COVID continues to accelerate changes in business models

COVID continues to accelerate changes in business models

As I have said repeatedly, COVID is accelerating change for all businesses, whether or not they recognize it.  A recent survey by the IBM Institute of Business Value concluded that “executives must accept that pandemic-induced changes in strategy, management, operations, and budgetary priorities are here to stay.” I see three significant shifts taking place.

  1. How CEOs Lead
  2. Changes in priorities
  3. Changes in business models.

How CEOs Lead

  1. Unlocking bolder (“10x”) aspirations. COVID caused most CEOs to question their assumptions about the pace and magnitude change attainable. The realization that a change in mindset can dramatically affect goal setting and the operating model, many CEOs are effecting changes in a few months that companies previously assumed would take years. The speed for many of these changes is down to employees working longer and harder; however, many CEOs also recognize that many employees have more time available with the stop in travel.
  2. Elevating their “to be” list to the same level as “to do” in their operating models. With COVID, leadership has to change. CEOs’ priorities were setting up strategy, culture, and making people decisions at regular times. However, now it about maintaining morale and ensuring employees are prepared for whatever may come in the face of uncertainty. Thus, leaders are changing how they and their senior management team show up. Leaders now need to be empathetic and offer words of encouragement.  According to Lance Fritz, CEO of Union Pacific, “[Employees] need to see that their leadership is vulnerable, empathetic, and making decisions in accordance with our values, which I’d better be the living proof of.”
  3. Fully embracing stakeholder capitalism. While I have also previously discussed embracing stakeholder capitalism; however, COVID has accelerated this trend as it has emphatically affirmed the interconnection and interdependence of businesses with their full range of stakeholders. CEOs are confronting tough decisions with profound human consequences every day. CEOs have realized that their choices are affecting their employees, communities, and suppliers. How they behave will have a long term effect on their business, especially as 87 percent of customers say that they will purchase from companies that support what they care about.
  4. Harnessing the full power of their CEO peer networks. As a result of COVID, CEOs talk to one another much more and at a much greater rate. The belief is, “Let’s learn from each other. Let’s hold hands. Let’s commiserate.” They are achieving this through informal networks and groups like Vistage. The power of a Peer group where you can be vulnerable and get input into these hard decisions is immense. CEOs don’t have to feel like they are carrying all the weight themselves. During the Great Recession, Vistage member companies outperformed non-Vistage member companies [. ]

Changes in Priorities

Not only are CEOs changing the way they lead, but companies are finding that their priorities have changed dramatically! According to the recent IBM survey, companies will focus more inwardly over the next two years. Their top priorities now are:

87% Cost Management
87% Enterprise Agility
86% Cash Flow and Liquidity Management
84% Customer Experience Management
76% Cybersecurity
75% I.T. Resiliency
65% IoT, Cloud and Mobility
58% New Product Development
52% New Market Entry

 

As companies move away from just-in-time delivery, 40% of those surveyed identified the need for space capacity in their supply chains. However, about 60% said they were accelerating their organizations’ digital transformation, and three-quarters plan on building more robust I.T. capabilities.

Changes in Business Models

Finally, many companies have also changed their business models to address market changes resulting from COVID, including some clients. Some of the creative pivots are:

  • Mandarin Oriental. As mentioned last week, many high-end hotel chains are supplying alternative residences for the wealthy. MO has not only done that; it seeks to deliver the luxury experience where you are rather than at a destination. The company promotes “Staycations at M.O.” at its properties if there is one in your city. These staycations offer early check-in, late check-out, a free bottle of wine, and credits for other purchases. However, if you don’t want to leave you home, MO says, “Just call room service.” They will deliver food, items from the cake shop, supplies from the spa, or other merchandise to your house.
  • JD.com. For producers of alcoholic beverages, COVID was a considerable blow. During the Chinese shutdown, its e-commerce giant, JD.com, go D.J.s and performers to stage three hour live show online. During these shows, viewers could purchase alcoholic beverages from Rémy Martin to Budweiser and have it delivered to their doors with a single click. As a result, whiskey sales from “a single partner brand” increased eightfold during a day with the show. As a result, JD.com plans to continue its live music events but to expand the products it offers.
  • David Dodge. As auto sales plunged nationwide, according to the Washington Post reports David Dodge in Glen Mills, Pa., the auto dealership sold more cars in July than in any previous month in its 15-year existence. David Kelleher, David Dodge’s owner, pivoted to meet the changing market. The company created a business development center to consolidate online leads and located it prominently just inside the front door. Salespeople now work phones, email, texts, and Zoom. They are using FaceTime to accompany customers on test drives. For those customers who want to stay socially distant, David Dodge allows the whole process online, and they deliver the vehicle to the customer’s home. Kelleher and his top salesperson, Mike McVeigh, doesn’t expect to return to the old ways once COVID is behind them.
  • Chipotle Mexican Grill. For a company that had been struggling with several crises over the last few years, when COVID hit, Chipotle new it had to change its business model to survive. The model was for pickup orders to be its lifeline. The company added “digital kitchens,” which handle online orders for pickup, at those restaurants that didn’t already have them, to enable this pivot. In May, Chipotle announced it would add 8,000 new workers to meet the growing demand. In July, it needed to hire 10,000 more. The company has aggressively added “Chipotlanes,” drive-thru lanes exclusively for picking up digital orders. That business model requires more employees than traditional stores—hence all that hiring is much more profitable.

