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Marriott’s purchase of Starwood and AccorHotels’ continued appetite for dealmaking highlight the potential for mergers and acquisitions in the hotel sector but one company won’t be changing hands anytime soon.
J. Allen Smith, CEO of Four Seasons Hotels and Resorts said that although the brand would likely be attractive to buyers, it was off the the table.
“I don’t think there’s any doubt that Four Seasons would be a target if it was available – it’s not available,” he said at the Skift Global Forum in New York City on Friday.
Bill Gates and Saudi businessman Prince al-Waleed bought Four Seasons for $3.8 billion back in 2007 and have sufficiently deep pockets to make Four Seasons a potential buyer but Smith, who will leave the company later this year, said any deals would have to be carefully thought through.
“We’re unique. We’re a single brand focused exclusively on luxury,” he said. “We’ve remained very true to that. And for the time being, I expect we will continue too.”
Smith said buying another company was “not out of the realm of possibility” but that the company would have to it was “nothing that in any way dilutes the perception of our primary brand.”
Four Seasons has been around since 1960 and currently has 110 hotels and resorts, and 39 residential properties in major city centers and resort destinations in 46 countries.
The residential side of the business might be less well known but it is crucial for the hotel business, Smith said.
“Residential is absolutely central to our business strategy. When I arrived at Four Seasons I would describe it as…it was almost as if they treated it like it was a hobby,” he said.
Smith said that many hotel projects would not get built but for the economics of scale of the residential properties.
Luxury Travel’s Identity Crisis
Changing consumer behavior has given luxury travel something of an identity crisis: do today’s nigh-end travelers really want the same thing as they did 10, 20 or even 30 years ago. This puts a luxury hotel company like Four Seasons in something of a bind.
For Smith, the solution is to push ideas such as “authenticity, “”localism,” and “quality.”
“I think, what you’ve found is that, there is this sort of commoditization of luxury. And so, it’s in many respects there’s this intense need to engage in personalization.”
Smith said the company had seen plenty of success with products such as its Four Seasons Jet, which have a certain amount of flexibility built in.
“It’s a life experience they will never forget,” he said.
Read an Edited Transcript of the Interview
Skift: What’s your view on the state of luxury today and how are consumer’s needs evolving?
Smith: I think the first impression I would leave you with is, it’s incredibly healthy. Our business is performing arguably, better than it ever has. And I think one of the things that has struck me over the last five years is that, we’ve gone through certain periods where there was profound uncertainty in the market. And I figured profound uncertainty led to dark clouds that could derail this really, pretty prolonged recovery we’ve had.
And yet, here in 2018, we’ll have a record year and what’s, I think, more striking to me is that when I look across the company and the different markets we operate in and the risk factors we tend to be concerned about, it’s a pretty favorable outlook right now. So, we remain pretty bullish in terms of just, the market environment. And so, feel very positive.
Skift: So then, from a demand perspective, let’s talk about consumer’s needs.
Skift: How are they evolving? How do you create loyalty? We’re talking about customers that don’t need freebies and points, per se. So how do you sort of, bring them back time and time again?
Smith: Well it’s striking to me listening to Arnie [Sorenson, Marriott CEO] because obviously, we’re sort of in the same business but we’re also almost in very different businesses.
Smith: But some of the themes that he talked about that are important to them in delivering to their customers, really across their price points. Frankly it’s the name of the game regardless in terms of, the authenticity of the experience, particularly this notion of the localism with which you do things.
In our case obviously, quality is of the upmost importance. But, you know I think, what you’ve found is that, there is this sort of commoditization of luxury. And so, it’s in many respects there’s this intense need to engage in personalization.
We talk about that a lot but, at our end taken to the level of flawless execution. And in terms of service style, it is this…It needs to be in the form of what I’d characterize as unscripted service.
We’re a business about details and yet, service needs to come off as if it’s spontaneous and free and authentic and that sort of thing. We talk a lot about the experiential aspects of it. That’s obviously, you see that across the industry.
And I think in our case, one very clear example of the power of that, has been the success of the Four Seasons jet. This is best described as a truly immersive Four Seasons experience because, from the minute you make your reservation, to your picked up, to your delivered back to your home over say a three week period. Everything that you could imagine has been thought through and delivered. But also done in a way that there’s enough flexibility so that if people want to add lib, there’re things they want to personalize along the way, they can do that.
And so, that sort of experiential quality where in some cases, people would say it’s sort of transformational. It’s a life experience they will never forget. [It] [i]s again, one of the directions you see all of this going.
Skift: I’m happy to do a transformational experience on one of your jets any time. So you just let me know about that.
