Hotel & Retail
Canada’s most popular tourist attraction by volume is the Eaton’s Centre in downtown Toronto. Shopping is the number one activity for tourists, and purchases are not just restricted to gifts and souvenirs. In many cases tourists seem more than happy to purchase products from brands that are already readily available in their home community.
Retail that is specifically oriented to hotels generally comes in three forms: specialty retail (i.e. gifts), services, and premium / luxury fashion brands. In North America, upscale hotels often have a retail component for higher end brands whereas middle price point hotels generally have few if any stores. Hotels guests are an incredibly captive market for the right retailers, offering a powerful combination of disposable income and “tourist curiosity”.
Interestingly, the first international standard malls in early stage developing retail markets are almost associated with a high end hotel. As local residents become more affluent, these luxury retail centers are gradually replaced by community and regional malls away from the city centre.
With average per capita expenditures of up to $100 and higher, hotel guests represent a significant market opportunity for retail. Convention delegates are an even more attractive market, spending nearly double the average hotel guest. Visitors staying with friends and family, or day visitors from the surrounding region, spend much less than hotel guests – the specific amount varies by market but is often 2/3rds less.
Few successful retail centers rely entirely on hotel guests. Examples such as Navy Pier in Chicago show it is possible, but only by relying heavily on specialty retail, family entertainment and food & beverage. Brand name tenants will not be able to survive in a market where tourism is highly seasonal.
Super-regional malls which rely on a combination of tourist and residential spending, such as Mall of America, West Edmonton Mall, Mall of the Emirates and Dubai Mall, have all proven to be among the world’s most successful retail centres. As much as 40% of Dubai’s largest malls were estimated to be attributable to tourism in 2007. Again, however, the dramatic drop in tourism experienced in Dubai in 2009 showed how vulnerable retail centres are to unpredictable tourism patterns. At the end of the day, retailers need predictability and certainty.
Hotel Guest Customer Profile
Hotel guests can be divided into four categories: visiting family, family entertainment, experiential tourists, and business travellers.
The least lucrative of the four tourist groups, those visiting family are often preoccupied by home commitments and spend relatively less time exploring the city (and subsequently less shopping). Retail purchases related to these trips are significant, particularly for Asian families which may spend up to several thousand dollars depending on their affluence level. However these purchases usually occur closer at home before the start of the trip.
Typically visitors within this category stay at the family home. Those which instead choose to stay at a hotel will be more independent and may wish to explore the city. What retail purchases they make likely will fall into two categories; gifts / souvenirs, and the purchase of retail goods unavailable or more expensive at their home residence.
Family entertainment type travel has a huge influencing factor in certain key markets, such as in California and Florida. Theme Parks, beaches and cruise ships are the typical getaways, but some families seek more dynamic urban destinations for a different experience. Retail expenditures associated with this category are huge. To get an idea of the importance of this association, look at the latest cruiseships such as Oasis of the Seas, which built an internally oriented retail mainstreet. Interior rooms (no seaview) looking into this mainstreet are so popular that at one point they were selling better than outwards looking rooms.
Oasis of the Seas
The best place to study retail associated with Family Entertainment is Universal Studios City Walk – a cluster of retailers and entertainment venues located directly adjacent to the entrance of the theme park. The tenant mix at City Walk is very different from your average mall – a rough tenant breakdown by measuring shop sizes on their mall map shows no convenience retailers and a high amount of specialty retail, food & beverage and entertainment. The retail centre still has many recognizable national fashion brands such as Sketchers, Fossil, Guess Accessories, Abercrombie & Fitch, Hot Topic and Billabong.
[table “” not found /]
From young couples to seniors, tourists are rediscovering the attractions in urban environments around the world. Except for certain groups, such as students, these tourists tend to be big spenders who want to enjoy all a city has to offer in a relatively short period of time. For many, this means visiting unique urban neighbourhoods, eating at interesting restaurants, and enjoying evening entertainment such as live shows. Organized retail centres seem completely at odds with this perspective, but there are plenty of examples of unique projects such as Chelsea Market in New York or San Francisco’s Ferry Building Marketplace and Ghirardelli Square which strongly appeal to tourists.
