Weathering the Perfect Storm

Hotels in San Francisco have been hit harder by the economic downturn than in any other city. One progressive hotelier, Joie de Vivre's Chip Conley, plans to survive — and thrive — by focusing on investors, employees, and customers.

Talk about a slump. Over the past three years, San Francisco hotels have suffered the largest drop-off in revenue, anywhere, in the history of the American hospitality industry. The perfect storm of an economic downturn, the end of Silicon Valley's dotcom heyday, and terrorist attacks has driven room rates down by 20% from their 1999 peak. Occupancy is at a 25-year low, according to PKF Consulting.

It would be easy enough — and understandable — to react by playing for the short term. Slash staff and services, and hope business rebounds before your brand deteriorates. Or, like Chip Conley, whose company Joie de Vivre operates 25 hotel properties in the Bay Area, you could do just the opposite.

Conley has bet on sustainability — and on his relationships. The results? Most JDV properties have gained market share against local rivals since 2000, according to the Star Report. Employee turnover has held at below 30% (the industry average is 50%), and customers consistently rate JDV hotels as "world-class," according to Smith Travel Research.

Here's Conley's smart survival strategy.

Investors: Become a joy to work with. Conley wanted relationships with investors based on shared goals and integrity. So he surveyed them to ensure that their expectations and JDV's were aligned — an unprecedented practice. When it came time for distributions in the summer of 2002, there was no surplus. So Conley delivered T-shirts that read i bought a hotel in san francisco, and all i got was this lousy t-shirt. The gag was intended not to dismiss the seriousness of the crunch but to help cut the tension. "When you can't see the light at the end of the tunnel, the only light you have is the one you create."

Employees: If you can't show them the money, heap on the recognition. Conley has laid off 5% to 10% of the staff — but he also docked his own salary for three years and asked his top executives to accept both a pay cut of 10% and a two-year wage freeze. Meanwhile, he expanded "fringe benefits" for his 1,000 employees, including free services at a day spa that the company owns and operates. Nicole Jackson, a front-desk host for just over a year, took advantage of the company's offers of free tickets to local entertainment. "It definitely breeds loyalty," she says.

Customers: Give them more than they expect. Conley has dedicated JDV's Web site to personalization. A virtual concierge matches visitors to one of its themed boutique properties and recommends local attractions. He also started a "dream maker" program that encourages employees to provide service well beyond ordinary. Jackson once checked in a guest who had thrown out his back. While the man was at dinner, Jackson put together a gift package that included a heat pack and a bottle of wine.

The San Francisco hotel market still hasn't recovered. But Conley figures he'll be better positioned when the rebound comes. "You can't get dragged into the day-to-day struggle and let those relationships languish," he says. "They are what keep you in business."

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