Changing the definition of luxury

How is the concept of "luxury" perceived and what hotel brands come to mind when you hear the word "luxury"? The word carries a sense of prestige and exclusivity that only selected brands can fulfill. In today's era, this term is often overused, causing the meaning to be diluted. At the same time, as luxury becomes democratic, qualities (such as exclusivity) which had once been associated with it, have become less important to modern day customers.

What exactly is this shift in luxury and what are the causes?

As wealth is being redistributed across the globe, the social hierarchy between the rich and poor is losing stature. Estimates reveal high growth within the middle class, which is expected to reach 3.2 billion people globally by 2020, up from 1.8 million in 2009. This provides greater access to goods and services, including the ability to travel and exposure to luxury brands. Luxury becomes a norm. Travelers seek different experiences rather than pure extravagance and opulence. The traditional glitz and glamour are no longer perceived as a 'wow factor' for the majority of people, especially amongst the millennials. People who travel on a regular basis seek unique experiences and brands need to adapt to evolving needs. In the past, luxury brands were able to differentiate themselves from the regular brands, but this is no longer applicable in today's era. Hotel operators need to conduct meticulous market research to rebrand and rejuvenate themselves with a fresher, more vibrant and trendy feel. A clear example is Accor's strategic movements to develop a strategic partnership with 25 hours (30% stake) – a design-orientated boutique hotel group in Germany offering ample entertainment options within their bed and breakfast concepts. Accor has also launched the Mama Shelter lifestyle brand and Jo&Joe, a "co-living" brand which challenges the holiday home rental business model. Travelers, especially millennials, no longer discuss "star categories" or how luxurious the hotel is, but rather focus on the concept, the experience, the entertainment, the people, and the ambiance of their lodging. This brings us to the second point – a shift in demographic trends.

Hotel operators need to adapt in order to capture the emerging generation Y. Hoteliers must learn about this segment's habits; that is, what the new generations' needs and wants are. The term "luxury" is like a membership tag that excludes individuals – this is often seen as a negative attribute to millennials, as they have no interest in being separated from their peers. The concept of co-living is on the rise for a reason, and of course, it contradicts the luxury living proposition. Generation Y is more concerned with being part of communities in order to share, to interact, to bridge people and to break barriers. Lifestyle brands which quickly adapt to these changes will gain a competitive advantage over the traditional luxury brands.

What more should we know about Generation Y? They are urban, digital nomads – thanks to our advancements in technology and connectivity. Today's era is recognized as "digital by default". Connectivity and sharing platforms enable people to understand more about what's happening around them, creating a desire to travel to the same places as their influencers. This generation is driven by a need to actively share travel photos on their social networks. Brands which understand this know that investment in their website, digital marketing and social content is just as vital as the hotel's operations. Experts will use this to their advantage to enhance potential guests' curiosity about the brand and about the place, converting these visitors to bookers.

One of the most difficult tasks for brands is to accept changes and innovate outside of their standard operating procedures. An obvious example is the all-day dining concept which primarily functions to support hotel guests and to provide breakfast service in particular. Meanwhile, during lunch and dinner this outlet is usually under-utilized – causing space to be wasted and food & beverage costs to be driven upwards. Analysis beyond the standard operating procedures is a means to optimize yield by maximizing the use of space, and to position F&B as a potential revenue generator, not a support center for the Rooms department.

Luxury and sustainability hardly go hand-in-hand. A luxury concept demands numerous materials, and operating standards that increase waste and carbon and water footprints. Sustainable practices are now incorporated into most hotel brands' CSR strategies to respond to travelers' awareness and expectations. While travelers might not feel that their impact in greening the environment, they certainly expect big hotel brands to initiate and lead the way. Eco-conscious travelers no longer appreciate the tailored opulent, luxurious stay for their holiday but seek accommodations where they can experience raw, pure form, closest to nature with minimalistic, unobtrusive designs as opposed to opulent glitz and gold. This is the new luxury.

Those who cannot change their minds cannot change anything. Unless you own and or operate George V Four Seasons or Emirates Palace – the luxury landmarks -, resistance to the fast-paced environment will only prove your hotel as an obsolete product. Traditional luxury is long gone, challenged by the holiday homes concept that embodies the sharing economy. Now it is time to challenge these disruptors (if you can't acquire them), taking your hotel brand to another level. This requires a change in the way traditional hotels operate, from changing the revenue model and repositioning ancillary departments, changing the concept and considering CSR strategies.

This topic will be discussed by TFG Asset Management's Head of Asset Management, Mariano Faz during Arabian Hotel Investment Conference on 27th April 2017 from 12:00 – 12:30.