Cause for Concern

All these changes are requiring more from employees in terms of working longer and harder. As I have noted on numerous occasions, empathy is needed, and burnout is a huge issue. What is worrying is that IBM’s research, drawing from other surveys that included employees, found a disturbing wide gap between “employers significantly overestimating the effectiveness of their support and training efforts” and how employees feel about these measures.

Source: IBM Institute of Business Value

As CEOs and leaders, it is critical that as you face COVID and plan for changes in leadership style, changes in priorities, and pivots in your business model, you need to do more for your employees. They are scared, uncertain, working from with kids doing school virtually, potentially overwhelming debt (see below), and they need management to support them. Those leaders who don’t rise to this challenge will see the good employees leave and create a reputation stain that could last a generation.

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The stimulus has ended; what does that mean for the economy?

The stimulus has ended; what does that mean for the economy?

The stimulus from the CARES Act has ended, and so far, Congress cannot find a way to replace it. Democrats in the House have passed a bill, but Senate Republicans, lacking a unified approach, have waited until the end of the summer to propose a plan. Currently, Secretary Steven Mnuchin is negotiating with House Speaker Nancy Pelosi to find a compromise. So, what?

Well, without the stimulus, unemployment is expected to rise. Last week’s Bureau of Labor’s jobs report showed that the job gains from April slowed dramatically, adding just 661,000 jobs. The unemployment rate now stands at 7.9%, down from 14.7% in April. Currently, approximately 25 million people rely on jobless benefits to get by, and the outlook is worse. Last week, the Walt Disney Co. said it would lay off 28,000 people, and American Airlines Group Inc. and United Airlines Holdings Inc. announced 32,000 job cuts. These are just the massive layoffs; however, lots of smaller companies are laying off workers.

So far, most of the damage has been to low-income workers, but the pain is moving up the wage scale. A recent Wall Street Journal article pointed to a couple in New York who earned about $175,000, enough to cover the mortgage, two car leases, student loans, credit cards, and assorted costs of raising two daughters in the New York City suburbs. However, since COVID hit shutting down the courts, one of them, a lawyer, is unable to work, and the family is running low on savings. They can’t keep up with $9,000 in monthly debt payments, including mortgage installments.

In the U.S., consumer spending accounts for about two-thirds of gross domestic product, and as more people are unemployed, many will deplete their saving and stop spending. A fall in consumer spending affects everyone as we are all linked in this economy. If consumer spending falls, B2C companies suffer and lay off more people and stop buying from B2B companies, so the cycle continues. No one is immune.

While many have pointed to fall credit card debt levels during COVID, more worrying is the number of people behind on their mortgages, rent, and utilities. As we head into winter, with many facing evictions, no heat or water, the prospects are even worse. As some might recall from their economics class, the marginal propensity to consume is greater for those in lower-income brackets. Therefore, to boost the economy, middle- and lower-income Americans need to be able to consume. While the wealthy will spend some of the benefits they receive, they will spend far less, so the positive impact on the economy is limited.

