Posted by Ric Garrido

There was an analyst in Salt Lake City on CNBC this morning, Jan 11, 7:10am (PST). He was predicting a 16,000-20,000 point DOW by year end 2008. He also says all the sales numbers look good for consumer spending. I bring this up because I was just reading the Jan 11, New York Times article by Michael Barbaro, “Poor December at Retailers; Most Report Drops in Sales”.

Target Stores sales dropped 5% in December 2007 compared to what was sold in December 2006. Nordstrom dropped 4%, Kohl’s dropped 11.4%. Only WalMart raised sales over 2006 levels by 2.7%. The size of WalMart helped raise sales nationwide almost 1%.
Yet, the good retail news was electronics sales increased 2.2% in December.

I know from my experience that when money looked to be getting tight (bills are more than income for foreseeable future), I always made sure we updated the TV or computer electronics to make the increased time spent at home more pleasurable.

TVs and Computers and Video Games keep a poor population occupied. We are quite isolated in our society. Travel is one of the great activities of socializing in America.

One TV analyst this morning was saying the country is great.

When I am at Costco and I see all the $1,900 HDTVs driving out of the parking lot, I tend to agree that Americans are doing well. At the same time, people in clothing retail are watching their livelihoods suffer while the electronics store employees are in the high frequency sales. In 2008, technology improves too rapidly for anyone to desire used electronics, whereas, some of the best clothes values are well-made used clothes with minimal wear.

I read an article yesterday suggesting that as hotel rates increase 5%+ over 2008 while room occupancy declines, the rate increases will primarily target business and conference guests. In my opinion, the trend I see here in San Francisco is one of rapidly increasing hotel rates during high business activity days. Rates can easily be $300 to $400 per night at most of the 4-diamond hotels in San Francisco during a conference period. In October, I went to the dentist and the hygienist told me she had been at the Dental Conference in San Francisco the week before. That explained why all the rates were $300 minimum at all the major hotels when I was trying to book a room.

The good news for the leisure traveler is that for at least 12 nights from November 15 to December 30, 2007, hotel rates in San Francisco at the major 4-diamond and 5-diamond hotels were the lowest or close to the lowest rates in the past three years at several downtown city Starwood hotels. Le Meridien San Francisco and Westin Market had $129 rates. Westin St. Francis had $99 rates. St. Regis San Francisco was available for under $300 per night. Other hotel chains also had lower than average rates during the November-December season.
San Francisco is in the top 5 markets in the world for the number of occupied hotel rooms at major upscale and luxury hotels. I wonder if the room rate trend in 2008 will continue to be a rate hike focused on business travelers on expense budgets with periodic significant rate discounts available to leisure travelers during times of low business demand.

Westin St. Francis San Francisco
Room with a View
Westin St. Francis, San Francisco
$100/night 22nd Floor Corner Tower Room
November 28, 2007
I am all for discount rates. The American leisure traveler needs a break as price inflation squeezes the budget from every direction (except electronics which likely explains the growth in sales).
If the economy is doing fine and the DOW is going to be 16,000 points by end 2008 as the financial analyst on CNBC was saying this morning, then the companies should be sharing the wealth with the hotel corporations by paying the extraordinarily high room rates.

I just hope that trickle-down Reaganomics will carry through for the leisure hotel traveler. Hotel guests will suffer exorbitant rates if you must travel and be at a specific place on a certain day for business and you coincide with high business activity. The small business, independent traveler like me will suffer from these rates during unavoidable hotel stays. I just hope the large urban hotels will feel enough financial profitability from their business activity to cut a rate break for the leisure travelers. Starwood made a great show of this rate discount strategy in the holiday season for their San Francisco hotels. San Francisco is too beautiful a city for the hotels to price out leisure guests.

Many leisure travelers in 2008 will make choices if the economy is not looking so sky high bright.

Forego the clothes this season and get a new computer?
The computer has become essential for communication and conducting business and planning that life-saving vacation.

Forego the 4-diamond hotel in downtown city at $289 a night this trip?
A 3-diamond independent hotel for a bargain $109 a night, twelve blocks from downtown is acceptable to a large portion of travelers who will not place so high a value ($200 a night after hotel tax) on hotel loyalty to a major corporate chain asking $300 per night when the hotel is only 70% occupied.

The hotel budget is often the biggest variable cost in travel and the budget-downsizing leisure traveler is likely to realize the greatest travel savings comes from reducing the hotel budget. $300 per night is removing the vast majority of travelers from even considering staying at urban chain hotels.

And let’s just hope the sky is not falling. The leisure traveler in 2008 might just have a change in lifestyle and stay at home with the MTV, computer, and video games.

[side note: I originally wrote this article 6 days ago on Jan 11, 2008, and since that time Starwood stock has dropped over 10% and there is widespread concern that hotel stocks are going to continue to be hit hard as hotel travel declines in the recession of 2008.]

2 Responses

  1. I predicted 2008 would be the year of the “staycation”. Too bad I wasn’t clever enough to coin the term.

  2. [...] my article last month railing about the stock market outlook and recession, the R word has been bandied about the hotel [...]

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