Luxury or lifestyle – Investing in the discerning guest

Demand for luxury tourism and hospitality is expected to grow faster than for any other industry segment, according to a McKinsey & Company research paper. This growth is being powered in part by a sharp rise in the number of individuals globally with net worths between $1 million and $30 million.

But it’s also resulting from a large and expanding base of aspiring luxury travellers with net worths between $100,000 and $1 million, many of whom are younger and increasingly willing to spend larger shares of their wealth on upscale travel options.

Increased focus

This upswing has not been lost on hotel brands who are increasingly investing in their lifestyle and luxury segments.

Traditionally known for its midscale offerings, Choice Hotels International has expanded into the upscale and lifestyle segments through brands like Cambria Hotels, the Ascend Hotel Collection, and its acquisition of Radisson Hotels Americas in 2022.

Indy Adenaw, SVP upscale brands, Choice Hotels International, said the goal was to attract new guests and developers: “We think there is an opportunity to try and create a difference in this tier, particularly around growth and really understanding the financial side of how these hotels operate.”

With a new leadership team and brands including Six Senses; Regent Hotels & Resorts; Kimpton Hotels & Resorts; and Hotel Indigo, Kathleen Reidenbach, senior vice president, luxury & lifestyle, IHG Hotels & Resorts, said: “We have been extraordinarily thoughtful and careful about protecting the integrity of these individual brands.”

IHG has realigned its dedicated Luxury & Lifestyle Americas leadership team to streamline key capabilities across operations, sales, commercial, marketing, design, food and beverage, and more.

Amy King, VP development luxury, Hilton, agreed that when acquiring entrepreneurial lifestyle brands, it was important to preserve their authenticity.

“We just closed on a partnership with NoMad earlier this year and I think we’ve been very thoughtful and intentional about the way we crafted this partnership,” she said. “It’s a joint venture, it’s controlled by Hilton, but the team at Sydell Group behind the NoMad is still intact. And they’re not employees of Hilton, they’re employees of Sydell. So our idea is to maintain that creativity and all of the culture that’s made the NoMad brand so special from a food and beverage perspective, from a design perspective; all of that is staying intact.”

Driving demand

Experiential travel is a key factor behind the growing importance of the luxury and lifestyle segments. Reidenbach said that experiences outside the hotels were: “a huge priority for us. Palm Springs Film Festival, the US Open, Lollapalooza, intimate experiences where you’re making your own dinner with a chef … it’s constantly thinking about different partnerships that we can bring into the mix,” she said.

Stephane Baghdassarian, senior vice president development – hotels & restaurants, Barrière Group, said that his company was addressing a specific niche audience of High Net Worth Individuals (HNWIs) who will pay $2,000-$3,000 per night, as he highlighted the group’s 2022 opening – Fouquet’s, in Tribeca, New York.

“They are talking to their communities and using social media to find the next, cool and trendy destinations,” he said.

The Barrière brand markets 18 hotels, 33 casinos and more than 140 restaurants and had a turnover of €1.24bn in 2019. It is in the process of developing venues in Lapland, north Finland; and Saudi Arabia, which will offer exclusive experiences such as driving on frozen lakes and horse riding in the desert. The group’s established ski resort in Courchevel offers hot air balloon rides.

“These are things that guests will remember for the rest of their lives,” said Baghdassarian. “I think this is what luxury is about today, trying to think of new experiences that are extraordinary.”

The US hosts 38 percent of the world’s millionaires – nearly 22m people – according to UBS’s Global Wealth Report 2024. The target customer of luxury and lifestyle brands is not necessarily confined to HNWIs, however.

Knowing your customer

Adenaw at Choice commented: “I think the customer is much more fluid than we assume. How many times do I sit on a plane and watch somebody with a Louis Vuitton bag go all the way back in coach. It’s not that they’re a luxury customer or an economy customer, they’re just both. For brands to thrive, particularly in the lifestyle space, they must think much more fluidly about what the customer needs and know customers can morph over time.”

King at Hilton agreed: “The same customer might be staying at a Hampton Inn for their kids’ travel baseball tournament, at a Hilton on business and then they’re checking into a luxury property to celebrate an anniversary. So, it can be the HNWI, but it doesn’t always have to be. It can be anybody who’s seeking a certain experience at a certain time. And so, I think it’s important we deliver to make them feel like they’re being pampered, they have an exclusive experience, they’re making memories no matter who they are.”

Liselotte de Maar, travel industry lead for North America, Accenture, noted that the old-school segmenting of customers may no longer apply because the way people consume hospitality today is much more fluid.

All quotes taken from the “Luxury or lifestyle – investing in the discerning guest” panel at NYU IHIIF 2024

By Ben Walker
hospitalityinvestor.com