Thursday, April 19, 2012/
Paul Fischmann ditched university to run backpacker hostels and now owns 8 Hotels, a group of 18 boutique hotels with revenue of over $50 million a year.
Fischmann says it has been organic growth without a “corporate suit-and-tie strategy” which has got 8 Hotels to where it is with both freehold and leasehold properties along with a hotel management business.
Today he talks about getting through the global financial crisis, the problem with review sites like TripAdvisor, how the Australian tourism industry can’t just sit back and rely on China and his plans for international expansion.
Let’s start at the start, how did 8 Hotels come about?
8 Hotels came about in 2004 – in fact, it started in 2002, when I acquired a leasehold in a small boutique hotel in Darlinghurst. By 2004, I had acquired two other leasehold boutique hotel interests: one in the CBD of Sydney, and another one in Darlinghurst called the Kirketon, which had a very good brand name already. And it was at that point in October 2004 that I decided to put an umbrella brand over the three boutique hotels that I had; they all had three different names. It was also at that time that I decided I was going to try and build a hotel company. Previously it was more about “there’s an opportunity, go and do it and try to make a living”. Before that I was in backpacker hostels and boarding houses.
What prompted your move from backpacker hostels into the boutique hotel market?
Well basically, I kind of went broke on a few other things that I was doing, and I was very young and I was sort of spending more money than I was making and my eye was never really on the ball. I got sort of lucky with these businesses and thought I was indestructible and ended up in a situation in 2001 where I was in financial trouble. So I sold off the Nomad backpacker hostels I had to pay off other debts, and I ended up with nothing. The only thing I’d ever done was accommodation. So I actually approached a landowner about a building I wanted to turn into a boarding house and they said they had a 14 bedroom hotel called the Altamont which might suit me. It was a really cute boutique hotel, with a rooftop garden and bar area. I borrowed 500 dollars from a friend of mine, and that was my capital in the bank, and I hoped that I’d be able to pay tomorrow’s bills with that money.
I signed the lease, and when I took over, Sydney had the Gay Games and two thirds of the hotel was booked out already to Americans and Englishmen at really exorbitant rates of $350 a night. I thought, “I can’t turn it into a backpackers before the Gay Games are over because I can’t have guys paying $350 a night and then have screaming backpackers running around at the same time.” So I ran it as a hotel – but I dropped the price point, repositioned the property and we did really well and we never looked back. So that’s how it all started.
What do you think you learnt from this?
There were really basic sort of lessons, that the world is grown up and a far more complicated place than I had thought in my early years in business. I come from a very solid middle class background and I never really went through any major problems. I got a great education. I didn’t go to university; I went straight into business and I got lucky and I thought that everything was easy and all I had to do was show up. And I sort of worked out that there is a sophisticated way of doing business that I knew nothing about. And that was a real wake-up call for me, and it basically made me put my head down and educate myself, and also work really hard.
You started off with three properties and now you have 18 so where does the name “8 Hotels” come from?
It comes from – would you believe – a mobile phone number. I’ve got a lot of eights and threes in my number. It was just a lucky number that I got years and years ago, when I got my first mobile phone, and back then you were able to get really good numbers. And when I was negotiating to develop what ended up being the third hotel that I opened I gave the landowner and Chinese architect I was negotiating with my mobile number and they both said, “You’ve got a very, very lucky number, with the eights and the threes in feng shui.” I knew nothing about it and when I went home I studied why they thought I had a lucky number. And so when I had three hotels with different names and I decided to create an umbrella brand, essentially I thought that had been a lucky number for me, and I thought an interesting name for a hotel group. So it had nothing to do with the number of hotels that we had or wanted to have, it was really just something that came up in my life.
How did you survive the financial crisis?
We actually came through all right, to be honest. I mean, we are really hands-on and on top of every single part of our business and I think that focus – and also the fact that we’re small and able to move quickly – I think those two things came together and we got through it pretty quick to be honest. There were a few months that were really quite scary moments for us in that hotels we had been operating for years with 90% plus occupancy suddenly went down to 65% occupancy, and of course rates suffered. But it actually really only lasted for about three or four months, and then we picked right back up again and that occurred at the beginning of 2010, so there was a bit of a lag between when the global crisis hit the media and when it actually affected us here. We’ve had steady growth since.
What about changes in the tourism industry itself? Australia is now a net exporter of tourists – how has the drop in the number of international tourists impacted 8 Hotels?
It hasn’t impacted directly on our business. The fact that there’s a net effect going out doesn’t really affect our business, and Australia is sitting in a very interesting position in that most of the capital cities are performing well. There is still a limited supply of new hotel rooms that are coming onto the market which is going to keep us buoyant. The fact is that the corporate market is relatively okay, certainly compared to rest of world, then in that respect we’re in a good position.
