Trends in Hospitality: The hospitality business slowed to a crawl amid Covid, but there may be pent-up demand on the rebound - Nov 2020

By Jessica Chevalier

More than any other commercial sector, the hospitality industry has been rocked by COVID. When leisure travel ground to a halt under lockdown orders and Americans traded in their road hours for commutes from the bedroom to the home office, the hotel industry found itself with shockingly few “heads in beds,” and some facilities, particularly those in urban centers with a strong business in corporate gatherings and conventions, saw their markets dry up essentially overnight. Of course, fewer guests makes renovation and flooring replacement substantially less complicated, and that did drive a minimal amount of business early on. But for the most part, hotel owners and operators are hunkering down, riding out the slow period, though industry experts are hopeful that consumers will start to travel again, which will lead to hoteliers investing again, once the election is in the books and a vaccine is created and approved.

TRAVEL HAS CHANGED
From the recovery of the Great Recession through 2018, the hospitality industry was on a tear, extending the typical seven-year industry growth cycle to over a decade. In 2019, operating performance declined from prior year levels but remained strong, says Bruce Ford, senior vice president and director of global business with Lodging Econometrics, a lodging industry consulting partner for global real estate intelligence.

However, 2019’s story was less cheery by other measures. “Last year, we sold more rooms than ever,” reports Jan Freitag, senior vice president of lodging insights for STR, which provides data benchmarking, analytics and marketplace insights for the global hospitality industry. “We were at the highest occupancy ever recorded, and the highest room rate ever recorded, but what people care about is the change-how much did room rates go up? We sold 1.3 billion room nights in 2019-66.3% of all room nights available-but the rate only increased 0.9%, less than the level of inflation.”

Freitag notes that there are a variety of factors that may account for this. First, he points out that it is hard to have pricing power with one third of total rooms unoccupied. In addition, the total transparency created by the Internet may play a role as hotels adjust their prices according to those of their competitors, creating a ripple effect and effectively putting a ceiling on rates. Lastly, he points out the existence and proliferation of Airbnb and Vrbo may keep hotel prices from increasing; however, he notes that it is hard to get a clear picture on the impact of these entities on the hotel industry, pointing to the fact that 2019 marked a record high for occupancy as evidence that the hotel business remains strong.

Q1 2020 was charting a similarly “okay” path until, as we all well know, the coronavirus pandemic and subsequent lock-down effectively halted both domestic and international travel, thereby putting the brakes on the hotel business. “By the beginning of March, COVID was taking hold in America, starting in international gateway cities like New York and San Francisco,” says Ford. “For the most part, travel stopped around March 15. We hit a low of [just over 87,000 daily check-ins at TSA in mid-April]; we averaged 2.7 million per day in 2019. The U.S. pretty much locked down for a couple of months, and that lockdown precipitated hotel closures, layoffs, heartache and heartbreak amongst companies and employees, as the country struggled with what the future would look like.” As of early October, TSA check-ins had reached around 30% of their prior average, according to Ford.

“The week of April 11 was the worst week every recorded in U.S. industry,” Freitag notes. “RevPar [revenue per available room] declined 83% that week, cut to almost nothing.”

As the summer commenced, the travel that did take place amid the quarantine fell into three distinct patterns: limited service over full, drive-to over fly-to, and rural over urban, as consumers flocked to low-density getaway destinations.

With regard to the first pattern, limited service over full, midscale and economy sold 50% of rooms through the summer, but upper upscale with meeting space and restaurants did very poorly, and occupancy was in the 20% range for a long time, rising to 33% in late September, reports Freitag.

As for the second trend, hotels near national parks and beaches fared well. Amid quarantine, people had the time and inclination to take road trips.

Thirdly, there was previously a ratio of TSA throughput numbers and rooms sold of roughly 60%, explains Freitag. “That relationship has completely broken. For the week ending September 19, there were 17.5 million room nights in the U.S. but only 5 million people flew-a 28.5% ratio. So the industry is still selling rooms but not to people who fly. It was the summer of the great caravan, and the radius of driving changed. Interstate highway location hotels have occupancies of 50% or so, as people are utilizing those as they get from point A to point B.”

WHAT'S THE STATUS ON BUILDING & RENOVATION
Early on, when it was hoped that a relatively brief quarantine might eradicate the virus, some hotels took the opportunity of empty or nearly empty facilities to renovate, but, as uncertainty increased with regard to how long it might be before travelers returned, most were reticent to invest capital funds. In addition, over the course of the quarantine, some hotel brands relaxed their standards and extended their remodel cycles in an effort to relieve hotel owners and operators of burdensome financial obligations during this period of reduced revenue, and some began allowing their licensees to utilize FFE (furniture, fixtures and equipment) and capital expenditure budgets for debt service.

Interface’s Charley Knight and Shannon Griffiths, vice president of market segment sales and market segment manager, respectively, report that early on, a number of hoteliers pressed pause on renovations awaiting word on federal aid, but “federal aid is now running out and occupancy is not bouncing back. Things are getting real.”

