Hospitality Comes Out Ahead

And if the Hospitality Giants are any indication, a lot of people have begun eating at home and sleeping in hotels.

Judith Davidsen -- Interior Design, 10/1/2001 12:00:00 AM

The 50 Hospitality Giants are something special. During the last reporting period, they garnered 82 percent of all the hospitality design fees earned by the top 100 Giants plus the second 100 Giants. Fees for this year's Hospitality Giants totaled $200,304,331, an increase of 10.5 percent over last year—and almost twice the projected increase. The largest earner brought in $26,006,560, just shy of 13 percent of the Hospitality Giants' total; the smallest hospitality income was $1,135,000, and the median 2,310,500, just a little over one percent of the total.

For the 48 respondents who broke down their reports by project type, hotels accounted for 51.6 percent of total fees, followed by restaurants at 19.2 percent, resorts and spas at 16 percent, casinos at five percent, country clubs at 4.25 percent, cruise ships at one percent, and "other" (which includes travel lounges, entertainment and recreational venues, and time-shares) at 2.77 percent. An increase of 8.2 percent is projected for the next reporting period.

During the study year, the Hospitality Giants installed 72,772,595 sq. ft.—down 13 percent from the previous year and 26 percent less than projections. Despite the loss in area, however, furnishings, fixtures, and construction rose 15.9 percent to $6,267,522,000. Projections include an increase of 17 percent in square footage, and a decrease of 7.1 percent in furniture, fixtures, and construction.

Among the 44 Hospitality Giants who answered our query about project types, the largest restaurant contained 353 seats, the smallest 60, the median 150. The largest single hotel common area was 6,500,000 sq. ft., the smallest 2,500 sq. ft., the median 26,970 sq. ft.; the largest number of guest rooms in a single hotel was 433, the smallest 58, the median 242. One firm alone worked on 29 cruise ships.

Just over half of the Hospitality Giants earned 50 percent or more of their income from repeat clients; two reported earning 100 percent from this source. But while maintaining repeat clients has long been considered a prerequisite for a successful design practice, some of the highest earners among the Hospitality Giants reported a return rate of under 50 percent, and some of the highest return rates belonged to lower earners. Only 46 percent expect repeat clients to account for half or more of earnings during the next reporting period, and none expect all of their earnings to come from that source.

Eleven Hospitality Giants took a new turn into country club design, while eight each entered time-share and resort/spa work, and four began working on casinos. Hotels were new for three, and restaurants for another three. Two worked on cruise ships, and one each on racetrack and transportation hospitality.

Six Hospitality Giants believe opportunities are opening for hotels, especially on the international scene, while five see opportunities in resorts, especially in Latin America. Single mentions include corporate "entertainment experiences," and megaresorts at dockside gaming facilities.

Regionally, three firms have high hopes for Asia and Eastern Europe, and one sees promise in Newark, New Jersey.

Resorts got seven votes as the project type most likely to grow, followed by time-shares with five, hotels and restaurants with four each, and gaming establishments with three. International locales garnered about two-fifths of the growth votes, while domestic locations took roughly three-fifths.

Thirteen Hospitality Giants find the hotel market, especially limited-service hotels, saturated, while five feel that way about gaming, and three about restaurants. Locations considered saturated were more likely to be in the United States than overseas. Five respondents believe that hotels are on hold, and two believe resorts are on hold. The on-hold locations are primarily overseas, but one respondent says domestic projects are having trouble obtaining permanent financing.

At 21 of the firms, every single job last year was domestic, and at another 12 firms, over 90 percent was domestic. At only six firms--half of them in the top 10 Hospitality Giants--did overseas work account for 50 percent or more of the jobs, and only one was 100 percent.

The largest amount of money—26 percent of the U.S. total—was earned in the Southeast, with hotels accounting for 68.5 percent of the regional figure, country clubs 10.5 percent, cruise ships 8.6 percent, restaurants 7.1 percent, and resorts 5.2 percent. The Northeast accounted for 17.75 percent of the national total, 75.7 percent of that coming from hotels, 15.3 percent from restaurants, 5.9 percent from country clubs, and three percent from casinos.

The Midwest and the Pacific states came close to a tie, with the Midwest garnering 10.6 percent of the national total, and the Pacific states 10.5 percent. In the Midwest, hotels accounted for 73 percent of the total, restaurants 17.6 percent, and casinos 9.6 percent. In the Pacific states, hotels accounted for 85 percent, restaurants 10.45 percent, country clubs three percent, and cruise ships less than one percent. Given the ratio of restaurants to hotels in the most populous regions, a late-night comedian might detect a trend toward dining in and sleeping out.