On a more macro point of view, when you look at the fact that the dollar is too high and that marketing powers and the Government and Tourism Australia haven’t quite got their heads around the problems that we face in this country. If you look at marketing campaigns Australia put together in past years, they’re dismal. Even now there seems to be this – “oh, great, China’s growing at a million miles an hour so we can sit back and focus on China, because China’s going to save everything.” So I think that the attitude that the Government and organisations that are supposedly driving business into Australia, just are not on the front foot, always reacting to things. I don’t think we should rely on China to save the Australian tourism business.
What is your target market then?
We are an inclusive boutique hotel company, so the answer is: everybody that wants to travel. Our demographic really is varied. From an age perspective it’s from 18 to 80. On average we would have 75% domestic and 25% international guests across the board. And of the domestic, 80% would be corporate and the rest leisure. I guess it’s for people that are looking for something different, that are not wanting to stay in a major cookie-cutter big box format type of company. They’re looking for something a bit unique. We spend the majority of our focus on our HR and our training and our development of our people, and we believe that hotels are more a human business than they are a physical product business, so we spend a lot of time working with people. I guess we’re trying to attract people who want personalised and more bespoke service to their hotel experience.
How has the introduction of review sites like TripAdvisor impacted 8 Hotels?
There is no doubt that guests use those sites. I think their relevance is becoming smaller and smaller. They’re almost going to become a victim of themselves – they’re going to shoot themselves in the foot as often these sites don’t actually reflect a true position. I think that consumers generally are aware of that and will read between the lines, and there is no doubt that the most important aspect of these review sites is having the hotel companies responding to reviews. The other big problem, one of the big issues these sites have, is that there is never any discussion on value, on monetary value. I think that’s a big flaw. It’s virtually impossible to overcome. For example, you might have a beautiful hotel that’s offering an incredible special where a hotel room that was normally $200 a night is selling for $100, and if somebody comes in and complains about something, there might be no mention that they were getting the room for 50% off what they should be. That makes it hard to see a clear picture of what the experience and the property is actually like.
Your business has experienced huge growth in the last few years with 10 new properties in your group. What’s driven that?
It’s very hard for us to strategise our growth, particularly at our level. It’s easier if you are a very well funded, well established hotel company that can send in a team of acquisition and development people to go source a particular location or territory, and build on a huge portfolio of existing owners that they’re happy to follow into new markets. For us, it’s really an opportunity-driven model that we have. We’re always on the lookout for great properties that we want to be involved in operating. If they come up, we jump on them. We deal in these very expensive, prime pieces of real estate that are really sought after, not just from hoteliers but also from other property users and owners from other hotel companies and investors. Unfortunately we do have a tough space where it’s tough for us to expand. It’s not like retail where if you come up with a great concept and you’ve got a great infrastructure you can expand fairly quickly, because it’s easier to find retail sites than it is hotel sites. I guess we’re always on the hunt for good opportunities. We’ve happen to come across a lot in the last couple of years. And now we’ve built an infrastructure that can support a lot more hotels.
What do you plan to do next?
We do have a new hotel in Sydney that we are developing. I don’t want to talk about it too much, just because we’re going to be doing a big launch when the time is right, but we’ll be opening the doors to that early next year, which we’re really excited about. We will definitely be expanding.
Do you have plans for international expansion?
I’ve got so many plans in my head, but international expansion is even trickier than further domestic expansion, in that it’s just an opportunity thing. Obviously I meet more people in Australia and our brands are more prevalent in Australia than they are internationally, so there are more opportunities I’m looking at domestically than I am internationally. We are really keen and we are in conversations with a lot of different developers and owners for sites, and we’re really looking all over the place, internationally too. Unfortunately we spend a lot of our time working on improving our business on a day-to-day business in Australia, and there’s only so much we can fit on our plate. Long-term, we definitely want to expand overseas.
Is there anything else that you think is key to how you got where you are now?
I’m really proud of the way that we’ve evolved. We are literally self-started and self-funded, and we compete in an industry that is predominantly controlled by very large, very well established, very well funded companies. We’ve managed to compete with, and in many ways outperform, a lot of these groups both from a growth point of view but also from a day-to-day hotel operating point of view. It’s been done by a group of young and smart and energetic and really great people that are trying to build something from scratch in an industry that has been dominated by brands that have been around for a long, long time, or people with seriously deep pockets that are able to come in and create an inorganic brand or hotel business. Ours has been very organic, very natural and without any corporate suit-and-tie strategy. It’s just been a couple of young people trying to get out there and make it happen.