Bigger isn’t better: Investors favor boutique stores and hotels | By Linchi Kwok

Home Hotel & Lodging Bigger isn’t better: Investors favor boutique stores and hotels | By Linchi Kwok
Bigger isn’t better: Investors favor boutique stores and hotels | By Linchi Kwok

Bigger is better, right? That’s why there are more hotel mergers and acquisitions in recent years; there are also many hotel chains are building larger loyalty programs to pull in more travelers. Besides hotels, Airbnb and OTAs (online travel agents) also want to get bigger through acquisitions.

When it comes to product development, however, investors seem to favor the small and boutique concept over the big ones. Here are a few examples.

New stores called Sears Home & Life will open on Memorial Day weekend

As Sears is getting through bankruptcy and closed hundreds of stores, the company plans to open three smaller stores — Sears Home & Life on the Memorial Day weekend, which will only focus on the appliance, mattresses, and home services. The size of these smaller and specialized Sears stores ranges from 10,000 to 15,000 square feet, less than one-tenth of an average Sears store (155,000 square feet).

It is uncertain, however, whether Sears is trying today will help the company turn around its business, with some critiques saying that Sears opening smaller and specialized stores is “a very old strategy” that will amount to “zilch.” At least, Sears is making efforts to fight back with other specialized stores like the Home Depot and Lowe’s.

citizenM, a microhotel brand gets a cash boost

citizenM, a microhotel brand that positions itself as a place for “affordable luxury” received a cash boost last month from a giant Singapore government-run fund for 25% stake of the business. Similar to other popular microhotel brands in the market, such as The Pod Hotel, Yotel, and Arlo, citizenM offers smaller (or “micro”) guestrooms with open space for social activities, including a “living room,” a canteen, and a cocktail/coffee bar.

Marriott debuted the Moxy Hotels brand in 2013, where guestrooms are small but with urban and functional designs. The brand is also known for its “flexible” functional space.

Wyndham recently revealed the prototype of its new hotel brandMicrotel. This award-winning economy hotel brand targets travelers who usually stay in the economy and midscale hotels.

Other examples include the Motto by Hilton and Avid by InterContinental. Both are new but with many in the pipeline. Along the line of promoting social interactions among travelers, JO&JOE by Accor Hotels is another affordable hostel-like brand that tailors to travelers with a budget.

Why investors want to go big by focusing on small

For the most part, the shifting customer base and their new preference drive the development of new brands and concepts. Gen Zers, for example, are more likely to accept automatic services; they also expect new designs for better use of the space.

Microhotels that are usually built with smaller guestrooms but flexible multi-functional space for social activities can meet the demands from younger travelers. Consumers may also find it easier to build an intimate personal relationship with the mom-and-pop-type small hotels or retails stores than with the big corporate brands, which helps promote customer loyalty.

Meanwhile, building smaller, instead of mega hotels or retail stores can be a better option for developers, including:

  • Lowering the building or startup costs
  • Establishing a clearer brand identity with a more focused product and target customers
  • Easier to adopt the modular construction technique
  • Faster and easier for housekeepers to clean a guestroom due to the smaller space and newly designed furniture; or easier to up-keep the retail space with similar products
  • Easier and cheaper to test new business ideas in a smaller establishment
  • Easier to convert an existing building (e.g., an office or a warehouse) into a microhotel or a micro retail store due to the flexibility of these product types
  • More efficient and possibly more effective in managing the business’ human capitals with a narrow focus on a few specific products/services

Is that all? What other reasons that drive the growth of microhotels and smaller retail stores? Is this another example of how business can win big by acting small?

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Linchi Kwok
Associate Professor
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