Many fiscal conservatives have said that they are now concerned about the deficit and deterring people from working. It is nice to see they have finally found some courage; however, it seems more that they object to anyone they believe doesn’t deserve a benefit getting one. There was a deafening silence from this crowd with the passage of The Tax Cuts and Jobs Act (TCJA) in December 2017, which provided benefits to companies and the wealthy. Many in the Administration and other conservatives claimed that the TCJA would pay for itself. Unfortunately, not! The deficit increased since its passing, and Bloomberg’s analysis showed that most corporate tax cuts went for buy back shares. In my opinion, this spending on buyback is the leading cause of the stock market’s continued rise.

While some will claim that increases income for everyone, only about 10% of the population owns shares outside of a retirement plan. So, the impact of the rising market does little for overall consumption and the economy.

During the Great Recession, Congress failed to provide enough stimulus for a full recovery. It is in danger of doing the same again, and this time I fear the consequences will be far worse. I would advise all CEOs to what cash levels and liquidity, but at the same time, we need people spending to grow out of this hole.

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A Different Mindset

A Different Mindset

As someone who didn’t grow up in the U.S., I have a different view of time and certainty. When I arrived, I was always amazed at how people planned for longer and longer events that were way out into the future, but with a certainty that everything would go to plan, e.g., in estate planning, using generation-skipping trusts.

For me, the U.S.’s long-term view reminded me of Issac Asimov’s trilogy, the Foundation, when the Mule appears, unforeseen, and topples the Foundation contrary to expectations. In the U.S. I see the overwhelming belief that everything will fine in the long term, and while there are outlining events, everything reverts to the mean. However, there are always unforeseen events that can disrupt the trend and cause it never to return to the prior norm.

I grew up in South Africa, and many of my parent friends had done the long constant migration south. They lived in the Republic of the Congo, today the Democratic Republic of the Congo. With independence in 1960, the military revolt, the succession of Kantaga, and the influx of mercenaries and paramilitary troops to protect mining interests, they fled, many moving to Zambia where their mining skills were in demand. Zambian independence in 1964 and the fears over privatization starting in 1968, they moved onto Rhodesia, now Zimbabwe. With Rhodesia’s Unilateral Declaration of Independence “UDI” from the United Kingdom in 1965, the civil war began, which lasted until 1980 with free elections.

Many decided to move further south to South Africa, a country bound to be stable and prosperous. These moves were often made in a rush, as power structures changed, and in most cases, they lost everything they had during each relocation. Unfortunately, in South Africa, the 1976 Soweto uprising was the beginning of the end for the minority white government; it would take nearly twenty years for that to occur. My parents knew many of these people were too old to move once more and stayed on, seeing wealth evaporate with a declining economy, currency, and sanctions.

I know of a family in Zimbabwe where the patriarch was a multi-millionaire. On his death, he left everything in trust for seven beneficiaries – each receiving over a million, with the trustee’s stipulation to invest the funds in Zimbabwe. As Zimbabwe’s economy collapsed in the 2000s, with hyperinflation hitting its peak of at an estimated 79.6 billion percent month-on-month in November 2008, the value of the trust’s assets declined. The trustee, a corporation, could not move the funds overseas due to currency restrictions and would not disburse the funds to the beneficiaries because of the terms of the trust. Today each beneficiary’s interest will buy them less than a tank of gas for their car.

Finally, I attended boarding school in Switzerland in 1973. A Lebanese friend of mine’s father had interests in Lebanon and started a new business in Iran because he thought diversification was a good idea. In 1975 the Lebanese Civil war started, which was to continue to 1990, but the troubles continue. That war cost them nearly everything they had in Lebanon; however, the Iranian business did well. Having seen what had happened, he bought properties in New York, London, and Cayman as further diversification and protection. January 1979, his father was in New York watching the Shah leave and the riots and saw the bank, which held his accounts, burn. They never returned to Iran, but thankfully the portfolio of properties kept them financially afloat.

Why these stories, well, we have seen in the six months with COVID, how the world has changed. What we took for granted is no longer sure. When will return to “normality,” who knows, but according to Dr. Fauci, sometime in late 2021? As I have said in this newsletter many times, your old business plans, strategy, and financial models need to go out the window, and new ones prepared in light of what is happening.

I would add to that, as you consider the long-term outlook and your business and investment portfolio, I would look for hedges to protect for large unforeseen events. Following Nassim Taleb’s barbell strategy – you avoid the middle in favor of a linear combination of extremes across all domains from politics to economics to one’s personal life.

