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How Hoshino leaps from luxury to urban leisure

Trendy might describe Hoshino Resorts’ new Omo urban leisure brand, but trendy is far from the adjective that best describes the Japanese hotel company and its understated leader, whose mantra is “manage steady.”

“It is important to have a big dream but at the same time you need to understand what you are actually capable of,” says soft-spoken Yoshiharu Hoshino, CEO of Hoshino Resorts, based in Karuizawa, Nagano, Japan. “I call that steady management. Dream big, but manage steady. It is important to head toward the dream carefully and steadily.” Sounds like wisdom from a family business founded in 1904.

Maybe we should throw in a dose of humility for Hoshino: Hoshino Resorts, known for its luxury resorts in Japan, is ramping up for growth that includes global aspirations. Its brands, along with a flat and efficient management style, are gaining a reputation for excellence, and even better, the group has access to capital.

With 37 hotels in operation, in the next 10 years Hoshino wants to expand its Kai brand, a traditional Japanese ryokan hot springs resort, to 30 properties from 15. On-trend, select-service Omo will expand beyond its initial two Tokyo sites into more Japanese cities with at least three openings in the next few years. Its luxury Hoshinoya brand, with six open, will expand to other countries – first on the continent. It also has three Risonare Western-style family resorts and 10 independent properties under management.

“If you include very early stage projects, it should be probably 12 or so under development right now,” Hoshino says, adding there will probably two or three openings next year.

Yes, Hoshino’s hot new concept in Omo has much potential and has caught the attention of Japan’s development community with its multi-tasking labor model and economies of scale that make it more profitable, but don’t put him in the category with other hotshot concept creators. Instead, Yoshiharu Hoshino is better described as more reflective, calculating, well-?organized and, yes, ahead of the curve. These attributes have served him well as he grows the 115-year-old company, started by Kuniji Hoshino as a silk business in Karuizawa, an area that was just developing as a location for holiday villas. In 1914, Kuniji established the Hoshino Onsen Ryokan (Hoshino Hot Spring Inn). Today, fourth-generation leader Yoshiharu Hoshino continues to think locally, but now with consistent success he is looking more globally.

The recently opened Hoshino Resorts Kai Sengokuhara Suite in Japan's Hakone region
The recently opened Hoshino Resorts Kai Sengokuhara Suite in Japan’s Hakone region

Looking in

Evidently, mountain air is one of Hoshino-san’s secrets to finding clarity and direction. The ski lover can be found on the slopes as often as possible (he tries to commit to skiing 60 days a year) and he says the peace and quiet allows him to reflect and dream.

Whatever the muse, Hoshino looks at hotel operations somewhat uniquely for the region. Among his gems: deciding what the guests needs in services and amenities instead of following what customers tell him – a feedback system that he believes only leads to sameness. That philosophy served as some of the impetus for the Omo brand, which courts leisure travelers in city center markets (the first two launched in Asahikawa, Hokkaido, and Otsuka, Tokyo; a third is coming to near Shin-Imamiya Station in Osaka) sometimes more suited for business hotels. And because of its leisure vibe, business travelers come because they want a bit of fun, too, Hoshino recognizes.

Yagura Room at Hoshino Resorts' Omo5 Tokyo Otsuka
Yagura Room at Hoshino Resorts’ Omo5 Tokyo Otsuka

“To differentiate from others, we need to think what we want the customers to experience and how we want them to enjoy their stay at our properties,” says the 58-year-old, who earned his hospitality degree at Cornell University and worked at both a hotel development company in Chicago and a U.S. financial institution before finally becoming company president of Hoshino Onsen (former name) in 1991. “We need to be independent and have an appeal that differs from others. By having that theory we come up with ideas for our properties, and it has become the important factor in marketing.”

Expanding further on Omo, Hoshino says he doesn’t know about the future for the select-service brand internationally, but secondary Japanese markets might be ripe. “So many Japanese people are traveling to domestic destinations, enjoying unique cultures,” he says. “Omo is a perfect product for those areas. We are definitely trying to expand the Omo brand in all these mid-sized cities in Japan… There also might be a lot of repositioning projects for Omo in the future.”

