retail options within the hotel.”
But not everyone thinks in-house retail makes a difference to the guest’s convenience.
“I think our guests would rather visit a mall if he wants to shop, where he would have access to a wider variety of brands and articles,” says Grand Sarovar, Mumbai, general manager, Ajoy Balakrishna. The property is located in Goregaon – a suburb which hosts the Oberoi and Inorbit Mall sand is close enough to other malls like HyperCity and Infiniti.
Balakrishna cautions that this may not apply in smaller cities. “Areas where malls may not exist, or where they exist on a smaller scale could see guests or even locals being more comfortable going shopping at 5 star hotels,” adds Balakrishna.
Hoteliers feel that there are several diverse factors that result in a general preference among guests for shopping away from within the hotel premises.
Courtyard by Marriott Mumbai International Airport general manager Sanne Emborg agrees that customers would probably rather shop elsewhere.
“International guests who would typically be the market for retail at a hotel are more interested in traditional shopping and would probably rather go to a marketplace to soak up India while shopping,” says Emborg.
However, at her property too, there has been an effort to offer the convenience of shopping to the guest – on a small scale. Of MoMo mart, the souvenir shop in her property’s premises Emborg adds, “It’s definitely not an area of revenue but a service or convenience that we like to offer to our guests.”
General manager of the two Raintree Hotels in Chennai, Manish Dayya echoes this sentiment. “We have a souvenir shop at our property but it is a not-for-profit initiative aimed at providing convenience to our guests. We do not even charge our supplier a rental for the space.”
More lucrative options
Emborg elaborates, “When it comes to having retail become a revenue spinner, scale matters. A large shopping arcade with a lot of rented space would earn the hotel good revenue by way of rent.”
Courtyard’s MoMo mart which sells souvenirs and the like is a small space when compared to the rest of the area around the lobby which has been well-spent on F&B outlets MoMo Cafe and MoMo 2 Go.
Renting the space to corporates for offices is seen as a good alternative. Manish Sodhi, head of operations at Sahara Star in Mumbai says, “Our retail plan is part of our second phase. We already have a few corporates renting offices in our property – I find that renting space to corporates is very lucrative for a hotel, more so than shopping arcades.”
In addition to delivering good rent, these corporate offices offer additional revenue generating potential by way room nights as corporate travellers may jump at the chance of being accommodated in the same complex where their business is located.
The Westin Mumbai Garden City has also used many floors of the building as offices and rented them out to corporates. Lance Ourednik, general manager at The Westin Mumbai Garden says, “While there is no guarantee that every corporate located at our property will choose us for their business guests’ accommodation, there is a good chance that they will.”
Moreover corporates are apparently very keen to be associated with the high end office spaces. From the looks of interested players, being located within a 5 star hotel property is being seen as a status symbol.
“We already have blue-chip companies and some trade commissions inquiring about taking up space at the one floor that the Jaipur Marriott Hotel & Convention centre has reserved for high end office space,” says Birla.
Interestingly, at a corporate level, hotel management seems convinced that retail is in fact a stable revenue spinner for properties. “These are zones of a few hundred square feet each within our premises which we can rent out for a premium. This rent earned represents stable income, which is also recession proof, for a property,” says Oberoi Hotels & Resorts’ senior vice president, Kapil Chopra. He also points out that with many malls charging hefty rent, there is improved opportunity for hoteliers to tap into the segment shop owners looking for a better deal.
JW Marriott Mumbai general manager, Guy Godet echoes this thinking despite the fact that the owners take care of retail at his property. “My opinion on the concept of retail at a hotel is that it continues to present a lucrative component of business.
Not only does it bring in rent or a fee but if you are located in a prime area and people come in to shop often, they may also dine with you after shopping,” Godet comments. Balakrishna has had an entirely different experience.
“We have about 10 shops at the property but I don’t see any cross-audience benefits happening – not a very large chunk of our F&B guests go shopping at the stores and vice versa,” he says.
Risky business
Lucrative or not, convenient or unnoticed, clear dampers for any enthusiasm with regard to retail at hotels are the risk of bad PR and risks related to lack of control on who enters the property.
For instance, fake goods at one store at the shopping arcade at The Leela Kempinski, Mumbai saw the hospitality brand dragged into all the bad press related to the incident. Moreover, while today’s consumer or guest is savvy enough to understand and differentiate between the shop owner and hotel brand and would pin the indiscretion on the shop owner, popular opinion among hoteliers is ‘what goes on under my roof is my responsibility.’
Dayya adds, “Such incidents would definitely be a concern for hoteliers. Norms should be agreed upon. It makes sense to be very careful while letting people in and to sign up with the right companies.”
On other risks, Sodhi says, “A shopping arcade in the hotel or connected to the hotel means that the hotel’s guests may have to put up with everyone who enters the mall, which may not go down well with them.”
