Memo: A New Definition of Luxury

The travel industry is rarely seen as a leading indicator for the consumer economy. Perhaps it should. The bifurcation of America has long been in the works, the travel industry may explain where it is going – as long as you’re willing to listen. In 2019’s The Long Middle, I began:

One reason that many are failing to recognize the bifurcation of wealth in America is simply because they prefer not to.

The pandemic accelerated this trend of separating the haves from the have-nots. It’s made competing for the middle of any spectrum a mostly losing proposition. This “mediocre middle” is where brands, retailers, and other businesses will struggle the most. Industry veteran, author, and consultant Steven P. Dennis wrote: “retail is a category that does not tolerate mediocrity.” The new baseline is simply expectations met. And for some consumers, the new luxury is not luxury at all.

Part One: Pandemic Travel

We were both masked and adherent to the customs of the city when he walked up to me in the hotel’s famed drawing room. He said, “This is actually my table, son.” I remember looking down at the gray-haired gentleman. I recognized the voice but it couldn’t have possibly been the person that I thought. He went on to politely inform me that, even if the wait staff granted me the table, it wasn’t actually mine. Non-confrontational and out of my element, I replied, “You know, take the spot. Respect, sir.” I was meeting one of my best friends for a late lunch when the 5’6″ tall 76 year old politely scolded me as if the institution that I was standing in was his own.

Moments later, I was seated across the room sipping coffee when the two of us looked across the lively room, a rarity for the moment that we were in. In the middle of a pandemic, lively rooms didn’t exist but for places like this. The man who gently “sonned” me was none other than Robert De Niro, a giant in the minds of his many films’ fans. Had this encounter happened a couple decades earlier, perhaps he wouldn’t have been so kind. Age and the man’s pace and responsibility reduced his giantess to only a figurative measure. I am one of those fans and so I was glad that I ceded; I was the beta to his alpha in that moment. In fact, I would have folded sooner had our masks not interfered with the natural order of things. And yes, it was his institution.

In the winter of 2020, there were not many places where New Yorkers could gather and drink coffee or share a meal away from the 20 degree weather and the unreliable heat lamps that left the bottom half of your body nearly frostbitten. One of the few places in the city was the Greenwich Hotel in the city’s Tribeca area. It served as my de facto office during my dozen or so trips to New York over the 15 months of pandemic restriction. It was home to gatherings with colleagues like Andrew Haynes, Chaz Flexman, Matt Mullenax, Rebekah Kondrat, Sam Sisca, Grace Clarke, and other industry fixtures. It felt like home.

New York City is home to over 700 hotels, and nearly 200 them were closed over the course of the pandemic. Of the nearly 500 that were open, fewer than fifteen were considered five-star properties. The Greenwich Hotel was one of them. Over the 15 months of the pandemic, I flew or drove some 250,000 miles and traveled the country extensively by plane, train, or automobile. I stayed in lovely places and the most basic hotels. Whether at the Hampton Inn, Holiday Inn Express, Greenwich Hotel or Commodore Perry (Austin), I noticed a trend or two.

In a post-COVID world, a traveler should want to stay in one of two places: a two-star hotel or a five-star hotel. Everything in between will surely disappoint. At your two-star hotel, expectations are relatively low but the predictability and comfort of the place finds ways to exceed your expectations. The availability of morning coffee and cleanliness is what you’re there for; you don’t expect much and they deliver just that. It’s a beautiful arrangement. Meanwhile, five-star hotels have a reputation to uphold. The rooms border on price-gouging but the places remind you that travel can be effortless.

From hotels to restaurants and to retailers, many organizations used the pandemic to innovate and improve. Colin Nagy recently reported for travel industry trade publication Skift:

As I’ve recounted, Four Seasons did an exceptional job both not missing a beat with service delivery, but also in having hyper-consistent safety standards across the board.

