Who'll Stay At China's Gucci Hotel?

    Elisabetta Gucci recently announced that she intends to open 40 new five-star hotels globally over the course of the next 15 years, with a location in China planned for next year. But will she choose with the obvious location, Shanghai, or choose a city with huge potential as a luxury destination for domestic Chinese tourists, like Hangzhou or Kunming?
    Jing DailyAuthor
      Published   in Finance

    Elisabetta Gucci Plans To Open 40 Luxury Hotels In Next 15 Years, Eying China Location Next Year#

    The Chinese luxury hotel market is a contentious and already crowded place, with the world's top hoteliers battling it out with local upstarts and Hong Kong transplants, fighting a still nascent domestic travel industry, overcapacity and anemic occupancy rates, and a post-financial-crisis inbound tourism slump. Despite the obvious difficulties -- and despite having to deal with issues, such as poor brand recognition, that aren't as much of a problem in other parts of the world -- hoteliers continue to invest heavily in the China market. In the last few months alone, we've seen new five-star hotels spring up not only in wealthier cities like Hangzhou and Shanghai, but also in lesser-known markets like Guilin, Nanjing and Yangzhou, and major chains like the Ritz-Carlton, the Four Seasons, and Shangri-La have recently announced major expansion plans expected to last well over a decade.

    Recently, Elisabetta Gucci -- the daughter of the fashion designer Paolo Gucci -- announced that she intends to open 40 new five-star hotels globally over the course of the next 15 years, with plans to open a Dubai location at the end of this year and a location in China next year. While details on the China hotel are vague, according to Reuters, the Elisabetta Gucci hotel "experience" hinges heavily on branding and design, both inside and out:

    A night at the Elisabetta Gucci Hotel Dubai would cost as little as an estimated 1,500 UAE dirhams ($408.5) to as much as 25,000 dirhams ($6,808), [Partner Lorens Ziller] said.

    Guests will have the option to buy anything in the hotel from furniture and bed linen to slippers. Elisabetta Gucci works with Italy's Formitalia Luxury Group to create exclusive interiors, furniture and art.

    A large number of future hotels, particularly in Russia and Eastern Europe, would be converted historic properties, he said.

    A high-end hotel, leveraging the Gucci name, in the red-hot Chinese market, the world's second-largest luxury market where travelers spend with abandon -- it sounds like a slam dunk. However, this isn't entirely the case. While China's luxury market does -- and should -- give major brand executives reason to be optimistic, there are signs that the upscale hotel market is already suffering from overcapacity in top-tier cities, especially in Beijing, which saw a hotel construction boom in the run-up to the 2008 Summer Olympics but has grappled in the last 18 months with inbound tourists who are far less willing to spend lavishly on accommodations. From a recent Forbes article by Rebecca Fannin, author of Silicon Dragon:

    Beijing is full of grandiose hotels that were timed for the opening of the Summer Olympics in 2008. Now that the Olympics are gone, these hotels lack guests—although to be fair, most of these new hotels also offer serviced apartments for long-term stays. I recently stayed at the spiffy new Gehua New Century Beijing hotel – an official media hotel for the Olympics – and it was oddly quiet. In fact, the executive lounge was closed. At Legendale, the club lounge was frequented by a few Chinese business executives, huddled over discussions and smoking cigarettes.

    While this article, of course, concerns only one hotel, it illustrates a point that should be of real concern to high-end hoteliers when mapping out long-term China expansion plans. As five-star hotels spring up throughout top-tier cities like Beijing and Shanghai to meet the demand -- real or prospective -- of business travelers or tourists, what happens if international tourist figures lessen (or these tourists choose three- or four-star hotels instead) and there's not enough domestic demand to fill the vacuum? You have the problem described by Fannin -- lavish, empty hotels. This, in part, explains why major chains like Marriott/Ritz-Carlton and InterContinental have spent the last few years increasing their already respectable presence in second- and third-tier cities. Although foreign visitors -- aside from business travelers -- may be rare in cities that are off the beaten path, major chains expect to reap the rewards when domestic tourism at the higher-end really starts to materialize in the next couple of decades.

    So here's the real question: where will Elisabetta Gucci choose to plant her China hotel, and who'll stay there? Is she betting on well-heeled inbound tourists, or hoping to be a hit with the Chinese nouveau riche? Will she choose with the obvious location -- Shanghai -- or take the "build it and they will come" tack and choose a city with huge potential as a luxury destination for domestic Chinese tourists, like Hangzhou or Kunming? If she chooses the former, with the dwindling domestic tourism figures expected as the Shanghai World Expo winds down later this year, a Shanghai Gucci hotel might open with a whimper rather than a bang.

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