There is talk of the dollar falling in value and possibly losing its reserve country status. How long it takes the U.S. to recover from COVID is another uncertainty as we have yet to find a strategy. Will the U.S. and China go to war over Taiwan? What will these events do to your business? Thus, I would consider other parts of the country, other countries in supply chain protection, concerning investments, international assets as a hedge.

As for looking outside the U.S., I would not claim the authority to recommend any particular country. I definitely would not follow the Englishman’s steps in 1980; deciding the world was unsafe, moved to the Faulkland Islands as he determined the safest place to be. Less than two years later, the Argentine invaded, and the Falklands War got going.

However, realize nothing is certain! Trends don’t last forever, and while things revert to the mean, there will be a new mean after massive disruptions. Take the lesson from COVID to reexamine everything and do it regularly. Complacency has enormous costs. As David Mitchell put it so well in Cloud Atlas, when two people are discussing revolutions,
“Fantasy. Lunacy.”
“All revolutions are until they happen, then they are historical inevitabilities.”

I am not saying revolution is coming, but large, unpredictable things are, and like revolutions, most will all be historical inevitabilities, as COVID was!

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Why We Suck at Planning for Catastrophic Events

Why We Suck at Planning for Catastrophic Events

COVID has disrupted everything and is bringing about unprecedented changes. However, while many say that we could not have expected COVID, that is not the case. Many people raised the alarm over or planning for a pandemic, from Bill Gates to George W. Bush and Obama administrations. And this is not the first time.

If we look back at the Financial Recession, that was not entirely unexpected. Several people saw the problem and were either raising the alarm or trying to profit from it. As Nassim Nicholas Taleb has stated on several occasions, these are not actual Black Swan events, they were predictable, and the probability of them happening was far more extensive than we recognized.

Finally, even when these calamities are bearing down on us, we tend to do little to avoid them until it is too late. The Administration’s response was lacking in preparing for COVID, even though we knew about it coming out of China. How many times do we see a hurricane bearing down on the coast, and even though there is a mandatory evacuation, people refuse to leave, often paying for such decisions with their lives?

It seems there are some reasons.

 

Economic Behavior

Why we prepare so badly is basic economics. In our continual pursuit to improve efficiencies and be either more profitable or less wasteful, it becomes harder to justify spending money on events that we are uncertain will occur. Thus companies moved to just in time systems with no redundancies or excess inventory, which failed them when COVID hit and disrupted shipping. Companies had moved production to lower-cost centers overseas, which caused huge issues when COVID shut down operations in those countries. Finally, I think we have seen the failings of our economic priorities in the U.S. healthcare system, which is not designed for dealing with a public health care crisis, but rather for making a return to investors.

Former Governor Arnold Schwarzenegger invested $200 million in three mobile 200-bed hospitals deployable to the scene of a crisis within 72 hours. Each hospital would be the size of a football field, with a surgery ward, intensive care unit, and X-ray equipment. Medical response teams would also have access to a massive stockpile of emergency supplies: 50 million N95 respirators, 2,400 portable ventilators, and kits to set up 21,000 additional patient beds wherever they were needed. As Schwarzenegger told a news conference, “In light of the pandemic flu risk, it is absolutely a critical investment, I’m not willing to gamble with the people’s safety.” However, in 2011 facing a recession and budget deficit of $26 billion, Former Governor Jerry Brown cut funding for the program.

Thus in our continual drive to be efficient, investments in backup systems and redundancies quickly get cut. For governments, there is always the demand of current situations that take priority over planning. Thus, our economic behavior leaves us vulnerable to the crisis when it arises.

However, once a crisis hits, we are terrible at dealing with it, and that is due to three psychological issues: normalcy bias, optimism bias, and our herd instinct. 

 

Normalcy Bias

Normalcy bias is a cognitive bias that leads people to disbelieve or minimize threat warnings until we are overwhelmed and cannot respond. Thus, individuals underestimate the likelihood of a disaster, when it might affect them, and its potential adverse effects. Normalcy bias causes many people to inadequately prepare for natural disasters, pandemics, war, and calamities caused by human error. During a disaster, about 70% of people reportedly display normalcy bias. Normalcy bias is also called analysis paralysis, the ostrich effect, and by first responders, the negative panic. 

Throughout history, there plenty of examples of normalcy bias.

