Monday evening the delegation dressed up for the annual Gala Dinner party, this year at The Laguna Hotel & Spa. Pete Ellis gave a formal thank you once again to the multiple sponsors who made the GSS possible this year; the Indonesian Tourism Board, Thermarium, Precor, Babor, Spa Equip, The Private Spa Wellness Center, Kerstin Florian, Sodashi, Spa Booker by GramercyOne, Fairmont Raffles Hotels Intl, Murad Inclusive health, Red Door Spas, ResortSuite, SpaFinder, SpaSoft, Westin, Yelo Spa, and Universal Companies. At the close of the dinner, enormous and fully-laden dessert trays were brought in on the heads of about 35 female waitstaff for a spectacular finish to the evening.

 

Tuesday morning brought the beginning of the 3rd Annual Student Challenge presentations, judged by Sharilyn Abbajay of Marriott, Filip Boyen of Orient Express, Christopher Norton of Four Seasons, Niamh O’Connell of Hyatt, and Krip Rojanestien of Chiva Som. The first two teams to present to the judges were from the Chinese University of Hong Kong’s School of Hotel & Tourism Management team, with their Hong Kong based-TCM spa concept called Spamony, and from Cornell Nanyang Institute in Singapore who presented Théaven, a tea lounge and spa concept with 2 locations in Beijing. Tomorrow there will be two more presentations, and the winners will subsequently be announced.

This morning’s General Session opened with a panel about money, “Where Has All the Money Gone?”since this, is after all, the “money” day. Prof. Mary Tabacchi moderated the panel featuring James Kaplan, SVP of Fairmont Raffles, David Browning, CEO of Somasigns, Philips Consumer Lifestyle, and David Stoup, Chairman of Trilogy Ventures. Kaplan opened with a 10 minute presentation which was humorous and informative. Kaplan, an American, has worked in Southeast Asia for years and has the anecdotes to prove it. He remarked that investors can be broken into four groups:

• Institutional investors – their first question will be, how do we get out? Not how much money will be made.
• Sovereign Investment Funds – these are long term investors, typically very large. Kaplan notes that these real estate investments are often politically motivated.
• Families – lots of fun! Real estate is often the foundation of large family investments. They come with hierarchical structures so you will need to find jobs for nephews and be prepared for lots of input from various family members.
• Public & private real estate investors – what can they earn per square foot from their investment?

His regional investment forecast:

• Russia is losing 700k citizens per year, but still provides lots of outbound tourist traffic. If you’re planning on working in Russia, buy life insurance!
• India – great destination with terrible infrastructure. Very bureaucratic; Four Seasons needed 112 permits and took six months to get open, with staff already on board. India needs to fix their visa problem; they currently have only 5 million international tourists per year. Indian strategies should be to focus on domestic traffic; there are 650m domestic tourists annually. Get a good partner.
• China – massive, exciting place. 56 million visitors, 3rd in the world of international tourist arrivals. Also 56 million outbound travelers, projected to be 100 million by 2015. Global players need to have a brand in China, so the Chinese will recognize it when they venture out. To Chinese people, Holiday Inn is a Chinese brand since it’s been there for years. Great infrastructure improvements being made; 50 new airports in next 5 or 6 years, rail improvements will enable travel anywhere in China in 5-6 hours. Lots of smoking, karaoke, spicy food. Learn to speak a little Chinese.

His last point – when negotiating with foreign investors, never assume they understand what you’re talking about. He shared a funny story about working in the 1980’s with Vietnamese developers who wanted to open a golf course, but had never actually played golf or even seen a golf ball, so had a limited understanding of what was involved.

 

Kaplan was asked “When will the bubble burst in China?” His observation was that typically, economic development rides on the back of infrastructure improvements, and if that is the case in China, he sees another 25 years of growth. The government will continue improving infrastructure to motivate Chinese people to spend money; put in air conditioning, put their kids in school, buy cars. China is not a cheap place to build things anymore; it’s a good place to build lots of things, with good quality, but not “cheap.” However, real estate will definitely slow, especially as the government acts to control inflation.

