Fundamental reasons to cause the hotel bankruptcy

Under Corona measurement, we ‘ve seen two major hotel operator bankruptcy cases here in Japan.
One is WBF, http://www.wbfresort.com/, one of the major, three star hotel operators in Japan. Their main targets are business customers, inbound tourists in major cities and tourist destinations. They have been opening new hotels over domestic market. This looks a sort of precarious management: in order for them to compensate the expense occurred in a hotel operation, they have opened a new hotel in good location. For them to take such a good location, they have to pay high rent, but their performance would eventually not improve that much as they expected due to of course inefficiency and weak strategy. Up until before Corona, they managed to survive as the tourism market was good and banks favorably financed them anyway. This Corona pandemic can be seen as a “screener” to identify the good and reliable player and naïve ones.

The other bankruptcy case is the First Cabin. (https://first-cabin.jp/ ) Capsule hotel has been a unique and well categorized hotel segment in Japan. Guest can secure the space for sleep, like a small size of capsule and amenities and a large bath are available in a shared area. Fist Cabin arranged a niche segment that provides those capsule with more comfortable space, they call it “stand able” and reasonable price , between capsule and the two star hotel. Some media reported that before the Corona pandemic, the hotel market has already been very harsh and Fist Cabin had been struggle to retain their loyal customers. In other words, their targets have been so niche that they could not shift their business model to attract other customers in much wider range.

The lesson learned from those two cases is “they should have stopped bleeding under the heated market”. I assume this is rather the issue of psychology. They did not want to see the fact. They did not want to understand the fundamental issues to them.

For future, there should be more bankruptcy cases as we have seen now. The key words therefore, are the extreme niche market, the harsh competition and the mindset of top managements.