Prior to the pandemic, the new construction side of the business had been on fire for several years. “The hospitality construction market was seeing an all-time high in terms of construction and renovations,” says Kim Drautz, president of Tarkett Hospitality and a former hotel operator. “The industry was just starting to see the top of a slowdown when COVID hit. The large, bank-funded projects in process still pushed forward but renovations, conversions and pre-planned new builds came to a screeching halt. That said, we are starting to see signs of recovery, and owners and developers are bringing some projects off hold.” Overall, the hospitality market is about 70% renovation work, 30% new construction.

Heidi Vassalotti, strategic accounts for Crossville, reports, “Today, many of the brands’ design and construction teams are working on a skeleton crew. As we come out of this, we expect to see an uptick in growth for projects that were put on hold.”

Of course, this has greatly impacted manufacturers serving these properties. “The hospitality industry has been hit pretty badly,” says Jim Cody, vice president of sales for Bloomsburg Carpet Industries. “We had to shut down our factory for two months.”

And as flooring is installed late in the construction process, there is likely to be a lag between when construction resumes and demand for flooring rolls in. Bobby Berrier, CEO of Signature Flooring, notes, “Our business has seen improvement from the low point in March to April, but we believe it will be some time into the second half of 2021 before we see any real signs of market improvement.”

It should be noted that some hotels, especially those in city centers, have closed their doors indefinitely-not an inexpensive proposition but, perhaps, more financially certain than leaving the doors open to hemorrhage cash.

FLOORING OPPORTUNITY
For particularly well-capitalized hotels, quarantine provided an opportunity to complete renovation without disrupting guests. “Most of our partners see this as a time when you’re not losing potential RevPar during a remodel, therefore, a good time to renovate,” says Morgan Stephenson, director of hospitality for Daltile, Marazzi and American Olean. “Certainly, select service and economy have remained more predictable. COVID did cause some owners to move construction timelines up. This is a time where travel is low, RevPAR is low, and if you can come out of this with a new or newly renovated hotel, you are likely more marketable when people are traveling more.”

Analysts indicate, however, that hotels that can afford to take advantage of the COVID slowdown for renovation are the exception, not the rule. Says Freitag, “Many owners/operators can hardly make their debt service. They are in a world of pain. They rely on group business, and there is none. Renovation is the last thing on their minds right now. There is so little cash out there. These are dire times, and renovations are not at the top of the playbook. Many are asking, ‘Can we stay open?’”

There have been some instances of flooring sales driven by COVID, including in the early days of the virus when hotels and other spaces were transformed into makeshift healthcare facilities, in the unfortunate event that outbreaks overflowed traditional acute care spaces. Shaw Contract reports that it was awarded a few of these jobs, for which it provided sheet vinyl.

And Crossville’s Vassalotti notes that she has seen some light rehabilitation projects underway, focused on the incorporation of health and safety measures.

But these one-off projects aren’t enough to keep the industry healthy. More significant will be the transition of distressed properties-those that cannot withstand the COVID downturn-to new ownership; this is expected to include both existing facilities and some of those completed amid COVID. “The current status is one of distressed properties fighting to hold on, properties currently being turned over to the banks, and the emergence of capital funds that will invest in distressed properties and, thus, drive renovations as the market returns in a post COVID existence,” says Lee Blair, vice president of hospitality for Milliken.

There are other factors at work, as well. “Ownership is taking a mindful approach to evaluate their portfolio and taking opportunities to convert a property to brands that can offer lower cost per key,” reports Tarkett’s Drautz. “These are important opportunities for renovation. Luxury scale and extended stay scale will likely fare better than most.”

Paul Young, vice president of hospitality for Shaw Contract, believes that the market should start seeing these sorts of transactions in Q4 2020 and Q1 2021, “Cash is king right now. Owners with deep pockets will gather up available properties, which will create opportunity for renovation. Some properties will change brands.”

Of course, best of all-for the industry as well as the nation at large-would be recovery. “The million-dollar question is when the hospitality industry will get back to where it was pre-COVID,” says Johnny Massey, vice president operations, Americas for Brintons. “The uncertainly makes it difficult when forecasting and budgeting. A vaccine will go a long way towards making people feel more comfortable about traveling.” He notes that, regardless of whether the recovery is sooner or later, hospitality is likely irrevocably altered.

Freitag agrees that the hospitality industry won’t go back to how things were. “It’s about the ‘next normal,’” he notes. “And what that next normal looks like is still being fleshed out.”

CLEANING & DISINFECTING
There is clean and then there is the perception of clean. Often, these are one and the same-sometimes not-but each is critically important right now as hoteliers face the steep challenge of delivering an environment in which travelers feel safe enough to stay the night.

