A Business with Prospects

The history of the hotel business is peppered with names now common to many international travelers: César Ritz, Conrad Hilton and John Willard Marriott. As he did not call his hotel chain after himself, Isadore Sharp’s name may be less well known, but his influence in the market rivals all the above. The founder, chairman and CEO of Four Seasons Hotel and Resorts, talks to Vedomosti’s Alexander Gubsky.

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It’s quite a strange situation: the head of Four Seasons is staying in the Ritz-Carlton. Do you often have to stay at your competitors’ hotels?

IS: Not often – if I’m visiting a city where we have a hotel located, I of course stay there. This [the Ritz-Carlton] is a great hotel.

Did they give you a good discount on the room?

IS: (Laughing) I don’t know – the room was book by one of my colleagues. We’re staying here as regular guests, and we’re being looked after very well.

Doe the members of staff at the Ritz-Carlton know who you are?

IS:Unfortunately, yes. I can’t travel anywhere incognito, and so I don’t even try.

Do you travel a lot?

IS: Quite a lot, usually on business, very rarely for pleasure – in fact, never for pleasure. I visit around 30 of our hotels a year. Usually my visits to the Four Seasons are very short and last only a day. I arrive in the morning, and the next day I leave. I arrived in Russia from Prague, and before that I was in London, Geneva and Budapest – everywhere only for one day. In order to get an impression of how everything is going in the company I need to talk to people because our business is based on its people. In our segment of the market – five-star hotels – we are all building very good hotels. We all hire the best designers – some of those designers – and we all try to create a hotel with the latest fashions and comforts. But many years ago we [at Four Seasons] decided that we were focused not on our architecture or décor, but on our people and service. This is how the company began and this is where its future lies. The quality of service is what makes our company stand out, and this is the Four Seasons’ competitive advantage.

	For REQ The new Hotel Moskva, built in the style of and on the site of the former Soviet-era hotel, will open as a Four Seasons. Meanwhile shareholder disputes continue

Luxury hotels are not only places for business but also relaxation. Can you switch off when visiting your hotels or are you constantly aware of what’s being done right and wrong?

IS: I can because I’m looked after very well, but I can be sure that all our guests are receiving the same level of service too. When I arrive at a hotel I always arrange a general staff meeting which everyone working in the hotel can attend. I’ve been doing that for over 35 years. It’s a real forum: people ask all sorts of questions, sometimes personal but usually about the future of the company. And they always ask “What is your favorite hotel, Mr. Sharp?”

I thought as much so you don’t need to worry – I won’t ask you that question.

IS: I always answer the truth: my favorite is the one that I’m in at the moment, because I take part in creating every hotel and they are all like children to me. I remember their history; I remember how they came about; I remember the problems we had to overcome. And those 24 hours that I spend in the hotel I devote only to that hotel, which is something that I can never do when I’m in the office.

Have you been to all your 80 hotels?

IS: Almost all, except those that only opened very recently: in the Seychelles, Mauritius and Bora-Bora.

There’s currently no Four Seasons in the country of your ancestors, Poland.

IS: Not at the moment, no. We are a relatively small company in this market, and we don’t want to have a lot of hotels – each one is specific for us. Nevertheless, we have a large development program and over the next 10-12 years we are likely to double the number of hotels we operate.

Short Term Problems

There are currently around 50 new Four Seasons hotels under construction. Has the current crisis greatly affected their timelines and completion dates? Have any been postponed?

IS: These projects are being realized over 7 to 10 years, sometimes even more, so for the majority of them financing was secured long ago. But a small number of our partners have experiences problems because of the crisis, and a few of our projects have been frozen [eight according to Vedomosti’s calculations]. But it’s only a question of time; they will be developed.

In general, how much has the crisis affected your business?

IS: Seriously, from October 2008 [up until the start of fall 2009] the whole industry experienced a serious drop. But we found several of our hotels that were not seriously affected.

Where?

IS: In Paris, Milan, Boston, Washington… there are a few that are still having problems – such as Hong Kong – but not as serious as others. But in general the industry has seriously suffered. Including because of the ludicrous policies of the United States government, which has taken it on itself to show companies how to run their business. “Don’t hold conventions and conferences, don’t fly first class…” Our lobby operated well and that directive was removed, but the damage was already done. In 2010 we expect very weak growth.

But growth, all the same?

