BHN news editor Eloise Hanson looks at the rise of subscription services within hospitality and how private members clubs are likely to evolve.
Membership or subscription-based models are seemingly everywhere. Food, drink, beauty, film… even house plants. It’s pervading the retail market from every angle, and it’s on the cusp of disrupting the hotel industry.
Membership models are not however a new venture within hospitality. Private members clubs have been around for centuries, arguably dating back to the Greek and Roman eras where they were first established as chambers of political and social debate. Their modern incarnation has evolved and diversified from their institutionalised birth. Appealing mainly to entrepreneurs and creatives, they are typically perceived as a place where like-minded people gather to work, socialise, dine and sleep. Members pay a monthly or annual fee to receive limited or all-inclusive access to the club and its amenities, depending on the tier of subscription.
Brands such as The Hoxton and Birch have capitalised on the membership model. For decades, hotels have been the unofficial hosts of informal business meetings – we’re now seeing the introduction of dedicated coworking spaces, or third-parties operating a hot-desk system on hotel premises. It’s a revenue-generating avenue for those hoteliers on the front foot. What sets a private members club apart is the sense of belonging to a close-knit community. And of course the added perks such as discounted rooms and dining options, as well as VIP entry to on-property facilities and in-house events.
With cash-flow issues arising from the travel bans brought about by Covid, logic would determine that establishing a customer base that buys into a membership would secure a stable and steady income for the operator. Whereas hotels often rely on transient trade for overnight stays and restaurant visits, members clubs can leverage a longer-term revenue stream, renewed ideally each year by members. The resilience of the extended-stay sector throughout the pandemic demonstrates the lucrative power of a fixed dependent, and some hotel brands have since transitioned to capitalise on this model.
That said, several notable private members clubs have sadly fallen by the wayside. The Devonshire Club, The Curtain, h Club and The Wing in London have all ceased operating following financial difficulties exacerbated by the coronavirus. While the work from home culture coupled with the halt in leisure travel to city centres will be the final nail in the coffin for some, the saturation of members clubs within dense, urban markets has intensified competition and diluted the product. Given the nuanced yet strong vision of members clubs, they also appeal to a select group of individuals who are seeking brand affinities based on shared principles and values. If positioned wrongly the club is likely to lose out.
Now, as we move into a new era of hospitality, I wonder whether the membership model will present a lifeline for the hotel industry.
Lifestyle brand Karma Group is strong in its belief that member-based accommodations will be prevalent moving forwards. For the first time, Karma is introducing an annual membership plan in tandem with its new concept Karma Kasa – a hybrid between a hotel and social club. Chairman John Spence explains: “I see a big gap in the market; I feel like this concept of staycations and domestic tourism is going to be with us for some time… We’re starting a product geared around hotels within about an hour to two hours of major cities where we currently have members.”
Each Karma Kasa will have conference centres and work from home facilities, restaurants and bars, sports facilities, kids clubs, and social activities. “We believe [Karma Kasa] opens up a whole new sector of people that maybe wouldn’t normally be taking a full holiday, but would like to experience Karma in a more localised way to where they live,” says Spence. The first resort has already opened in India, with a further two sites acquired in England and one in the pipeline in Australia.
Developed for the domestic traveller in the short-term, Spence expects Karma Kasa to attract international guests once restrictions begin to ease. Given the intended locations for the concept, a broad geographical coverage and numerous outlets potentially offers a viable and future-proof model.
citizenM’s introduction of a corporate subscription and global passport indicates a similar outlook. Chief commercial officer Lennert De Jong tells me that it’s been two to three years in the making, which suggests the hotel sector is lagging behind other industries such as retail. For example, Pret A Manger has recently introduced a coffee subscription. citizenM is fast-tracking its technical innovations as a result of the pandemic (largely supported by its owner-operator business model), and the concept has been well received. “Just a week into the cycle and we’re in contact with a couple of hundred large companies and some smaller, individual business units,” De Jong says. The corporate travel buyer seeks security and flexibility, and will likely value convenience given the disruptive times we are living in. Other hotel chains seem to think so too, and are adopting the subscribe to survive strategy.
Marriott has introduced flexible working passes as part of its loyalty scheme Marriott Bonvoy, and Banyan Tree Group has launched Habitat – a 12 month pass for long-term stays. Selina has also acquired the Remote Year brand, a subscription-based provider of remote working services. The hotel industry is having its lightbulb moment as the future of travel and hospitality is revolutionised. Over the last decade, hoteliers have been tuning in to the rise of experiential travel, where focus has switched from in-room amenities to personalised services. Now, it’s gearing towards immersion in the experience. It’s about who’s there, not what’s there – be it for work or play. It may even explain why hotels such as Chateau Marmont in LA is transforming into a certified private members club. Here, members will pay regular fees and have shares in the property, which can eventually be sold back to the management company or other approved members. Owner Andre Balazs is planning to expand the member-ownership concept globally. There are risks associated with this model; should a member wish to leave early, I’d expect the process to be complicated.
Renowned as the leading model of contemporary private members club, Soho House curates its membership specific to location with each property offering different perks. For example, Soho Farmhouse in Oxfordshire is exclusively members-only, whereas others in its 28-strong portfolio operate under a more flexible scheme. At the moment however, the brand has paused accepting new members to focus on the value-add of its base offering. It is undergoing a pricing restructure and has launched a Lounge membership – a flexible hot-desk service, with some of its public spaces reconfigured to provide a dedicated working area.
