Luxury Hotels May Be Underpriced Relative to Other Luxuries

25.08.2023 - 14:22 / skift.com / Sean Oneill / Richard Clarke

Luxury hotel companies could flash a half-decent report card this year thanks to a post-pandemic surge in demand. But they could do better long-term if management teams sharpen their focus on opportunities to woo well-off consumers who increasingly care about experiences.

That was the view of Richard Clarke, a managing director at Bernstein Research, who presented “A Macro View on Travel’s Future” at Skift Global Forum East on December 14 in Dubai.

Clarke and his team analyzed data from the hotel benchmarking service STR. They concluded that luxury hotels ought to command higher rates in the future in light of the willingness of well-off consumers to spend on other types of luxury goods and services at high levels. If shoppers are willing to buy Gucci handbags and Cartier watches, why aren’t they paying premiums for luxury hotel rooms?

“You used to see an ever-growing premium of luxury hotels relative to upscale hotels,” Clarke said. “That stopped in 2009.”

In the past year, average rates for luxury hotels finally got back in line with the historical trend interrupted by the great financial crisis.

Valuations of other luxury products and services make five-star hotels look comparatively reasonable.

Data cited by Bernstein Research suggests that luxury hotel companies haven’t been grabbing growth and market share at the same pacing as makers of personal luxury goods and luxury cars.

“Even though every survey will tell you that luxury consumers want to spend more money on experiences, not less, we haven’t seen that catch-up come through in market share,” Clarke said. “If you look at luxury lodging as a percentage of the luxury market, you see there’s plenty of upsides to come.”

One sign of the coming shift came when LVMH in 2018 bought luxury hotelier Belmond for $2.6 billion including debt. The reigning leader of the luxury sector placed a bet that travelers would want more far-flung experiences in style.

Clarke’s thesis dovetails with the arguments set out in the recent book Future Luxe: What’s Ahead for the Business of Luxury by Erwan Rambourg, an HSBC analyst.

Rambourg argues that sales of luxury goods before the pandemic were heavily powered by Chinese consumers traveling abroad. Demographic trends suggest there is still at least another decade of foreign shopping for bling ahead, given a rising middle and upper class in China.

Yet Rambourg also sees trends shifting in a direction that could favor luxury hotels.

“Luxury will be less about being ostentatious and more about feeling happy,” Rambourg writes.

One challenge for hotels is how to do a better job of addressing the wants and desires of luxury consumers. Can hoteliers give the owners of $1,500 leather Christian Louboutin boots places and