  • When Vesuvius erupted, the residents of Pompeii watched for hours without evacuating. Thousands of people refused to leave New Orleans as Hurricane Katrina approached.
  • At least 70% of the 9/11 survivors spoke with others before leaving. 
  • Officials at the White Star Line made insufficient preparations to evacuate passengers on the Titanic.
  • Passengers on the Titanic refused evacuation orders because they underestimated the odds of a worst-case scenario and minimized its potential impact.
  • Experts at the Fukushima nuclear power plant believed that a multiple reactor meltdown could never occur.

So how do we overcome Normalcy bias? Amanda Ripley, author of The Unthinkable: Who Survives When Disaster Strikes – and Why explains that there are three phases of response:

  1. Denial. People are likely to deny that a disaster is happening. It takes time for the brain to process information and recognize that a disaster is a threat.
  2. Deliberation. In this phase, people have to decide what to do. If the individual has no plan, the problem is serious. The effects of life-threatening stress on the body (e.g., tunnel vision, audio exclusion, time dilations, out-of-body experiences, or reduced motor skills) limit an individual’s ability to perceive information and make plans.
  3. Decisive Moment. Here a person must act quickly and decisively. Failure to do so can result in injury or death.

According to Ripley, the faster we can get through the Denial and Deliberation phases, the quicker we will reach the Decisive Moment and begin to take action. 

 

Optimism Bias

Optimism bias is a cognitive bias that causes someone to believe that even though bad things are happening around me, I will do better than everyone else. It is also known as unrealistic optimism or comparative optimism. Optimism bias is “Even if bad things are happening around me, I will do better than everyone else.” Optimism bias is common and transcends gender, ethnicity, nationality, and age. Four factors cause optimism bias in people:

  1. their desired end state,
  2. their cognitive mechanisms,
  3. the information they have about themselves versus others, and
  4. overall mood. 

A typical example would someone diagnosed with aggressive cancer, and ten specialists tell them they have little chance of survival. However, an eleventh tells them they will be ok, so they believe the 11th. Other examples are:

  • smokers feeling that they are less likely to contract lung cancer or disease than other smokers,
  • first-time bungee jumpers believing that they are less at risk of an injury than other jumpers, or
  • traders who think they are less exposed to potential losses in the markets.

 

Herd Instinct

We are social animals, and we take our clues from those around us. If we know a tsunami is coming, but no else is leaving, we figure it is safe to stay, even though we understand a tsunami will cause a calamity.

 

So what to do?

From an economic behavior point of view, we will have to bear additional costs and waste to maintain preparation. I would expect that for a while, at least a decade or more, we will ensure we have back up lines of supply and more inventory than we need. However, once all memory of COVID has passed, and there is another generation making decisions which did not experience it, costs cuts will return with our move to efficiency.

Concerning our biases, we need to understand them and be prepared. With normalcy bias, we need to have plans on what to do in the case of an emergency. Luckily for the economy, the experience of the Great Recession was still fresh enough that governments knew that had to provide financial support in large amount to stop the economy collapsing, which they did. However, for a lot of emergencies, we will not have the benefit of a recent crisis to fall back on as a guiding example.

Unfortunately, like the generals, in planning for crises, we tend to “fight the last war.” However, each situation is different. What will out next problem be, A.I. went amuck, climate change? Who knows, but it may be something we have not experienced yet, or even if it is, e.g., a public health crisis, the disease may be very different, requiring a different response.

A great example of our failure is Climate Change. We know that climate change is coming, and a recent report by the U.S. Commodity Futures Trading Commission (CFTC) starts by saying climate change “poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.” The report, “Managing Climate Risk in the U.S. Financial System,” was written by a group of 35 advisors from major banks such as Morgan Stanley and JPMorgan Chase, environmental groups such as The Nature Conservancy and Ceres, energy firms such as B.P. and ConocoPhillips, several investment firms, and experts from several universities. According to it, regulators “must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks.”

However, our economic behavior justifies us doing nothing since the costs of prevention are so high. The vested interests of doing nothing spend an enormous amount to ensure nothing changes. Of course, the price of prevention is high compared to what? We always underestimate the expense of the crisis, as COVID has dramatically shown. The annual costs of climate change continue to grow, as we experience more significant fires, hurricanes, and damage to crops. 

Concerning normalcy bias, we have one denial and not enough deliberation. Concerning decisive movement, the Republican chairman of the CFTC, Heath Tarbert, acknowledged the risk of climate change. Still, he said, “The subcommittee’s report acknowledges that ‘transition risks’ of a green economy could be just as disruptive to our financial system as the possible physical manifestations of climate change, and that moving too fast, too soon could be just as disorderly as doing too little, too late.” Basically, we don’t have a plan!