Even standard downtown malls will see major purchases by these groups. Visitors to downtown Toronto likely did not come with the specific intention of shopping at the Eaton Centre, but somehow they inevitably find themselves sucked in by its massive presence. Famous retailers such as the original Starbucks location in Seattle, the Apple Store and other tenants along New York’s 5th Avenue will also draw experiential tourists.
Uniqueness is an important factor, but purchases are not limited to local brands. Many are still made at retailers that are already available to the visitor at home. International experiential tourists are more explicit about their intentions to go shopping while visiting a city. Cultural differences and the influence of western media explain part of their motivation, but the primary reasons for shopping on vacation come down to brand availability and price. Many international brands are still not present in key developing markets, and high import duties mean the US still has some of the world’s cheapest retail prices.
The average hotel guest in Vancouver spent $86 on retail categories in 2010. In contrast, the average convention attendants in Vancouver spent $153 during the same year. Why such a dramatic contrast?
The first thing to keep in mind is that per capita tourist expenditures are brought down by families travelling with children. Convention delegates come without children, and so by default expenditures should be higher. Another important factor is demographics – convention attendant have good jobs with high incomes. The biggest difference, however, seems to be expense budgets. Food & Beverage spending accounts for the majority of the spending gap.
Vancouver Hotel Guest vs Convention Attendant (2010 Estimate)
[table “” not found /]
*These figures are extrapolated from data collected between 2007 and 2009 and are not influenced by the 2010 Winter Olympics.
Business travellers, particularly those attending conventions, are not visiting because they want to be there. Away from their families they often feel bored, lonely and possibly guilty for leaving. Hotels have tried to exploit these emotions by targeting the “home away from home” angle. Retail centres can also benefit by creating warm and inviting retail spaces and restaurants. Friendly guest relations and service staff also help position retail oriented towards this market differently than the typical sterile and impersonal office-retail development.
Hotels require parking, passenger vehicle drop off, fire stairs, elevator shafts, servicing bays and back of house areas. For these reasons, directly incorporating a hotel into a retail environment can be complicated. However, numerous successful examples do exist of hotels which are well integrated with retail.
In a retail centre with a mix of merchandise types, hotels are best located near luxury tenants, cafes, fine dining restaurants and specialty retailers. Many retail centres incorporate a public plaza or social gathering area of some sort within their designs. These active locations provide visitors with a unique experience and, as such, are good locations for hotels. Hotels should be kept apart from convenience type retail such as grocery stores and pharmacies (although a short walking distance away is attractive).
Financial Impact on Retail
Tourist spending figures from Vancouver illustrate the financial impact of hotel guests and convention attendants on retail. Actual spending figures will vary by market, and certain niche markets such as resort retail may perform quite differently.
Vancouver Hotel Guest Retail Spending by Merchandise Category
Convenience Retail: 4%
Comparison Retail: 24%
Food & Beverage: 60%
Vancouver Convention Delegate Spending by Merchandise Category
Convenience Retail: 3%
Comparison Retail: 17%
Food & Beverage: 71%
In Vancouver, hotels in the CBD are 75% occupied on average. As well, the average group size is 1.67 people. A hotel room which caters entirely to typical tourists would therefore produce an average of $39,106 in retail sales annually. Convention delegates typically stay alone, so one hotel room catering entirely to this market would generate $41,453 in retail sales. Every market is different, but in downtown Vancouver, 18% of guest nights were for convention attendants, and 82% were typical tourist stays. Comparatively, a household living in a high end condo downtown would likely generate $20,000 to $30,000 in retail sales.
Supportable Floorspace by Retail Category per Hotel Room
Convenience Retail: 3.3 ft2
Comparison Retail: 16.0 ft2
Food & Beverage: 32.3 ft2
Entertainment*: 12.9 ft2
These figures are the total amount of supportable floorspace generated per hotel room for the whole of Vancouver. Sales performance figures for downtown are not available, but known benchmarks perform at approximately 30% higher than the North American average. Higher sales performance means less space is needed to accommodate retail spending, and the supportable floorspace figures have been reduced accordingly.