“Hoshino is definitely a company to watch,” opines Sean Hehir, principal of Trinity Investments, Honolulu, Hawaii, which is investing in Japan and working with Hotel Okura Co. and its Okura Nikko Hotel Management Co. to grow another mid-market brand, Nikko Style hotels. In fact, Okura Nikko plans to expand its operations to include 100 hotels by 2020 and strives to balance the number of hotels in Japan and overseas.

“Hoshino’s timing in line with the Japanese tourism boom is 100% correct,” Hehir adds. “The tourism statistics are unbelievable, with 25 billion arrivals last year on track for 40 billion to 45 billion by the end of 2020. Omo is right on for the mid-market – somewhat design-oriented and authentic to the neighborhood. There is a real niche for that. They are also an early mover into Hawaii with their buy of the Surf Jack design hotel. Japanese companies haven’t invested in Hawaii for a long time.”

East meets west

The company leans heavily on a flat management structure – not so much rules and systems – to deliver outstanding service, which Hoshino says provides a first comer’s advantage. The culture includes freedom for younger team members to speak their minds on operational issues and disagree when they have an alternative point of view. This approach is unique in Japan, where there has been historic intolerance to feedback.

It is also investing in IT and associated systems. To that end, in April Hoshino Resorts acquired a 50% stake in Ishin Hotels Group, which operates 18 “the B” brand hotels across Japan. The goal: sharing costs in an online reservations platform to be more competitive.

Hoshino is not only breaking molds for Japan-based hotel concepts and operational platforms, but it is also a leader in business structure, having launched the Hoshino Resorts REIT in July 2013 on the Tokyo Stock Exchange. Today it has some 56 assets. Of Hoshino’s 37 properties open, approximately 15 are owned by the REIT.

The operating company has further established itself as a turn-around artist, repositioning and managing for other owners across Japan. “Owners have approached us to manage their hotels,” Hoshino says. “We sometimes ask them to do some major renovations before we start managing to reposition the hotels.”

But in the past four or five years, ground-up developments have become the norm, especially when considering strong earthquake regulations in effect. “It’s a good time to demolish and redevelop the buildings,” Hoshino adds. “Developers are always looking for operators who can come up with the project level that is high enough to redevelop projects.”

After the 2020 Olympics in Japan, however, Hoshino is concerned about oversupply, especially as traveling baby boomers hit 75 and start to travel less. “2025, this is a key year in tourism in Japan,” Hoshino says. “I am expecting the declining of the travel consumption by Japanese people. We have to cover that portion by increasing more inbound, period.”

That is another reason Hoshino is looking outside Japan for expansion. “We hope that we will be managing 10 or 20 hotels (outside Japan) after 2025,” Hoshino says. “We definitely would like to get revenue from the European Union countries. We do have a property in Waikiki (Hawaii). And we are learning how we can contribute or operate hotels in United States. We’d definitely like to have management opportunities in the future in the U.S.”

Considering longer-term trends in Japan, Hoshino believes the management company must become global to take advantage of its efficient model. It has already felt growing pains, elsewhere, however, as it managed currency issues in Tahiti and Bali, as well as updating its reservation system and navigating labor customs and regulations.

Hoshino is developing a Japanese-style hot springs Hoshinoya resort in Taiwan, and has a couple of projects in motion in China. “All these investors and developers outside Japan are welcoming us to these areas,” Hoshino adds. “Typically, many of them actually expect us to bring Hoshinoya hotel plans to them. We are designing, planning and developing Hoshinoya hotels outside Japan.”

REIT impetus for growth

Hoshino’s J-REIT should help the management company grow globally. “It takes a couple of years or so for Hoshino Resort Groups to have multiple assets or overseas, and by then I think that the J-REIT will be ready to make investment overseas in a collaborative manner,” says Kenji Akimoto, executive director of Hoshino Resorts REIT and president and CEO of Hoshino Resort Asset Management Co.

