Bigger isn’t better: Investors favor boutique stores and hotels
Tuesday, April 09, 2019
Bigger is better, right? That’s why there have been more hotel mergers and acquisitions in recent years. There are also many hotel chains building larger loyalty programs to pull in more travelers. Besides hotels, Airbnb and online travel agents (OTAs) also want to get bigger through acquisitions.
When it comes to product development, however, investors seem to favor small, boutique concepts over bigger ones. Here are a few examples.
Sears Home & Life will open on Memorial Day weekend
As Sears goes through bankruptcy and closes hundreds of stores, the company plans to open three smaller stores under the Sears Home & Life banner on Memorial Day weekend. These will only focus on appliances, mattresses, and home services.
The size of these smaller and specialized Sears stores range from 10,000 to 15,000 square feet, less than one-tenth the size of an average Sears store (155,000 square feet).
It is uncertain, however, whether what Sears is trying will help the company turn around its business, with some critiques saying that Sears opening smaller and specialized stores is "a very old strategy" that will amount to "zilch." At least Sears is making an effort to fight back with specialized stores like The Home Depot and Lowe’s.
CitizenM, a microhotel brand, gets a cash boost
CitizenM, a microhotel brand that positions itself as a place for "affordable luxury," received a cash boost last month from a giant fund run by the Singaporean government for a 25% stake in the business.
Similar to other popular microhotel brands in the market, such as The Pod Hotel, Yotel, and Arlo, citizenM offers smaller (or “micro”) guestrooms with open space for social activities, including a “living room,” a canteen, and a cocktail/coffee bar.
Big hotel chains are entering the microhotel market with new brands, too
Other examples include Motto by Hilton and Avid by InterContinental. Along the line of promoting social interactions among travelers, JO&JOE by Accor Hotels is another affordable, hostel-like brand that tailors to travelers with a budget.
Why investors want to go big by focusing on small
For the most part, a shifting customer base and its new preferences drive the development of new brands and concepts. Gen Zers, for example, are more likely to accept automatic services; they also expect new designs for better use of the space.
Microhotels that are usually built with smaller guestrooms but have flexible, multi-functional space for social activities can meet the demands of younger travelers. Consumers may also find it easier to build an intimate personal relationship with small, mom-and-pop hotels or retail stores than with big corporate brands. This helps promote customer loyalty.
Meanwhile, building smaller can be a better option for developers. Benefits include:
- Lowering the building or startup costs
- Establishing a clearer brand identity with a more focused product to target customers
- Easier to adopt a modular construction technique
- Faster and easier for housekeepers to clean a guestroom due to the smaller space and newly designed furniture; and easier to up-keep the retail space with similar products
- Easier and cheaper to test new business ideas in a smaller establishment
- Easier to convert an existing building (e.g., an office or a warehouse) into a microhotel or a micro retail store
- More efficient and possibly more effective in managing the business’ human capitals with a narrow focus on a few specific products/services
Is that all? What other reasons drive the growth of microhotels and smaller retail stores? Is this another example of how business can win big by acting small?
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