Security hazards are also considered an unfortunate by-product of having retail within the premises especially in mixed-use complexes where the mall is managed by a different party. “Security could become a big concern in such situations where the mall’s security is not managed by you,” comments Emborg. Some also feel that security threats might even result in shop-owners shying away from hospitality locations since hotels are now seen to be targeted.
However, are these factors enough to make hospitality players back away from having shopping spaces within their premises – in either shopping arcades or mixed-use complexes format? Probably not.
The Leela group’s president, Rajiv says, “Incidents such as this raid at the hotel allow me to come down harder on such miscreants and drive them away from the property and would also help us, should the shop owner try and take us to court.” His enthusiasm on retail as a revenue earner for properties is not diluted.
Similarly, suggestions with regard to lack of control of guests entering the hotel include having a separate entrance to the retail section. Security remains a concern.
Finding your match
One might wonder why opinions on the convenience and revenue opportunity in retail at hotels are often so diametrically opposite. The answer, some hoteliers say, is in finding the right fit.
“The Jaipur Marriott Hotel & Convention center, recognising that our guest, especially our international guest would be more interested in shopping for traditional Indian items. Moreover he may not have the confidence to go to a marketplace and might have doubts about which shop to visit. Within the Marriott, he is certain about quality – he knows that he is getting the best,” says Birla.
Similarly Emborg explains that traditional items would be the best option for retail at a hotel keeping your international guest in mind. “If the property attracts a big chunk of middle-easterner traffic, then having high end brands within the hotel would work as that suits his taste,” she comments.
Dayya says that the eco-sensitive Raintree Hotels in addition to having the Indian experience centric traditional items on retail, also saw it as imperative that the retail brand aligned with their eco-sensitive positioning.
“We have partnered with Play Clan, which is a chain that distributes stationery, T-shirts and other small souvenirs with traditional Indian cartoon-like characters on them. Their use of natural colour matches our eco-sensitive positioning,” he explains adding that both domestic and international guests have expressed appreciation for the concept.
Dayya also makes an important point of why guests appreciate the brand they have chosen. “Play Clan products are not available just about anywhere. It doesn’t have any other stores in Chennai and therefore works as an add-on convenience for our guest,” he explains.
Kaul offers an interesting take on the mix-and-match theory. “When you look at the maximum footfalls at most of our hotels including F&B etc, the domestic market is the highest contributor.
So domestic brands that appeal to the domestic market present good potential as renters of these spaces,” he says. Kaul also points out that today international brands already have a presence at airports where they can target the inbound traveller further strengthening the argument that domestic brands present a more receptive market for these spaces.
Another interesting ‘finding-your-match’ pointer is to take a careful look at the brand. For instance a new entrant like Brioni would not see value at being at a hotel because its overall visibility would be less than in a mall. Established brands like Louis Vuitton would instead see value in being at a hotel because as a known brand, easy access to high end clients is a positive.
India to be an exception to retail-hospitality mixed-use?
Chopra says that despite any doubts that may exist today, retail-hospitality mixed-use does have a future in India. His opinion is that its future would be in the upper end of the mid-market spectrum. Kaul’s opinion is that mixed-use will indeed make ripples in India soon and that it is a very viable concept. “I think that retail-hospitality mixed use complexes could work across luxury hotels. Just look at Dubai,” he says.
What’s in it for the shop-owner?
Kaul says that having F&B options in proximity to the stores is seen as a positive by shop-owners.
Other positives that hoteliers say continue to hold good are security, assured footfalls in the high yield segment, amenities like clean toilets and air-conditioning. Can they afford hotel rent? Chopra explains, “In retail today, big brands sell their products at approximately 240% to 280% the price.
At such profits, even a few high yield customers – from within the high end footfalls at our hotels – deliver enough value for these brands. They can therefore afford the rent.”
One might argue that the local market comes to the hotel to eat or spa hop but Chopra points out that not all the footfalls at a mall are there to shop.
“A good percentage of a mall’s visitors come there for a stroll,” he reasons. Moreover, at a five star hotel, the shop owner can at least be assured that the footfalls all fall within his required disposable income bracket.
How to find your match:
- Low average stay: guests don’t have time to shop elsewhere; good idea to have some amount of retail in-house
- Business Hotel: here again, the guest is time-strapped but may only be interested in a souvenir or something he forgot to carry
- Metro location: Malls concentration would lead tourists away from in-house retail towards shopping districts
- Culture-oriented guest: Good idea to have interesting local products on offer. But guest may still want to try out local marketplaces
- Middle-easterner guest: Like their brands so having brands in-house may work with them
- ‘Happening’ locations: Such as Juhu would attract shoppers who would be interested in dining and diners who may also shop
- Positioning: The suggestion here is to match your retail offering with your positioning.
Two lucrative ways to shops:
- More F&B options
- Corporate offices
The risk factor:
- Mall security (in retail-hospitality mixed use) may not be very efficient
- Shop owners themselves may see hotels as ‘terrorist targets’ after 26/11
- Shoppers crowding the premises or creating a nuisance may not go down well with high end guests