Hoshino likes the idea of expanding the traditional ryokan resorts in the U.S. “We see more and more foreigners visiting traditional ryokans to experience the culture,” Hoshino says. “It’s a very unique product based on a tradition of a country and the people. Many come from the U.S., and from what I see the customer satisfaction is very, very high. It’s very different from their culture, but they appreciate and they understand, and they enjoy it.”

Hoshino doesn’t just want to take the ryokan concept to the U.S. and Europe – he is even considering urban environments. He says the U.S. has some 1,200 hot spring spots – several in Colorado and California, and some on the East Coast. “We definitely are interested in going there and building the Japanese-style ryokans and introducing the new method for the American customers to enjoy the hot spring resources they have,” he adds.

“If you visit in cities like New York, Paris or London, there’s no option for staying in Japanese-style inns, or ryokan,” Akimoto adds. “Mr. Hoshino has this vision to develop and export this great ryokan method and also establish ryokan options overseas.”

Hoshino had no specifics to offer other than that the company is working on the concept, visiting the hot spring resources and talking to developers and local authorities to better understand regulations and requirements.

“There may be challenges outside Japan – with just 33 properties with less than 100 rooms at most of its properties, Hoshino’s global presence is yet to emerge,” says Koji Takabayashi, who heads up the Tokyo office of Horwath HTL. “While major global chains clearly compete for scale with continuous M&As, Hoshino will need to have comparable size to its competitors.”

Takabayashi continues that?Hoshino’s REIT-supported financial scheme could promote its development pace. He says that since launching in 2013, Hoshino Resorts REIT has helped its sponsor Hoshino Resort rapidly grow by providing finance from the public markets with total acquisition volume of 146.7 billion yen (approximately US$1.3 billion) with 56 properties as of July.

“As Japan Hotel REIT, the largest hotel-focused REIT in Japan, boasts of total transaction amount of 319.4 billion yen (approximately US$2.9 billion), there should be room for Hoshino Resorts REIT to significantly grow its global portfolio considering Japan’s central bank, Bank of Japan, seems to continue its unprecedented near-zero interest policy for a foreseeable future,” Takabayashi adds.

Hotel Okura Co. will also compete with Hoshino globally and especially in Asia ,where it is looking at Taiwan, Thailand, Vietnam and Indonesia, according to Goro Kadowaki, senior?director of project planning and development for Hotel Okura. “By mobilizing our multiple brands in these areas and developing a brand strategy focused on local customers, we will endeavor to expand recognition of our Japanese-?origin brands across the entire Asian region,” Kadowaki says. “In addition, when opportunities present themselves, we plan to open hotels in major cities such as New York and London.”

Don’t think Hoshino is going to forget his home market. After the predicted 2025 downturn, he says his group might be able to thrive by gaining management of non-performing assets. “We have to be sure of operations and brand recognition, and also the reservations and the way we can fight on the internet will help us to have more management contracts in hotel business after 2025.”

“Many industry experts would agree that Hoshino Resorts has established its position in the marketplace as ‘luxuary hotels in Japanese Onsen Ryokan style,’” Takabayashi says. “This manifested position is a good contrast to that of major Japanese hotel chains such as Prince Hotels and Nikko Hotels, who traditionally expanded their market exposure by directly following Western style.”

So what could slow down or challenge Hoshino Resorts, which seems well-positioned with new concepts and a luxury brand that has reached a commanding 83% awareness rating. The only things Hoshino cited are a continued need to differentiate as not to be too affected by pending oversupply, and labor-related issues due to a decreasing percentage of young people. “Actually, finding good employees is more difficult than having customers in Japan,” Hoshino says.

From the associated REIT’s perspective, business succession could be a long-term challenge of Hoshino Resort Group. “Mr. Hoshino and his brother, and how they would delegate authority and decision-making and come up with a succession plan, could be a long-term challenge for the company,” Akimoto says.

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