Shopping For Profits: Retail Outlets Are More Efficient
December 14, 2016 11:28pm
By Robert Mandelbaum
Historically hotels have offered retail operations primarily for guest convenience and satisfaction. In general, the revenue generated by hotel retail outlets represents only a small part of total hotel revenue. Of the properties in the Trends® in the Hotel Industry database of CBRE Hotels’ Americas Research that reported retail revenues and expenses, retail sales made up just 0.9 percent of total hotel revenue in 2015. Retail operations vary greatly depending on the type of hotel. The retail department at resorts often includes clothing stores, gift shops, and newsstands full of custom-branded items with the hotel’s logo. On the other end of the spectrum, limited-service properties frequently operate a small kiosk located next to the front desk that sells items mainly for the guest’s convenience, such as toiletries, snacks, and soft drinks.
To examine the financial impact of retail operations on U.S. hotels, we analyzed the revenues, expenses, and profits provided by 467 properties in the Trends® in the Hotel Industry that reported retail sales data each year from 2010 to 2015. All of the properties analyzed managed their own retail operations. Properties that leased their retail operations were excluded from the analysis.
From 2010 to 2015, retail sales revenue for the properties in our sample increased at a compound annual growth rate (CAGR) of 4.1 percent. This is less than the growth in total hotel revenue (6.1%) during the same period, but greater than the average of all Other-Operated Departments (3.7%).
Among the various property types, retail revenues grew the most at full-service hotels, and the least at resort properties. As full-service hotels adjust their food and beverage offerings, self-service mini-marts with prepared foods, microwable items, and alcoholic beverages are popping up in hotel lobbies and replacing three-meal-a-day, all-purpose restaurants, mini-bars, and room service. The mini-mart revenue has not fully replaced the revenue lost within the Food and Beverage Department, but it does meet an increasing consumer preference.
Retail revenue growth has lagged at resort hotels, but they still achieve the highest levels of retail revenue. In 2015, resort hotels achieved annual retail revenues equal to $1,535 per-available-room (PAR) basis and $6.01 per-occupied-room (POR). The extensive retail offerings at resort hotels have remained fairly consistent, thus limiting sales growth compared to the other, evolving property types.
Convention hotels, with large public spaces and greater guest counts, also achieve above average retail sales figures. In 2015, convention hotels enjoyed retail sales of $892 PAR and $3.17 POR.
Retail sales volume is lowest at limited-service ($1.03 POR) and extended-stay ($0.76 POR) hotels. These property types were the forerunners of the mini-marts that the full-service hotels are now emulating. However, since limited-service and extended-stay properties typically offer one or two complimentary meals, the opportunity to sell more extesntive (and expensive) food items is limited.
Growth in retails sales may have lagged overall hotel sales, but the story for retail department profits is very positive. From 2010 to 2015, the departmental profits for self-operated retail outlets increased by a CAGR of 7.6 percent. Retail department profits increased the most at full-service (10.2%) and extended-stay (8.8%) hotels.
The healthy growth rates for profits can be partially attributed to the changing nature of the retail offerings. The mini-marts and kiosks previously mentioned require very little, if any, staffing. Most are manned by front desk personnel. In 2015, total labor costs equaled just 17.0 percent of departmental revenue on average for the entire sample, which contributed to the 27.0 percent profit margin achieved during the year. This is greater than the 22.9 percent profit margin recorded in 2010, thus emblematic of the enhancements to efficiency.
At 50 percent of department revenue, the cost of goods sold is the greatest expense for hotel retail outlets. Per the rules of the Uniform System of Accounts for the Lodging Industry, departmental profits for all operated departments are calculated before deductions for undistributed expenses such as administration, technology, marketing, maintienance, and utilities.
Hotel owners and operators continually alter their operations to meet the changing requirements of their guests. Stimulated in part by changing food and beverage facilities, as well as the growing desire for quicker and simplified retail outlets, properties have expanded their offerings of kiosks and mini-marts. This transformation has occurred in both full- and limited-service hotels. These new retail operations have proven to be well received by guests, and highly efficient and profitable.
Tags: retail outlets,
Robert Mandelbaum is Director of Research Information Services for CBRE Hotels’ Americas Research. To purchase the 2016 Trends® in the Hotel Industry report, please visit the firm’s Property Information Portal at pip.cbrehotels.com. This article was published in the November 2016 edition of Lodging.
Contact: Robert Mandelbaum
404 809 3959
The Components of Payroll Costs in Hospitality
Management Fees – A Growing Expense
Paying the Intermediaries: An Analysis of Hotel Commissions
Select-Service Hotels: Efficient and Profitable
Hotel Rooms Departments Struggle to Control Expenses
Hotels Give To Get: An Analysis of Complimentary Services and Rooms
Labor Is Laborious
Shifts in Hotel Revenues Reflect Changes in Development and Guest Preferences
CBRE Hotels' Trends 2016
USALI Changes Offer New Benchmarks
Attrition and Cancellation Revenue: How Fees Affect Your Bottom Line
Bucking Trends: Boutique Hotels with Food and Beverage
Credit Cards: Greater Risk, Greater Use
Hotel Spa Departments Following Industry Trends
Robert Mandelbaum Selected as 2016 Cornell Hotel Society President
Historic Hotels: Revenue Premiums Offset Greater Costs
Small, Yet Impactful, Changes in the 11th Edition of the USALI
Salaries and Wages On The Rise
Budget Accuracy Benefits All
Consumption and Pricing Influence Hotel Utility Costs
Please login or register to post a comment.