Let the games begin…this summer

By GARY SHERWIN

It’s game time folks.

After another winter of torrential storms that filled up reservoirs and greened up the hillsides like the Irish countryside, summer officially starts this weekend. Memorial Day. Really, already?

It seems like we just put away the decorations for the Christmas Boat Parade and yet here we are at the busiest time of the year for Newport Beach. Summertime is our time in the sun.

At this time every year, I usually make my forecast for the next few months since everyone seems to be wondering if this summer will be different from the others.

For the last few years, that’s been an interesting question as we navigated the effects of the pandemic and its aftermath. Indeed, Newport Beach fared pretty well during those tumultuous few years compared to many other destinations.

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Courtesy of Visit Newport Beach

Gary Sherwin

Hotels increased their nightly rates dramatically, and while occupancy was below previous levels, that was fine since they also reduced staffing. Revenue Per Available Room (ADR), a key metric with our hotels, did well, as did Average Daily Rate (ADR), especially compared to most other cities.

In fact, the only cities that regularly performed better with these numbers than Newport Beach during this time were Beverly Hills and Dana Point. Dana Point’s success was driven primarily by its two luxury resorts.

Some of those conditions are changing this summer. Reports suggest that the luxury consumer, an important market segment for our community, is starting to slow down its spending.

British luxury retailer Burberry reported last week that its profit plummeted by 40% in the budget year ending in March. Sales in the United States dropped by 12% over the past year.

LVMH Moet Hennessy Louis Vuitton reported that its high-end liquors have declined sharply in the U.S., leading to high levels of inventory in their alcoholic division.

Walmart, the bastion of lower- and middle-class households, said last week that its gains in the last quarter were driven by upper-income households making more than $100K a year.

Does this indicate a slowdown? Perhaps not. It could also be changing tastes among luxury consumers. People, especially younger ones, aren’t drinking wine like previous generations, and fashion brands are always fickle.

What I do see is dramatic growth with hotel rates slowing considerably. Hotels pushed rates hard during the pandemic, and now consumers are starting to push back. It’s a more competitive landscape out there right now.

This doesn’t mean that Newport Beach hotels will collapse their rates. In fact, rates will continue to be robust, but the growth that they enjoyed over the last few years will slow or be somewhat stagnant compared to the last four years.

An exception will probably be the new Pendry Newport Beach, which will have its first fully open summer and will add 295 rooms to the city’s inventory. That hotel is still in ramp-up mode, and given its luxury pedigree, expect them to push hard for rate increases.

Starting in July and for several weeks, VEA Newport Beach will also be the New Orleans Saints’ training home. This will take almost half the hotel offline as the team descends on the property, and the meeting space will become training space.

In addition to selling out a chunk of the hotel, it also creates what is called compression, which means VEA can sell the remaining rooms in its inventory at a higher rate. And when their rates go up, other hotels often follow suit. Everyone wins.

Another benefit of the Saints’ time here is that the team allows spouses to stay with them, which means that a bunch of multimillionaire wives will be relaxing across the street from Fashion Island. I can imagine a lot of retailers over there salivating at that scenario.

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But perhaps the biggest challenge that has emerged over the last few years is that summer now ends earlier than before. There was a time when Labor Day was the end of all the fun, but that date has been moved up to the beginning of August, when schools start for the fall and families stay home. That trend started about six years ago, and it has dramatically affected occupancy during that month.

Despite our glorious August weather, tourism overall has a notable slowdown. Hotels have started to pivot and plan special events as a result. In fact, VEA will announce a big high-end Wine and Food event with celebrity chefs very shortly, and other hotels have promotions planned during that time.

Yes, the wealthy might be watching their wallets a bit more closely, but I’m not concerned about their spending locally this summer. I still expect them to show up, but they might not be as carefree as they have been. Whereas the pandemic liberated them given that they just wanted to get out of the house, now they want to be more intentional whenever they open their wallets. Experiences count, as does good service.

As to where these visitors will come from, Visit Newport Beach will continue to push the regional drive market as well as to traditionally strong markets such as Las Vegas, Phoenix and Dallas/Fort Worth. North Texas, in fact, has become one of our strongest visitor markets outside California in the last two years. If you’ve ever been to that area in the summer, you’ll know why. It’s hot and humid, and most locals get out of there. That’s why we push our cool beach vibe message on lots of local TV and digital ads.

This summer will be a good one despite people freaking out over inflation. Our visitors might be more price-sensitive, but they still plan on coming.

Let the games begin.

Gary Sherwin is President & CEO of Visit Newport Beach and Newport Beach & Company.


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