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At Ian Schrager's PUBLIC Hotel, cutting corners isn't an option

·4 min read

At a time when the hotel industry is desperately trying to revive itself, hotel visionary Ian Schrager said it is a mistake to reduce the quality of service through cost-saving measures.

"Of course, we're trying to run as efficient an operation as we possibly can," Shrager told Yahoo Finance Live (video above). "But I think you have to be very careful and not act precipitously and wait to see what happens. I think the most important thing is to get the customers back and not cut back on the services or the amenities or the things you're offering them."

Shrager added: "And once that stabilizes, then you can go to the next level and think how you might want to maximize your profits."

Demand and bookings at Schrager's PUBLIC Hotel in New York City are both up "in part due to pent-up demand" and in part because "people are suffering" and want to get out and interact with the world once again, the entrepreneur noted.

And as hotel occupancy rebounds there have been fundamental shifts in the business model. One interesting change , according to Schrager, is that "the focus has shifted to the leisure traveler, rather than business and group travel, which will have a longer ramp-up."

The PUBLIC Hotel's well-known escalators. (Source: PUBLIC Hotel)
The PUBLIC Hotel's well-known escalators. (Source: PUBLIC Hotel)

'The worst thing that a business can do is to start cutting services'

Among the hardest-hit industries during the pandemic, restaurants and hotels are grappling with how to woo customers back into their establishments.

At the same time, the hospitality sector, like many other industries, is dealing with a raft of problems: labor shortages, disgruntled workers asking for more than just higher wages, crippling supply chain disruptions, and higher commodity prices.

"We're in a kind of very difficult stage, where we have to hold the line, hold the costs, and see where everything settles,” Shrager said.

Shadow inflation has also crept into more service industries as a result of the challenges posed by the pandemic, forcing many restaurants and hotels have had to cut corners by making cost-saving changes to menus, reducing staff, or reducing operating hours in an attempt to keep from passing on the bulk of inflated costs to the customer.

As a result, a hotel room may offer a competitive rate compared to another establishment, but guests aren't receiving the same level of service once offered.

SYDNEY, AUSTRALIA - OCTOBER 11: A room service attendant delivers food for a guest at Crown Sydney on October 11, 2021 in Sydney, Australia. After 106 days closed, Crown Sydney today reopened its doors to Sydneysiders to experience its six-star hotel, world-class restaurants and bars. With bookings in high demand, Crown Sydney's culinary team have ordered in an abundance of fresh produce, seafood and meat from local suppliers including 15,000 oysters, 100kg of lobster, 100kg of molluscs and 3000kg of beef, chicken and lamb. COVID-19 restrictions have eased across NSW today after the state passed its 70 per cent double vaccination target. Under the state government's Reopening NSW Roadmap, people who are fully vaccinated can attend retail and hospitality venues. (Photo by James D. Morgan/Getty Images for Crown Sydney)
A room service attendant delivers food for a guest at Crown Sydney on October 11, 2021 in Sydney, Australia. (Photo by James D. Morgan/Getty Images for Crown Sydney)

Subtle changes may include fewer amenities, including reduced cleaning services, or fewer towel and toiletry replenishments. Perhaps the mini bar in the room isn't as well-stocked, or the usual items have been replaced by less costly substitutes. Menu offerings may also be more limited.

Schrager said it is unwise to make strategic decisions that could have a long-term impact on the perception of a business without considering all the prevailing conditions. That includes waiting to see where inflation settles, he added.

However, that may be easier said than done in an industry where wages are up 12% since the fourth quarter of 2019. That figure is more than double the 5.4% year-over-year rise in the CPI Index according to September data.

“But I think the worst thing that a business can do is to start cutting services and raising prices because of economic conditions," Shrager said. "You know, you have to price your product appropriately."

A view from the New York City Public Hotel. (Photo: Public Hotel)
A view from the New York City Public Hotel. (Photo: Public Hotel)

Ramping up the hotel recovery

Overall the hotel business in New York City continues to recover, though an April report from research firm CBRE predicted that NYC's hotel occupancy rates won’t recover to pre-pandemic levels until 2025.

Hoteliers, meanwhile, are hoping that rising vaccination rates and the upcoming holiday season will entice visitors back. Another boon is the opening of U.S. borders starting November 8th to fully inoculated international visitors.

The key to revival, Schrager explained, is to adapt to the shifting landscape of what hospitality has come to mean and meet the needs of guests to make them feel comfortable in an inviting home-away-from-home setting.

In particular, Shrager noted that PUBLIC's vaccine mandate has "helped business" because "it's made people come to the hotel because they feel safer because we've taken into consideration their health."

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