David Stoup of Trilogy takes a different tack and continues to look for opportunities in North America. He says if Trilogy was a consumer products company he would be headed straight for a BRIC country, it would be all about developing nations, but a spa experience is different. He wants to go where everyone else isn’t. He cited a Bain study of the luxury goods market showing that in 2010 that market eclipsed peak spending from 2007, and projecting 6% growth for 2014. North America is still the largest luxury goods market. New spa consumers are rationalizing spending because of health and prevention angles. He sees more high value treatments and retail purchases in our future.

 

Prof. Tabacchi remarks that a lot of data suggests that American market is saturated, how does he see it? Stoup says spa market in US is undifferentiated. He sees that the luxury consumer is different than that in the 1980’s when he founded LaPrairie. Luxury consumer today thinks in terms of value which is why brands are powerful. Capital goes where capital is treated well; investors fall into two categories, strategic or financial. All the folks he does business with our classic strategic investors, Lauder companies etc., who want Stoup to create services with their products to introduce their brands to new clients; these investments are harder to quantify than those that are strictly financial.

 

Audience question – Is there luxury consumer in China or India? Kaplan says in China yes, they are VERY brand conscious, all the big brands are there. India more of a Bollywood, cricket, sports-oriented market, less about luxury goods because they haven’t had a distribution channel. Both Stoup and Kaplan think there is still a big luxury market; Tabacchi asked what percentage they represent of the population. India and China, with a billion people in each place, even 2-3% is enough. Stoup says the aspirational customer can have significant impact on the market as well.

 

Prof. Tabacchi asks, “What is newest, hottest thing?” David Browning of Philips responds; “People will increasingly take responsibility for their health and wellbeing, and we’ll see more movement from medical diagnostics to medical healthcare. In terms of spa participation, what we do and medical are converging industries. Market uses hospital-based measurement systems, but we have blood pressure and heart monitors on IPhones. Consumer has to figure out what to do with the data. They might put it on a spreadsheet, or write it down. But then what? Right now, if they see a new trend, they just get a new device, and that’s not the idea. We need personal intuitive feedback that consumers and caregivers can access and use, taking products and services to heart of consumer. The devices will be seamless and invisible.” He asked us how we feel about wearing wireless or Bluetooth devices? People might want a link, but not want to wear the device full time. Focus will be business to consumer investment rather than b2b. Stoup has partnered with Andrew Weill, and they feel that the spa and hospital of tomorrow won’t look all that different. We’re going to see more meshing between the two communities. Kaplan also speaks to blending of spa and medical; hospitals and hospitality not that far apart now. Examples such as Cleveland Clinic in Dubai create an economic opportunity to combine hospitality and hospital; disposal of medical waste separate, but they both have f&b and infrastructure needs. If programmed, designed and managed correctly, they can integrate for preventive care and wellness as well as surgical and post-surgical. In dysfunctional medical systems like NHS in UK, folks won’t wait and will fly to Bangkok.

 

Where does the money come from to develop these things? Bumrungard was organic, but private equity is very interested in the medical side of hospitality. We just have to monitor the blending; local patrons going to spa don’t want to see patients in wheelchairs. In India, there is a growing group of people with diabetes, heart disease, western-oriented diseases. Will investors be following along behind? Kaplan says “As people become more affluent and change diets, live longer, but may not be culturally exercise-prone, they’ll have medical conditions. Plus smoking in China is an enormous cardiac time bomb. In China there will be huge growth in this; India already has it but it’s difficult to execute.” Browning advises that people in India don’t have insurance so are more motivated to avoid health problems. He sees an opportunity to set up one-stop shop tests for cardiac health and lifestyle prevention. Stoup remarks that luxury good consumers will continue to spend on products and services related to health, wellness and lifestyle. Smart investors will look for those high-value and high-growth opportunities in quasi-medical spa environments.