Many consumers see hard surface flooring as cleaner than soft surface because it can be easily sanitized with cleaners and a mop. David Duncan, senior vice president of sales for Durkan Hospitality, notes, “Hotel satisfaction surveys generally reveal that guests rate rooms with LVT as feeling cleaner.” Soft surface, with its forest of fibers, is interpreted as trapping dirt and therefore dirty, though that trapping is an effective means of keeping dust and allergens out of the air until they can be vacuumed up. In addition, the bulk of carpet specified for hospitality use is solution-dyed nylon or wool, both of which hold up well to cleaning.

Unfortunately, there is no industry effort to share carpet’s positive decreasing-airborne-particulates story with the consumer today, so there is little likelihood that negative perceptions will change. And for that reason, the transition to LVT in some hospitality spaces, most notably guest rooms, will likely continue, despite the fact that carpet is better at managing acoustics-both of which are critical in a hotel setting.

Manufacturers do not believe that COVID accelerated the soft to hard transition in any way. In addition, there is speculation that, in times this uncertain, the comfort and luxury of broadloom may be appreciated.

Moving forward, “cleanability is key,” says Freitag. “To be able to disinfect when they rotate rooms wasn’t at the top of the list before but suddenly is. Cleaning regulations from the American Hotel & Lodging Association and brands are very clear now, and that will have an impact on what materials are used. Will that impact surfaces? Yes. Will it mean that next time around, as hotels renovate or break ground, that they go with something easier to clean? Yes.”

In the early days of the pandemic, there was concern that the new disinfecting measures taken in hospitality, whether for high-touch areas or the floors themselves, might adversely impact the flooring, but manufacturers in the field report that that isn’t as great a concern now. Firstly, hotel stays are greatly declined, so rooms aren’t being cleaned as frequently as they would be in normal times. And secondly, hotels have a self-preservation instinct to extend the lifecycle of their own floors. For most, budgets are tight, so utilizing cleaning agents that impact the floors poorly is undesirable. Owners and operators are motivated to find products and processes that both protect the customer and the floor. Thirdly, hotel brands are in close communication with flooring manufacturers about how to achieve sanitization goals without damaging flooring products.

Some hoteliers have taken testing into their own hands and are using that as a determining factor moving forward. “Marriott and Hyatt have been testing products themselves, following Center for Disease Control guidelines, to make sure the products can be properly maintained,” says Alan Rowell, vice president of sales for Aspecta North America.

“All cleaning protocols I have seen from the major brands will have no negative impact on flooring-not carpet or LVT-at all,“ adds Duncan.

“The product that we are recommending to sanitize is not harsher than normal cleaning,” says Don Dolan, executive vice president of Masland Contract. “And we are comfortable that the flooring will perform as long or even longer because they will really be taking care of it.”

Several soft surface companies reported that they are currently exploring antimicrobial surface applications that purport to destroy surface bacteria that can lead to infection-this would have no impact on minimizing viral infections like COVID-but express concern about the health and long-term ramifications of such treatments.

DECISION DRIVERS
Most of the industry agrees that regardless of what challenges are thrown at the hospitality industry and how trends may change, aesthetics will always reign supreme as the driver of specifications. After all, according to Briana Dworkin, vice president of sales for Royal Thai, the success of hospitality all comes down to customer experience. “It’s what continues to bring people back to properties,” she says.

Drautz believes that the times in which we are living will create a strong desire for comfort. “I think we’ll see palettes soften, more requests for biophilic elements, things that naturally bring our stress levels back down,” she adds.

Key, of course, is differentiation. “When LVT came out, it was a less expensive alternative to wood, which everyone loves, but we are now being asked more often for non-wood designs,” reports Duncan. “The higher up the hotel brand you go, the more they want to differentiate with more modern and interesting looks.

Of course, experience is about more than looks. “The number one factor in the hospitality market is sound transmission,” says Aspecta’s Rowell. “Maintenance and cleanability may be rising in importance, but the floors will still need to meet sound quality guidelines.”

Budgets also play an important role-and are likely to become even more important. “It is a balance between budget and performance,” says Knight. “Budgets aren’t going to get any looser, only tighter-and they are already tight. Every time you add cost, it is frowned upon. Hotels are always trying to find efficiencies. When we come out of this, budget will be a big deal-how to achieve the vision at the lowest possible cost.”

Service is also key. According to Shaw’s Young, 70% of hospitality work is custom, and close collaboration between all parties in a specification is key. In the virtual age, “service” also includes offering a suite of digital tools for the creation of custom products.

As hotel brands develop and implement green strategies, there is increased demand for products that help them meet these goals. Of course, as flooring is replaced only once or twice a decade, it does not play the same role that more disposable items or processes might in reaching green goals, but a holistic strategy toward sustainability is likely to consider such aspects, particularly if driven by a designer or design firm that has the greater green good essentially baked into its approach.

Copyright 2020 Floor Focus 

Related Topics:Interface, Daltile, Marazzi USA, The Dixie Group, Armstrong Flooring, Crossville, Mohawk Industries, Masland Carpets & Rugs, American Olean, Tarkett, HMTX, Shaw Industries Group, Inc.