Concerning optimism bias, we have a situation where 97 percent of actively publishing scientists believe human activity is causing global warming and climate change. However, we cling to the three percent who are deniers.

Finally, herd instinct, we don’t want to be the first or do something that we are not sure others will do.

However, if you wish to protect your business, it would be worth investing time in understanding the effects of climate change on it and developing a plan to protect yourself. Start follow Nassim Taleb’s advice and build “antifragility” into your systems, which provide robustness to black swan events. An application of the least fragile risk management approach, according to Taleb, is the “barbell strategy,” which seeks to avoid the middle in favor of a combination of extremes. How that applies to your business will be different, but planning should start now.

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  • Good business location;
  • Good clean rooms with complimentary wifi;
  • Free breakfast;
  • Happy hour or a bar where you could get a drink; and
  • Some form of shop that provided snacks.

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However, what is very interesting is what is happening at the two extremes of the industry.

 

Luxury Hotels

During June and July, many luxury resort and city hotels were catering to the wealthy who had their international travel plans disrupted. However, in August, unexpectedly, they found no one was ready to return home, and demand was increasing. Guests were all looking for a second, third, or fourth pseudo home, and finding luxury hotels met that criteria. As many of these hotels’ clientele can work from home and are schooling from home for the foreseeable future, there is no need to be tethered to their usual residences. Instead, they are interested in multi-month hotel bookings to bypass a cold-weather span of locked-down living stylishly.

Not only do these properties offer a change of environment, but many guests “do not feel safe in [their own] homes with staff members coming in and out, without proper protocols in place,” said Ed Mady, the regional director of the Dorchester Collection. The Beverly Hills Hotel and Hotel Bel-Air, managed by the Dorchester Collection, have seen an increase in 90-day bookings since the advent of  COVID-19, primarily from L.A. natives. The Dorchester Collection properties all have an on-site nurse and a dedicated director of risk management to ensure full compliance with CDC guidelines.

At Timbers Kaua’i’i in Hawaii, over 25 percent of the guests 30+ night stays booked. On the East Coast, Gurney’s Montauk and the Ocean House in Rhode Island have many guests staying for a month or more during the fall.

As a result, many hotels are pivoting to meet this new demand. Auberge Resorts, which owns 19 hotels worldwide, has experienced a 300% increase in the length of guests” stays. As a result, it is offering “Remote With Auberge” packages. Some of these packages for two months offer private tutoring services for children, personally stocked in-room kitchenettes, pet care, and laundry with a 30 to 40 percent discount.

However, even with these discounts, it is not cheap! A recently booked year-long stay at Rosewood Miramar Beach’s’s two-bedroom residence in Montecito, CA, costs approximately$1.1 million.

 

Economy Hotels

Meanwhile, at the bottom of the industry, motels are making a comeback. Initially, travel stopped for all but essential workers, truckers, doctors and construction, maintenance, food-processing, agriculture, and government workers who are always more likely to use budget-style hotels.

As the summer came, those that wanted to travel domestically and maintain social distancing by avoiding airplanes, elevators, crowds, and questionable HVAC systems turned to road trips and motels. Many of the middle-market hotels that were accepting guests had closed their spas, fitness centers, indoor dining rooms, swimming pools, and other amenities, but were maintaining their rates. Many travelers saw they now paying $250+ per night to get the same services they get for $100 per night at a motel.

Motels are typically one- to two-story properties with exterior corridors and parking lots in proximity to the 12 to 35 guest room doors, said Jan Freitag, senior vice president of Lodging Insights for the data and analytics firm STR. Often referred to a U2s because of their “U” shape and two stories. The benefits of such properties are:

  • Allow guests to avoid contact with others;
  • Don’t feature elevators;
  • No large common spaces; and
  • Each room has its own heating and air unit.

Thus, guests have a sense of control over their environment.

Besides, motels are benefiting from the nostalgia that COVID has released. Along with the demand for homemade bread, playing board games, and reading, staying in motels appeals to the fantasy of simpler times.

The perfect storm of COVID, which is damaging the middle market hotels, is saving motels from extinction, at least for the moment. Will the demand remain post-COVID is yet to be determined.

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