 

Audience question – “Do bluetooth signals present a health risk?” Browning responds that there is no evidence that these devices cause ill health, but folks are trying to use lower frequency devices.

 

Audience question –What does Kaplan know about the Indonesian reputation for investment? “In 1998, there was no way one would consider investing. Just like Egypt in 2011, no way. Indonesia used to be like Egypt today, but has come very far with economic, democratic and social development. Indonesia could be the poster child for development, legislation of investment laws, and how investors are treated.”

 

Next we heard from Darlena Zhai, consultant with Horwath Asia-Pacific, who presented the “Weather Forecast for Asia Hotel Markets, What’s Hot and What’s Not.” As far as average rate for 2010, the best markets were Shanghai, Hong Kong, Beijing and Singapore. Looking at the development pipeline using data from STR, there are 1.1 million new guest rooms in North America and Asia-Pacific, but North American is by far the largest. Out of 350k development pipeline Asia-Pacific rooms, China and India, as expected, have the largest chunk, and are at nearly 70% in upscale sectors. Spa is now required facility for most upscale to luxury hotel developments.

Regarding Hotel Spa Performance for 2010, Sanya, China reported the highest annual revenue per treatment room at US$46k, with Beijing the lowest at US$33k; Shanghai and others fall into the middle. The China numbers still lag behind the market in both urban (lead by Bangkok and Singapore) and resort (led by Phuket and Koh Samui). The lack is more in staffing and availability of therapists to deliver 5-Star experiences. Staffing, both quantity and quality, and training continue to be challenges.

Forecast for other markets:

• Singapore is booming, has the region’s highest occupancy rates and both occupancy and ADR predicted up for 2011.
• Hong Kong is heavily reliant on Chinese inbound travel, and there is a small fear that travelers will venture elsewhere. The new Ritz-Carlton just opened and set new rate for the market. • Seoul remains both good and consistent. Land prices are very high, so hotels can’t compete with large mixed-use projects. Existing hotels have issues with labor costs.
• Tokyo finished last year very good with the highest occupancy in region, but this year the natural disasters are impacting market; 600k reservations have been cancelled, visits have dropped 50%. 40% of dinners and receptions have been cancelled. 2011 won’t look good for Tokyo.
• Sydney had highest occupancy in region, 84% in 2010. For 2011, there will be a reduction in supply, plus construction costs going up because of labor; available labor going into mining. City will need new labor supply.
• Manila is a good market with solid occupancy, strong domestic travel plus international. ADR competitive for region.
• Bangkok hotel market still a question mark because of the political situation.
• Phuket saw challenges in 2010, but good product and infrastructure create a positive outlook for 2011.
• Indonesia doing well; Jakarta is a huge corporate travel location and 2010 was a good year for their economy. Bali has been doing very well. 2010 occupancy rate 74%, which is very good for resort market; most can’t do that well because of seasonality. 2011 growth predicted at 10%. Australians are returning; and Bali ADR forecast at $131. New properties such as W opening.
• Vietnam; economy is not as strong, interest rates are up and hotel projects are difficult to find. Wages are up due to strikes. New resort critical mass projects are needed as city supplies (Hanoi/HCMC) are flat.
• Delhi – 2008 was better for supply but now, due to more choices, ADR is more realistic and down by $100.
• Mumbai attacks have had a lingering effect on that market.
• Kuala Lumpur is not as competitive as other Asian countries. Malaysia is one of smallest markets in SE Asia, with 30million people. Langkawi is similar to Vietnam but doesn’t have the critical numbers to improve access.
• Beijing is political center of China; hotel market fell a little after Olympics but grew 11% in 2010. Traffic is so bad you have to stay a few days.
• Shanghai in 2010 did well because of World Expo, after that there is more supply then demand, occupancy dropping. Serious supply situation; will take a few years to absorb. Shanghai is financial center of China, has good infrastructure and no traffic issues.