Smith: I will.
Skift: One of the key things that a lot of people have been trying to navigate over the past two days is the balance of technology and service. As well as, just sort of, creating an effortless customer experience. What are Four Seasons guiding principles and strategies that inform the integration of technology but maintaining that high touch personalized service that you offer?
Smith: Well certainly what I try to always remember is that at the end of the day, it’s all about people. And you can’t let the technology override that notion.
Everything we do with respect to technology is in the quest of serving our guests in a more effective way and providing a better experience. Whether it is on our properties, whether it’s online, what have you. And so, I think that notion that the technology is always there to enable people, and to avoid what I characterize in some cases as, technology bling. Which is, it’s cool, it’s fancy and yet you know what? At the end of the day, it may not work as well as you would like it too.
It may not be intuitive in the way you want it to be, people get frustrated. And so, I think that notion of technology as an enabler of service is something that guides everything we do. As a company that’s far smaller than say, a Marriott, we don’t have the resources to invest in technology as others might. Which leads us to be very disciplined and really prioritize spending where we feel like it really matters, that we be a leader in that space.
So one of the things that we feel really good about is the chat functionality in our mobile app. And it operates, and it’s got the ability to translate over 100 different languages. It is a way for people to communicate with our staff both, on property and off property as they communicate with their friends and loved ones. And I think the other piece of it that differentiates it from others is, you’re not communicating with a bot of some kind, you’re communicating with a person on the location where you’re interested in.
And it just humanizes the experience, and it’s consistent with how people want to be using technology today. And so, that has been I think, a really compelling proposition for many of our guests. And so that sort of thing we continue to invest in.
Skift: Absolutely, that makes a lot of sense. Turning to one of your big focuses right now, this residential piece part of Four Seasons. What have you sort of learned as it becomes a bigger part of your strategy and how do you sort of, view it in terms of your development going forward and that sort of thing?
Smith: Residential is absolutely central to our business strategy. And when I arrived at Four Seasons I would describe it as, in effect while the company had a long history with it, it was almost as if they treated it like it was a hobby because after all, Four Seasons was a hotel company, right? And yet, I’d go out and meet with some of our developer partners and what they wanted to talk to me about was the residential. “And oh yeah, there’s this hotel over there too, Allen.” Whereas our teams were saying, “Yeah Allen, there’s a hotel and there’s this residential over there.”
And the reason obviously, that there’s that dynamic is, in our case the hotel would not get built where it not for the developer economics being driven by the sale of residential properties.
And so, when we look at our pipeline today, 80 percent of our pipeline is a mixed use hotel/residential project. And as I said, the hotel wouldn’t get build if it weren’t for the residential piece.
We’ve developed a track record in residential that — and I’m not bragging because it’s the fact — is really pretty unrivaled in the branded space.
We can consistently demonstrate to developers that our properties generate, in terms of, sales of residential properties, the price represents a 30 percent premium to sort of, competitive product in the market.
And, that obviously is incredibly compelling to developers and we’ve focused increasingly on just, developing our expertise around both supporting them in the conception and execution of those properties but also, how they’re managed. And we have over 1,000 people who work exclusively in our residential management business, many more in our hotel business because it’s much more labor intensive. But it gives you a sense of the focus we’ve put on it.
Skift: Would you say the growth in residential is sort of, response to the development that we’ve seen in the alternative accommodation space? People looking for a more home-like experience with the services that Four Seasons offer? Is it a sort of, response to that?
Smith: Look, I think it’s a variety of things and it’s different depending on the venue you choose. The urban developments we have are residential units that are sold for primary use. They’re not put in rental pools, they’re not put in Airbnb, they’re not available for short-term rent. I think typically, they can be rented for 6 to 12 month intervals but nothing less than that.
So you’re not competing with hotel inventory. People who buy those are, you know, they are people who want that urban lifestyle where they’re staying in a world class designed property with great amenities, great services. The Four Seasons brand, which gives it a stamp of approval and quality that is very meaningful to them. When we go to the resort side, obviously it’s a different formula where most of the resort residential projects are put in a rental pool. Arnie [Sorenson] was talking about their focus on houses that lend themselves to use by families or what have you.
That’s a key part of our resort residential strategy where you have villas that are large and they are accommodating of families and provide that sort of, an accommodation. So, it depends on which venue you’re choosing in terms of, motivations and buyers. But, it continues to grow in importance, both pieces. And I think, the company will just to continue to develop expertise in it as we go forward.
Skift: I want to ask about Four Seasons overall development strategy, it seems like there’s a lot of organic growth. Would you consider acquisitions? Is Four Seasons potentially a target in and of itself? Does it make sense for you guys to remain independent?