The Midatlantic contributed 7.7 percent of the national total, 55 percent of that hotels, 33.7 percent country clubs, and 9.7 percent restaurants. The Southwest contributed 4.1 percent, 59.5 percent in hotels, 20 percent in restaurants, and 9.1 percent in country clubs. The Mountain states earned 3.2 percent of the total, 50.2 percent in hotels, resorts 32.9 percent, restaurants 16.8 percent. Bringing up the rear, the Plains states contributed less than one percent, 64.5 percent of that in hotels, 20.2 percent in restaurants, and 15.2 percent in resorts.

Asia accounted for 47 percent of the Hospitality Giants' international earnings, with hotels making up a whopping 98.3 percent of that total, restaurants 1.3 percent, and resorts a small fraction of one percent. The Middle East followed with 26.3 percent of international fees, with hotels accounting for 93.9 percent, and resorts the balance. Europe came in third, with 16.3 of foreign earnings, all accounted for by hotels. Latin America contributed seven percent of foreign earnings, 68.3 percent from resorts, 29.7 percent from hotels, and 1.9 percent from restaurants. Canada accounts for 2.9 percent of international income, 70.6 percent from resorts, 27.1 percent from hotels, and 2.2 percent from restaurants.

Among the Hospitality Giants' staff, 1,368 work on hospitality projects—11.2 percent of all first and second 100 Giants' design staff combined. The largest number per firm is 179, the smallest is six and the mean is 29. Four-fifths of them spend half or more of their professional time on hospitality projects. Top-paying Hospitality Giants offer lower compensation than the top-paying 100 Giants: the top-earning principals and partners take in half of what their counterparts do in 100 Giants firms, project managers earn 40 percent less, designers 20 percent less, CAD operators 30 percent less, and manual drafters 30.8 percent less. Maximum billing rates are the same at Hospitality and 100 Giants for principals and partners, but ten percent lower among Hospitality Giants for project managers, 14.3 percent lower for designers, 25.3 percent lower for CAD operators, and 25 percent lower for manual drafters.

One of the 50 Hospitality Giants reported that 100 percent of design-staff work time is billable; another 12 bill 90 percent of hours or more, and 21 bill between 80 and 90 percent. Only 75 to 80 percent of work time is billable at four of the top ten Hospitality Giants, and four of the bottom ten are among those billing 90 percent or more. One respondent reports billing only five percent. Among of the top 100 Giants, 29 bill over 90 percent of their time, and 51 bill between 80 and 90 percent, a ratio not too much higher than the 50 Hospitality Giants. However, only two in the top fifth of the 100 Giants bill less than 80 percent, while nine in the lowest fifth bill over 90 percent. The largest discrepancy: 12 percent of the Hospitality Giants declined to respond to this question, while only three percent of the top 100 Giants declined.

The highest amount-per-employee earned for a single firm was $475,000, the lowest $52,800. The average was $147,830, the median $128,579. Five of the highest earners were in the top fifth, as was one of the lowest earners. Hospitality Giants were twice as likely as top 100 Giants to pay commissions, with 31.9 percent favoring the practice, compared with 16 percent of the 100 Giants; 80 percent in the hospitality group calculated the commission on the size of the firm's fee, while 69 percent of the 100 Giants used this formula.

The reporting period under study here coincided with the crest of an economic boom, when the demand for designers was high both inside and outside the profession. Almost ten percent—or 131—of the Hospitality Giants' professional staff moved on, the vast majority to other design firms, allied industries, or, in the case of a handful, their own independent practices. The largest loss for an individual firm was 15, and the average was three; 11 firms didn't lose any. On the other hand, the Hospitality Giants planned to hire 156 professionals—21 percent more than they lost—including 65 designers, 17 CAD operators, 13 project managers, 13 senior designers, 12 architects, three job coordinators, three directors, two FF&E specialists, and one design assistant, job captain, marketing person, and entry-level worker. Only four firms had no hiring plans.

That, of course, was during what we have since come to think of as the last of the good times, at least for a while. But knowing the Giants, while the rest of us were gnashing our teeth over what the economy had done to us, they were analyzing the situation and figuring out how to win. Again.

Top 50 Hospitality Giants Fee Scales

Hospitality Fees/Percentage Of Work By Category

Firms With Largest Hospitality Fee Increase (In Dollars)

Fastest Growing Firms (By Ranking)

Percentage Of Total Firm Earnings In Hospitality Work

Companies New To Hospitality Giants

Top Firms Working Outside Of The U.S.A.

Hospitality Giants 2001