IS: Yes, but with a very low base. Recession is a part of business, for the economy cycles are natural. But what we are seeing at the moment is a financial crisis the likes of which has not happened before. Perhaps only during the great depression, and that caused a great terror – companies were seized by paranoia and the fear of death. This recession will last much longer and will affect many more companies, because every company is reliant on the world economy, regardless of what sector you operate in – everyone has to come into contact with banks. Every time we enter recession companies react the same: first they become obsessed with their expenses. Thrift becomes king, but for a very short time, because usually people quickly return to their habits – as soon as growth resumes. Maybe we’ll return to normal growth by 2011.

What does normal growth mean for your company?

IS: Five to seven percent a year. No boom. Any boom inevitably always ends. We constantly think that growth will continue forever.

How is Four Seasons reducing its outgoings in these conditions?

IS: For the first time in our history we have been forced to cut our expenses and lower prices. Even after September 11, 2001 despite a large drop we were able to maintain our price structure. We have to be very creative, do a lot of work with each of our corporate clients and think up ways to develop our business in these times. For examples, one of our big clients is Goldman Sachs. I offered them a special packet: if one of their employees stays with us for three days, the third night could be free. We have made it possible for our rooms to be booked through web sites such as expedia.com, which we didn’t do before. We don’t offer any specific discounts and are selling Four Seasons for its usual price, but it is a large market.

The current times are far from regular, but it is precisely in these times that mangers’ skills develop. How can you control your outgoings not compromising the quality of product you offer clients? Because clients come to you expecting everything to be as normal. Therefore, we are not lowering our standards or reducing the number of services we offer.

But these are all short-term problems – they may last a year or two, but you still need to prepare for the future. In our business hotels are built for a centuries, and on average we have [management] contracts for 60 years. So, in this period we could go through four or five recessions. We remember [the recessions of] 1974, 1981 and 1991. It’s important to adapt to the demands of the time, but not to change strategy. And our people know this well.

A New Word for Russia

How is the development of your hotel in St. Petersburg progressing?

IS: Well. It’s going to become one of our most picturesque hotels in the world.

	For REQ A new Four Seasons is currently under construction in the center of St. Petersburg, next to St. Issac's Cathedral.

There are no delays?

IS: There were, but now everything’s back on track. You know, when you want to create something unique you need everyone to work toward this goal – developers, owners, financiers… and that will bring each of them extra value. I think that when the hotels in St. Petersburg and Moscow open, they will have a big impact on the city because their locations are 100 percent right. These buildings will give us the ability to combine the charm you can get only from history with all of the most modern hotel requirements. Local people always take to our hotels because they are theirs; people use them.

Does Four Seasons have representatives in Russia?

IS: My colleague who manages the work on the hotels in St. Petersburg and Moscow is based in our headquarters in Toronto. She trained as an architect and now is responsible for ensuring that the construction of the hotels is carried out in accordance with our recommendations.

Which of the Russian hotels will open first.

IS: The St. Petersburg one. It is scheduled for the second quarter, 2011. But it’s still under construction and who can predict precisely how long construction will last?

Have you ever been in the Hotel Moskva?

IS: Yes, today we had an extensive tour.

I mean the old building.

IS: No, only in this one, but it looks the same as the old one! I think that we will be able to bring with us something that perhaps will be copied. In 65 percent of those 50 hotels that we mentioned there are specific residential complexes [besides the actual hotel], because we believe that Four Seasons’ service can create an extra, additional value for a property. That combination – of hotel plus condominium – will be used for the Four Seasons in Toronto that is currently under construction. Four Seasons branded condominiums sell very well – 85 percent [of those in Toronto] have already been sold with a premium of 50 percent in comparison with the price of the nearest competitor.

And what are the proportions of the development’s hotel and residential parts?

IS: In Toronto is 1:2, but Toronto is a very good market for condominiums. In other cases the residential section may only be a small part, but all the same it’s good business for our service departments. As far as I understand it is a new concept for Moscow, and perhaps for all of Russia. I think that when we open people will see how it works and it will become a standard model for developers.

But currently a conflict has developed between the shareholders in the Hotel Moskva. Is there a risk that you might lose the management contract?

IS: No, the owners of hotels often change, but we stay. The same is happening here. As I understand it, the ownership make up has to change, but I don’t know all the details or who will be the new owners. For example, our hotel in Milan, which is located in a historic building and was costly to construct, has changed owners four times and each one has come up against big problems. That’s the nature of the property business.

So, you have a management contract for the Moskva and nothing worries you?

IS: Yes, we have a contract signed with the developer, Dekmos.