SAN DIEGO, California—Hilton Hotel Corporation is taking a couple of risks during a dicey economic climate that should pay off down the road when some sense of normalcy returns the global hotel industry.
Last week, the company confirmed one of the industry’s worst-kept secrets that it was moving its headquarters to the Washington, D.C., area from Beverly Hills, California. Then, during the Americas Lodging Investment Summit at the new Hilton San Diego Bayfront, the company announced a new mid-tier extended-stay brand called Home2 Suites. Of the two, the move to Washington is the safer bet.
In addition to moving the corporate headquarters, the company is shifting all of its select-service operations to its Memphis hub. So, people like Hilton Garden Inn leader Adrian Kurre will be going there instead of heading to Washington. All of this will occur by the third quarter of this year.
The move goes well beyond the fact that Chris Nassetta, Hilton’s president and CEO, has a long history in the Washington area. He served as the leader of Host Hotels & Resorts (formerly Host Marriott Hotels & Resorts) from 2000 to October of last year when he was named Hilton’s top guy. He is a graduate of the University of Virginia’s McIntire School of Commerce, and with a wife and six children with strong ties to the area, it makes sense that Nassetta would want to relocate the company to a familiar place.
But there’s way more to the move, and Nassetta explained some of the rationale during Wednesday’s ALIS leadership panel. He said the chief reason is because the company can more easily conduct business from the Eastern Time zone as opposed to the Pacific Time zone, where the headquarters currently reside. That three-hour difference in time can be a big benefit when dealing with Europe, and a good chunk of Hilton’s global presence is focused in London.
“(Hilton) can operate much more efficiently in the Eastern Time zone than in 90210,” Nassetta said.
He said that putting Hilton’s employees closer together geographically will make it easier build a Hilton culture. In addition to Memphis, Hilton has U.S. teams in Orlando, Florida, and Dallas, Texas.
The bottom line, according to Nassetta: “We want to put our global headquarters in a location where in the long term we could attract and retain more talent and accomplish what we want to accomplish in terms of building brands and other parts of our company.”
He said he fully expects disruptions to take place during the move, but the short-term pain is worth a long-term gain. And while Nassetta didn’t say this, it’s clear that moving offices during a time when the office market is depressed will most likely save the company millions over the next 10 years.
A slightly riskier move for Hilton is the launch of Home2 Suites. The new extended-stay brand is being launched during a time when developers are finding it next to impossible to secure financing for new hotels. During a press conference held in conjunction with ALIS, the company introduced four franchisees who have committed to build H2S properties. Bill Fortier, Hilton’s top development executive, said there are a number of deals in the offing. That’s great news for Hilton, but if the economy takes another turn for the worse, there could be some trouble.
More of a question mark is the positioning of the brand. Any time you have a family of nine other brands as Hilton does, there’s bound to be some overlap. Where Home2 Suites overlaps a little bit is with Homewood Suites (an upper-end extended-stay product) and Hampton Inn, the company’s strong foundation with more than 1,400 properties. Home2 Suites’ projected average daily rate of US$90 to US$100 is close to Hampton’s. Although company executives said the new brand is targeting guests who stay more than 10 consecutive nights and Hampton’s clientele is more transient in nature, there could be some overlap there.
With plans to launch a lifestyle brand at the International Hotel Investment Forum in Berlin in March, Hilton is going to have a full plate during this recession regardless of how long it lasts.
But Nassetta said the company is up to the challenge.
“We’re forging ahead while a lot of others are shying away from that,” he said during Monday’s press conference.
Only time will tell if Hilton’s moves are good or bad. On the surface, its looks a little risky making such big moves when there’s so much uncertainty in the economy. But what better time to take some calculated risks when the upside could be right around the corner?