Trump Steaks, but for Hotels

This article originally appeared on this site.

A couple of weeks ago, at Trump Tower, on the same spot where Donald Trump announced his Presidential bid, Eric Danziger, the C.E.O. of Trump Hotels, formally launched a new line of three-star hotels, called American Idea, which will cater to lower-income, rural areas of the country. It was the most blatant instance yet of the Trump family’s profiting from its political power—in this case, by shifting from its long-standing focus on luxury markets in order to make money from the very demographic that put Trump in the White House. Within the hotel industry, the event raised eyebrows for another reason: it was unbelievably haphazard. Danziger, though a veteran of the industry, had almost nothing to show his audience. There was no Web site or marketing material, and the logo was just the brand name and a crudely drawn picture of a light bulb. (A company representative told me that she wasn’t sure if it was the final logo or a work in progress.)

“It is incredibly rushed,” Jan deRoos, a professor at Cornell University’s School of Hotel Administration, told me. “This feels like someone woke up on a Saturday and had to roll something out in ten days.” DeRoos has worked for many hotel companies, and oversaw, for Hilton Hotels, the construction of some of the first Hampton Inns. He said that a successful launch would normally take years to plan and would include confirmed contracts for at least twenty locations, with dozens more in the pipeline, in addition to a fully operational marketing plan and a “brand bible” that lays out, in minute detail, what every hotel must contain. Crucially, the company would also need a reservation system to direct guests to its properties. Big hotel companies these days own very few of the properties that bear their names. Instead, local operators pay a share of their revenue to affiliate with a brand, and in return the brand provides marketing and refers customers via a centralized Web site. (Most hotels get at least half their guests this way.) The key challenge for any brand is persuading hotel owners to sign contracts. Owners must believe that a brand will provide enough “heads in beds” to justify the licensing cost.

So what, exactly, was the Trump Organization offering potential licensees? So far, only one company, Chawla Hotels, which owns seventeen properties in the Mississippi Delta, has signed on. When I spoke to Dinesh Chawla, the company’s C.E.O., he made clear that the core attraction was being the first to partner with the President’s new brand. “Think of the marketing powwow I get out of doing this,” he said. “We’ll attract tourists from all over the world.” He said that he was “using” the Trump family: “They can’t afford us to be failures. If we don’t do well, they look like schmucks.”

Chawla was stunned by how quickly it had all happened. He first heard of American Idea when a Trump Hotels executive called early one Saturday in March. It usually takes three years to finalize a deal, he said, but this one happened in just three months. He confided that the final contract was signed ten minutes before the public announcement. Under the terms of the agreement, Chawla Hotels will convert three aging properties to the American Idea brand and build a four-star hotel under another Trump brand, Scion, which launched, in a similarly shambolic fashion, last fall. (Scion was aimed at a hip, millennial market in places like Seattle and Austin. The fact that its first hotel will be a Chawla property in Cleveland, Mississippi, tells you how that’s going.) Chawla’s attraction to American Idea was rooted in being first. It’s hard to see what would attract the second, or the twenty-second, franchisee to this vague sketch of a brand.

Many hotel companies are launching sub-brands; recent examples include Tru by Hilton and Wyndham’s Trademark line. But these are huge companies, trying to target precise customer groups. Trump Hotels, by contrast, is a tiny player, with only fourteen hotels and little of the backbone required to manage a fast-growing brand. And rapid growth is crucial for a three-star franchise. Unlike the five-star hotels that the Trumps are used to, three-star ones don’t generate enough profit for a small portfolio to be viable. It’s a circular challenge. To attract more hotels, the Trump Organization needs to show that it will attract more hotels. But no plan for growth was announced at the launch, and the key speech, by Donald Trump, Jr., was devoid of any business specifics. Instead, he spoke about his father—how the idea came about during the Presidential campaign, and how Mississippi’s governor, Phil Bryant, introduced the Trumps to Suresh Chawla, the company’s co-owner. (Suresh had written warmly about Trump in a letter to his local paper, which Bryant saw.) The implication was clear. Trump Hotels may lack the infrastructure to turn a niche brand into an empire, but it has one unique competitive advantage: it is owned by the President of the United States.

Like many things in the world of Trump, the event was both corrupt and inept. Trump Hotels had nothing to offer but words, and nearly all of those words were about the President. A normal company would have chosen to wait a couple of years and then launch properly, but the Trump Organization is not a normal company, and it has other considerations. Given that a brand launch typically takes three years and that a Presidential term lasts only four, the executives may feel that there’s no time to lose. ♦