TT-923 (Tourism Edition) -- Adding Content to Concrete, to Make a Hotel a Destination

Japan Travel
* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.

Tourism Sector Edition Sunday, Nov 19 2017, Issue No. 923

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+++ Adding Content to Concrete, to Make a Hotel a Destination

About 15 years ago, the Tokyo real estate team at Morgan Stanley hit on
a great idea for making money. At the time it was difficult for foreign
firms to buy prime real estate in major cities (some things never
change), because the Japanese locals would hear about or create
opportunities within their social network and have the deal sewn up long
before the international guys got wind of it.

So Morgan Stanley's counterattack had a two-step approach. Firstly they
would go after large portfolios of real estate, preferably distressed in
some parts, that were so massive (in the billions of dollars) none of
the locals would have enough cash to acquire the entire offering. They'd
then strip out the best and worst sites and sell these off quickly to
recover some of the base investment. But the real added value was in the
fair-to-middling sites which they would run them themselves, improving
the yields until they were ready to sell. When I first heard about their
strategy (and btw, this team has long-since dissolved) they were running
shopping centers in out-of-the-way cities, sites that no one else wanted.

"Managing" the properties is probably an inaccurate description. Rather,
they were (very) actively operating their shopping center businesses:
first doing deep market research in the target community to see who
might value new services and products, then recruiting and curating
stores to fill or develop those community needs, then creating
macro-oriented events and marketing to draw in the crowds. They had a
very energetic marketing team and were always coming up with new ideas
to keep the local shoppers entertained: super discount days in niche
stores, kids events, illuminations, exotic food courts, etc. Over time
they built up repeat customer traffic and were subsequently able to lift
rents and overall yield on their properties.

I retell this story because it's good to remind ourselves that even as
we may participate in a fusty industry (real estate, hotels, travel,
transport, you name it) which is fundamentally about commodity products
and services, it's all too easy to forget that what makes money is not
just the barebones offering but also the value-added services that
inspire or stimulate the customer. In other words, spaces made of
concrete need creativity and content to make them come alive. By over
focusing on the bottom-most level of Maslow's Hierarchy of Needs - price
- something that online shopping sites make us obsess over, we forget
that as people go up the hierarchy they also want to be entertained and
socially recognized and will pay for that. Morgan Stanley's team
understood this and thanks to the drab suburbs they were located in,
they were able to turn their properties into a destination and not just
a place to shop.

[Continued below...]

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The hotel business is very similar. For the first 3 years of this
current Inbound boom, anyone owning a hotel has been having a pretty
good time financially, but now a ton of new hotels coming on stream
means that the sector is devolving into a commodity-based market. And
the challenges the newcomers face are many, including: the hastening
arrival of late-to-the-party Japanese competitors, sky-high OTA
(, etc.) commissions, low-to-mid-end flooding of room supply
by Airbnb and the Minpaku sector, an ongoing (and acute) shortage of
bilingual staff, the painful logistics and time spent building out new
facilities, the lack of office properties for conversion, and of course
the highly-anticipated post-Olympics slump expected to hurt everyone's
30-year business plan.

So to be profitable, today's hoteliers have to be creative and develop
reliable niches that lift customers up their hierarchy of needs. Here
are some good examples of hotels that get this:

Hilton Hotel. The Hilton actually has a very stable Inbound travel
business, by virtue of the fact that each property can tap into the
brand's massive global customer loyalty program (50m members, 13 brands,
and 4,600 properties in 100 countries), and of course the pricing
incentives for those loyal customers. So it would seem that they have
nothing to worry about. But while the room occupancy side of things may
be fine, like any major downtown property, space usage is critical to
profit and not so long ago you could see that their many Food & Beverage
(F&B) spaces were being wasted between lunchtime and dinner. This of
course is the same problem facing other hotels and restaurants all over

That all changed when the Hilton introduced an all-you-can-eat dessert
buffet, leveraging its own kitchens and expertise. In a market where
Japanese hotels count every bean and hate giving anything away, the
Hilton was offering customers an endless supply of sweet morsels at a
set price. The result has been a huge hit with fashionable Tokyo
housewives, and now if you go to the Shinjuku Hilton any time in the
early afternoon (i.e., after lunch), you'll see a long line of
well-dressed women (yes, over 90% female) looking to spend the afternoon
chatting over tiers of dessert items stacked on each table. For Hilton,
the food has been their value-added content. [TripAdvisor review for the dessert buffet]

Seth Sulkin's new Moxy hotel in conjunction with the Marriott chain is
another example. Sulkin's Pacifica Capital has just opened its first
hotel in Kinshicho, a gritty town to the east of Tokyo and an area that
would never be considered by Japanese hotel developers. But if you're a
small-but-ambitious player in the hotels development business, you have
to go where the real estate is affordable, and for Sulkin this meant
going out to this heavily-concreted bed town.

But Sulkin understands Maslow's Hierarchy of Needs well, and is
targeting an audience that will appreciate the working class area and
working class restaurants and bars - meaning he's targeting Millennials.
He believes they are looking for an authentic immersion in Tokyo, a
high-contrast experience that can be shared online because it is so
different to back home. The Moxy concept, which is already barreling
ahead abroad, involves an interior focusing on luxurious shared
(community) spaces and affordable rooms, but with the hotel located in
an "emerging" area of its host city, and of course near public
transport. With Kinshicho, the Moxy is about 5 minutes form the
subway/train, and from there about 10-15 minutes to Asakusa, Tokyo Sky
Tree, and Disneyland. [Moxy Hotel site]

Hotel Anteroom, Kyoto. One city that is already over-served with hotels
is Kyoto, and it's pretty hard for a facility to differentiate itself.
Much like Sulkin's Moxy, the operator of the Anteroom in Kyoto, UDS (a
design company now owned by Odakyu Rail), decided to operate in the
suburbs, well away from other hotels, and sell their space by adding
multi-dimensional "content". Like Moxy, they are all about being an
experiential hotel (I always stay there when I'm in Kyoto), combining
art with excellent-quality Western-style buffet breakfast options. There
are plenty of attractive community spaces; small but cute guestrooms
complete with art objects; youth-friendly guest amenities such as great
internet, bicycles, and a fully-stocked bar; AND, they are really
reasonably priced at the low end (about JPY6,000 including breakfast).
The art is by local artists, ranging from sculptures and installations
to paintings and fittings, and they change the exhibitions regularly. [Hotel Anteroom in Kyoto]

Trunk Hotel, Shibuya. This is another designer hotel that had to
overcome many challenges. Actually the designers of this hotel visited
us a few months before they opened, worried about whether foreign
tourists would want to come and stay there because of their awkward
location (about 15 minutes walk from both Shibuya and Omotesando
stations). They also confided that of the 16 rooms they'd planned, the
Shibuya City Office forced them to make 8 of the rooms single occupancy,
because of a weird rule in Shibuya designed to discourage the building
of new hotels...!

Anyway, the Trunk folks decided to theme their hotel as healthy
eco-chic, which basically means that there are lots of recycled items
throughout the hotel, from the bicycles to the coat hangers, along with
a very good restaurant selling healthy food. The atmosphere is earthy
but super modern with lots of windows, greenery, and wide open community
spaces. Now after just a year of operation, the hotel is popular with
both visiting hipster tourists and locals wanting a trendy events
location as well. [Trunk Hotel in Shibuya, Jingumae]

...The information janitors/

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