Smith: Yeah. So look, we’re unique. We’re a single brand focused exclusively on luxury. I think the luxury segment is the really, the only one where you arguably can justify that independence.
And so, we’ve remained very true to that. And for the time being, I expect we will continue too. Having said that, we’re always looking at what’s available in the market. I think the challenge for us has always been in looking at targets, if you will. Is making sure we do nothing that in any way dilutes the perception of our primary brand. Because, if there’s one thing that struck me when I joined the company, and one of the big reasons I joined the company was the strength of the brand. I underestimated the strength of the brand from the outside.
And after five years, continue to be extraordinarily impressed at what the brand represents around the world. So we have to be very careful about bringing on other companies to bring together. But it’s not out of the realm of possibility.
In terms of whether Four Seasons is a target. I don’t think there’s any doubt Four Seasons would be a target, if it were available. It’s not available, though. And we have some very well endowed shareholders who are very comfortable holding it for a very long period of time. But, I mean let’s face it, if it were available I think the interest in it would be off the charts. Because it’s a very, very unique company, managing a very unique collection of assets.
Skift: Absolutely. One last question before we go to the audience. So your time is wrapping up here towards the end of this year, I want you to reflect on your time at the company. What have you been most surprised about and what have you most learned about Four Seasons? And how do you think the company is positioned today?
Smith: Sure. So, I touched on one of the things that surprised me. I underestimated the strength of the brand, even though that was one of the big reasons I went there.
The other thing that really struck me was, I had experienced Four Seasons as a guest before I went there. And what really impressed me was that, once I was on the inside. The people of Four Seasons were as authentic when I was on the inside as they appeared to be when I was on the outside.
There was never this Doctor Jekyll and Mr. Hyde moment. Where I felt like, jeez I was hoodwinked in some way. So, the quality of the people in the company is absolutely extraordinary. And that is something that being part of the Four Seasons family is something that is very special to me. I think that some of the other things that have impressed me that I’ve come to appreciate, not that I’ve been able to fully fathom it, is the wealth creation in the world today is staggering to me.
I keep thinking one of these days I’m going to kinda, get my arms around it and fully grasp it. It is absolutely staggering to me. And, it seems to be continuing. And so, looking forward as a indicator of the future prosperity of a brand like this, I think it’s phenomenal. I think there’s tremendous opportunity and for the company to continue doing what it does today so well, but extend its presence in other aspects of people’s lives.
And you know, one of the things you and I had talked about in advance was, Four Seasons in terms of, lifestyle. I’m not talking about it as the categorization of a lifestyle hotel. I’m talking about a true lifestyle. For many of our customers luxury is not an option or a choice.
It is their life. And so, the opportunities to extend more deeply into how we serve people I think is, something that you’ll see and something that’ll be very compelling.
Skift: Absolutely. Let’s turn to some questions from the audience: “Have you found the Four Seasons brand resonates with younger generations? How are you keeping the brand image fresh?” That’s a good question.
Smith: Yeah. It’s a really good questions because truthfully, if you looked at our average demographic, it’s someone who looks a lot like me. A white male, North American and affluent, about 50. I’m being nice to myself.
But, having said that, the brand resonance and appeal is actually quite broad. And in terms of how we as the marketers would say, “Index with millennials” we actually, over-index in terms of appeal and kind of, attraction with the millennial cohort. We clearly, are working hard to maintain or increase our relevance with that group both in terms of, technology, online video content, social media, which we have a real strength in, and just customer engagement.
But it also goes to product and programming, if you will. Food and beverage, is just singling out one thing, in my mind is a critical means through which, you connect with an audience like that. Both in terms of, defining locally what you stand for. But giving people an entry into the Four Seasons’ world where you can experience it.
We are doing a series of what we call, “Pop-Down Events”, our play on pop-ups, which also, are intended to do that. We just had one in Philadelphia and it was just phenomenal. So, those sorts of things are ways we’re trying to in a way appropriate to Four Seasons, make sure we’re doing some of those things.
Skift: Any plans for the future for yourself?
Smith: I definitely have plans for the future. Don’t know what they are yet. You know, look, I think it’s an incredibly exciting time in the market. When you look at the the confluence of things taking place with respect to real estate, hospitality, technology, service and so forth.
There are a lot of really interesting things, a lot of change taking place. And out of change comes great opportunity. And so, I’m having a great time talking to people about what some of those things might be, and you’ll be the first to know when I figure it out.
Skift: Everyone, please join me in thanking Allen Smith for his time today and wishing him the best in his future endeavors. Thank you so much Allen.