Hotels and private members clubs are inherently B2C businesses, monitoring market trends and listening to the needs of members old and new. Readjusting membership tiers, adding and/or removing member benefits, are all part and parcel of the process. And given the status of some clubs to sit at the higher end of the spectrum, it’s possible that price points are lowered as consumers are steered in one of two directions post-Covid – towards affordability or luxury.
“To attract people you cannot overprice yourself,” says Lukas Peter, global head of revenue at Soho House. Though the brand has several properties in any one given location, Peter is of the opinion that the market is yet to reach full saturation. “There are so many different niches that a club can fill and expand to. There’s still space for them, but their growth is a different question. I think you’ll eventually see consolidation,” he says.
For those brands that have already carved a name, the evolution of private members clubs looks set to scale up. Too aggressive an expansion though will inevitably lead to a stacking up of debt, and given the challenging and unpredictable market conditions I suspect a slowing down of new developments. Brand affinity comes into play here, with investor sentiment piqued by pre-Covid performance. Soho House, which reported a 20 per cent rise in turnover for 2018, has recently secured $100 million in equity financing from new and existing stakeholders. The group has further openings planned in Paris, Rome and Tel Aviv.
Yet with each new opening, the target market shifts. If domestic leisure travel is going to be the main driver of bookings in the medium term, then operating different hubs across a localised region would seem advantageous. From a member perspective, choice would be varied enough to differentiate the experience, which could provide a tempting reason for the emerging ‘anywhere worker’ to bank on the subscription. And when international travel eventually opens back up, the membership offers freedom of movement across various locations and sites. For the solo corporate traveller, the ease of belonging to a club is clear-cut… once you’ve jumped through the hoops of admission.
The Garrick Club in London’s West End has come under scrutiny for its strict admission conventions – being an all-male institution, legal action has been brought by Emily Bendell, founder of lingerie line Bluebella, citing discriminatory policy. Flip this on its head and there’s AllBright, Chief and the Riveter all promoting an exclusively female membership. I struggle to see the logic in restricting entry when times are as tough as these, despite sociocultural shifts helping to identify gaps in the market. In the midst of the #MeToo movement in 2018, clubs like The Wing announced a 22,000 strong application list within the last year and $42 million in funding. Could the Black Lives Matter movement spur the creation of private clubs for people of colour, and what are the legal implications of this? The London location of The Wing permanently closed in August 2020 following accusations of racism and bullying, with the coronavirus pandemic upending the business financially.
Ethel’s Club in New York City was created specifically for people of colour, and had only been open four months before entering lockdown. It has since adopted a digital membership, incorporating daily classes across wellness and culture, exclusive brand discounts, and a members chat function for $17 per month. The move to a digital membership has also been explored by Guy Ivesha at Mortimer House. He explained that throughout the lockdown period the club sent its members weekly newsletters with advice on maintaining physical and mental wellbeing at home, with an appointed life coach for support. “But I just feel that at some point, people are overdosing on digital content and communication,” Ivesha says. “To me, I feel like it’s too much – content is being created for the sake of creating content, not because it’s exactly what people want. There’s a level that can be crossed that’s inauthentic.”
When it comes to consumer taste, heightened sensitivities have led to a growing trend to be associated with businesses that take a public stand on social issues. With this in mind, Ivesha’s comment on inauthenticity holds weight; consumers are more likely to pick up on insincere brand messaging. “Even if people have a loyalty to something, they’re quick to become disloyal if they like something else,” Ivesha continues. “With the younger generations I think there’s less loyalty to a brand.”
To satisfy a wider audience, Mortimer House has rebalanced one of its membership tiers. It’s been designed to accommodate those members who don’t want to visit everyday, which I’ve heard is very popular. But it’s not just consumers that are showing interest. Ivesha tells me that he’s also been approached by large property owners (which historically operate offices) wanting to know how they can future-proof their businesses. “They can see that we’ve created something that’s completely different from the corporate, traditional office, and they’re talking to us about management contracts. It’s a model I’ve long thought about pre-Covid… I’ve always had a vision to help other owners and offer our expertise. I’m not a fan of the lease model when it comes to premium hospitality,” he says.
With rent payment one of the largest overheads next to payroll, it’s arguably the most pressing issue that businesses have had to deal with given the lack of footfall and strained revenues. The Conduit, a private members club in London, has recently fallen into administration after its lender, Metro Bank, called in the debt. The Mayfair club is currently seeking a new home and whether vacant office blocks are of appeal to the group remains to be seen.
Despite the fragility of the market, I do believe that the community and philosophy that private clubs engender is here to stay, provided owners are genuinely passionate about the product. Quality hospitality stems from all levels of the business, and if perceived as a loss leading trophy asset then I’m doubtful of the business’ long-term viability. Our digital networks cannot replace real-time connections, and working from home isn’t a favourable option to all. Subscriptions to monthly or annual passes offer the freedom to travel, work, stay and play at one’s will, and those hotel brands that are introducing subscription services are merely monetising the way they already operate. They are riding off a loyal customer base – it’s clever and it’s resourceful, particularly when demand for bedrooms will take a longer time to recover. With many colours and shades of personal and professional needs, I suspect further memberships or subscriptions will be sold to a diverse mix of users.