Ever wonder how long it should take to change the sheets on a bed? Ask Laurence Geller. The CEO of Strategic Hotels & Resorts fluffs a mean pillow literally. To boost profits at the 20 properties his Chicago REIT owns or manages, Geller and his team made a point of finding out the most efficient way of making a bed and transferring that knowledge to staffers.
“We slow-mo’ed it until we knew exactly how many times Nellie the housekeeper was walking back and forth making up a bedroom,” recounts Geller, who spearheaded similar efficiency studies of other labor- and food-related hotel operations. “Then we mechanically determined how to do it taking fewer steps. Fewer steps means less time and more rooms cleaned.”
Just how much more productive are the Nellies and their colleagues at a Strategic Hotels & Resorts property than their peers at competing facilities? About 7.5 percent, according to Geller, who says that the com pany’s introduction of its value-enhanced labor, food and beverage systems alone brought that much of a profit bump at the Fairmont Scottsdale Princess, an
But that jump is just the low-hanging fruit of profit transformation. Strategic only buys properties where it sees potential for not only streamlining operations but also boosting the yield per square foot of the facility. The company currently operates properties that bear the Embassy Suites, Four Seasons, Hilton, Hyatt, InterContinental, Loews, Marriott and Ritz-Carlton brands in the
Such transformations were inspired in part by shifting demographics in the travel industry. The hotel industry has long catered to the Baby Boomer generation, which wanted very different things from a hotel than their Generation X successors. “Baby Boomers look at hotels as a trap,” says Geller. “They’ll pay for the room, but consider everything else the food, the retail store an [overpriced] expense to avoid. Gen Xers say, ï¿½ï¿½If it’s quality, no price is too steep.”
Geller’s game has been to lure these less price sensitive customers, capturing more of their travel cash by introducing celebrity chefs, hip nightspots and luxurious room amenities. Building a reputation for quality among meeting planners, who can account for as much as 50 percent of a property’s revenue, has become the Holy Grail for hoteliers.
“We buy an asset because we think we can do something with it,” says Geller, whose acquisition spree encompassed collecting six properties in 2005 to 2006 for a cool $1.17 billion. “We’ll buy hotels that may be undermanaged, are probably under marketed and certainly underinvested. And we can increase their yield-per-foot by as much as 20 percent.”
That formidable claim hasn’t saved Strategic, which reported $1.01 billion in revenue in 2007, from the impact a sluggish economy and soaring oil prices are having on the travel industry. At press time, the company’s shares were hovering at $8.91, down from a high of $24.27 last year, suggesting that investors are concerned about whether Strategic can cope with the industry crisis that could emerge if oil prices continue to rise and the economy remains soft.
Geller readily acknowledges the signs of a potential downturn. “We’ve been seeing a bit of an edge coming off of the leisure and corporate businesses,” he says. “The meeting planning business was going up in volume but down in ancillary services, which meant people were having the meeting but not the lavish coffee break or having chicken instead of filet mignon.”
But Strategic, he says, has already taken measures to address that shift and has both a contingency plan for a further drop in travel and a contingency plan for that contingency plan. “We’re still positive [with] growth, but if GDP goes down to zero or negative for three or four quarters, then demand will go with it,” says Geller, who will implement measures like cutting back on restaurant hours and room amenities. “I can’t change the market. What I can do is outperform my competitors.”“Early next year may be worse because people plan three to six months out, but by the middle of 2009 we’ll see light at the end of the tunnel, he adds. “Then we’ll start increasing pricing again, and we’re off to the races.”