Other brands and chains were not so consistent. I won’t name and shame, but let’s just say there was a lot of bait and switch when it came to asking for a normal rate, and then having the phone ring 20 times, limited-to-no housekeeping, and a shell of the normal five-star experience.[1]

Others did not. On a recent birthday trip to New York with our seven-year-old, the two of us stayed at a hotel property that fell outside of the two preferred categories. The William Vale is a four-star luxury fixture in Brooklyn’s Williamsburg area. Behind the scenes, cracks in the facade became clear during my trip. Understaffed and overly dependent on its real estate, you can expect 20-minute holds while calling down to the front desk. With nearly 180 rooms, only one can use the hotel’s 500 square-foot gym at any given time. General service is scarce and housekeeping operates in such small windows that you’re better off not depending on it. In February, the customer service cracks seen by hotel guests began to show in its operational shortcomings:

The LLC cited a reason for skipping rent: the pandemic. But according to the lawsuit, the hotel was half-full in March and was generating revenue. [2]

Like many ailing mall retailers during the pandemic, The William Vale missed a major payment despite better-than-expected COVID occupancy and prices that weren’t too different than their pre-pandemic fees. The difference between then and now is that the hotelier’s margins have likely been reduced to zero and its workforce is a shell of what it was. More consumers are choosing to pay the price for met expectations or staying in places known for business travel. Unfortunately for cities like New York, four-star hotels are plentiful. It’s a sign of a much greater problem in America’s No. 1 tourist destination:

Alison Hoyt, senior director of consulting for STR, a research firm. Ms. Hoyt said STR’s forecast does not project New York’s hotel industry to fully recover to pre-pandemic levels even by the end of 2025. [3]

It wasn’t until a chance conversation with Hodinkee founder Ben Clymer in the following days that I shaped my thoughts on my personal consumer shift in thinking:

  • two-star hotels: great
  • five-star hotels: great
  • three and four-star hotels: the mediocre middle

Most travelers are better off with simple accommodations and great coffee. For many of the hoteliers built for business travel, this shift in thinking may be beneficial to them as many of the upper-tier hotels wrestle with operational shortfalls.

Part Two: Post-Pandemic Expectations

Travel is mostly back. On June 27, 2019: 2.6 million Americans went through TSA checkpoints. That number fell to 633,810 on that same day in 2020. On June 27, 2021 that number reached 2.2 million. Revenge travel is the phrase that analysts use to describe the pent-up demand but the remaining margin of missing travelers can be chalked up to the lack of business travel as virtual conferences replace real-life ones and hybrid workplaces allow for fewer early A.M. flights for meetings that could be had over Zoom. The Wall Street Journal recently noted: 

Commitments companies have made to reducing emissions are emerging as one of the biggest threats to travel, as corporate leaders evaluate how best to return. [4]

Noted as digital agglomeration, these new cultural shifts away from physical retail, in-office work, business travel, and the pre-pandemic volume of conferences will further reshape our definition of luxury.

One of my recent trips to NYC with some of the attendees represented on the walls

As retail and service workforces shift like tectonic plates beneath the American economy, met expectations are the new luxury. Symbolizing the end of restrictions in America’s hardest hit city, 40 or so guests of Coefficient Capital laughed and connected in the backyard of a well-appointed (outright beautiful) townhouse. On that cool, shaded evening, it felt like the pandemic never happened. But only in appearance, many of the conversations were influenced by the same question: what now? One of the most common conversations revolved about the world of travel and how its changes may ripple throughout our industries. On that night: media, venture capital, and brand development played second fiddle to the changes in store as work, leisure, and the intersection of the two continue to reshape our economy.

It was Ben Clymer’s words on luxury that helped me solidify my thoughts on travel’s impact on America’s retail psyche. In his own linear commerce world, where media and commerce intersect, he depends on the shift towards luxury becoming the new standard bearer for more of us. He opined on the likelihood that a particular, famed watchmaker would ever entrust its brand to direct-to-consumer channels.

For luxury consumers, luxury products are just things.

He’s right. Many of us care less about the halo effect of buying products and more about quality and expectations met. It’s now less about “show” and more about consistency. They won’t always need the full experience of luxury retail to transact within its walls. They just want to buy it and leave. This is a potential catalyst for more “aspirational” luxury adoption through eCommerce channels. eCommerce will continue to capture retail’s imagination as more of us view luxury goods as the new expectation. This is a great development for luxury makers, retailers, and even hoteliers. But for the middle, it will be harder than ever to meet the threshold of expectations as the wealth class grows and the goods and services designed for the middle no longer appeal to its shrinking class of consumers.

When we look back at the effects of the pandemic on retail and services, we may say that H.E.N.R.Y. finally grew up. Whether the bar is set high or low, expectations met are the new aspiration. And follow through has taken the place of the outward appearance of aspirational luxury. Consumers just want ease, reliability, and follow through.

By Web Smith | Art: Alex Remy | Editor: Hilary Milnes 

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