Marriott's Financial Woes are Everyone's

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Marriott International’s quarterly report had few surprises buried deep in its bowels. Many were obvious: a soft economy, tight lending, sluggish residential sales, high fuel costs and less consumer confidence all seem to be taking a toll on Marriott as well as other hoteliers.

The report said that recent events and the volatile capital markets may cause owners and franchisees to delay, refinance or pull the plug on some projects. (Marriott opened 42 properties during the third quarter, the company also disposed of six.) Marriott specifically cited the Lehman Brothers bankruptcy because Marriott used its financing and the company acknowledged it ”may prevent some projects that are in construction or development.”

Although the company reported higher revenues, up about $20 million from last year, its least-performing sectors, like its timeshare division, struggled. According to its balance sheet, the company’s weighted down with $3 billion in long-term debt, up from $2.8 billion in December 2007. Its profits dropped about 28 percent and its outlook doesn’t look much better in 2009. (Marriott hopes to save money by modifying menus, restaurant hours and hiring freezes. That’s a lot of cheap beef!)

Arne Sorenson, executive vice president and chief financial officer, told reporters that reduced flights and visitors hurt some areas domestically but by contrast, Marriott saw strength in the Middle East, Latin America and the Caribbean.

Sorenson admitted the company drew $900 million from its bank revolver to tide itself over over the lean patch, only the second time in the last 20 years. The first time it happened? Just after Sept. 11, 2001.

This could lead the average person to believe that we are seeing the travel industry reach the depths of a post 9/11 economic slide. Could it get much worse? According to several sources, it can and the controversy on cutting rates seems to continue.

An anonymous hospitality industry source gives his or her opinion, “In public we say ‘Hold the rate.’ That makes sense as long as we can do it. However, I may have courage to hold the rate in New York or Washington, DC, but I may not have courage to do so in Milwaukee when my competitors start cutting.”

The only solution or safety net? Cash, and plenty of it. The only way to ride out the economy’s plunges and dips is with a liquidity/cash seatbelt. Don’t have that? Then you’re just like everyone else.

Tags: Marriott International Inc., Financial, Marriott, Balance Sheets, Recruitment & Selection, Financial Services, Financial Statements, Financial Accounting, Finance, Human Resources, Workforce Management, Barbara E. Hernandez

Bay Area resident and award-winning business journalist Barbara E. Hernandez has covered tourism, real estate and personal finance. Her clients include the New York Times, Los Angeles Times, San Francisco Chronicle and Washington Post.

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1

MarriottSurvivor

10/08/08 | Report as spam

RE: Marriott's Financial Woes are Everyone's

I worked 13 years for Marriott so I can say with confidence: Marriott is run by a bunch of morons. Read Arne Sorenson's Q2 earnings call: somehow catering was supposed make up for huge drop in RevPar. Nobody in the hotel business could come up with such an absurd claim, but everybody at Marriott believed it. They even opened at least 8 hotels in Q3, and financed even more timeshares, which will of course default if they haven't already.

The MArriott "Sales One" plan is not only ridiculous, but could send owners into open revolt since they are now basically paying to fund their competitor's sales teams.

Sales One was implemented by Dave Marriott, son of CEO Bill. Dave is really amazingly dumb, if his names wasn't Marriott he never would have made it past front desk manager. How dumb? He thinks that his last name didn't help him become Senior VP Sales, that somehow he got the job age 34 after being a salesman in Boston for 4 years. As Senior VP Sales, Dave Marriott implemented Sales One and watched sales tank. What a total failure, they had to give him a face-saving job as a regional VP....

First thing I did on leaving Marriott was sell every last share. It was easy to make money during the hotel boom, but dumb companies like Marriott will suffer a lot during the downtime.
2

barbara e hernandez

10/08/08 | Report as spam

RE: Marriott's Financial Woes are Everyone's

Oh, they opened a lot more hotels than that and still plenty more to go in 2009!

Now they're cutting food and bev...into what, I don't know.

Tell me more about "Sales One!"

Thanks,
Barbara
3

MarriottSurvivor

10/09/08 | Report as spam

Marriott F&B and Sales One

It is indeed amazing, and almost schizophrenic, that Marriott now says it is cutting back in F&B, already its weakest service. In September 2006 Marriott held a catering summit in Bethesda and announced with much fanfare that it would invest millions in F&B, to make Marriott-branded hotels "destinations in the new food culture."

Fast forward to Q2 '08 and you have Arne spitting up all that Kool-Aid he drank and promising that F&B would make up for any lost revPAR. Somehow financial genius Sorenson forgot that profit margin on rooms is 70%+, but catering is lucky to get 22% profit. By Q3 Marriott backtracked and now they're cutting F&B, so all those millions invested in marketing, training, equipping, hiring, etc., are gone. And they never even got to be good: Marriott food still sucks. It is so typical.

Sales One should be studied at business schools an example of how a bubble corporate culture can cause companies to commit harakiri. The scheme began as Sales 2000, which had two goals, one positive, one negative:
1) to create regional b2b sales teams, like the reactive sales teams in Woburn, Mass., Newark NJ, Miami, etc. This actually worked in that corporate travel managers and meeting planers had one number that would negotiate all the regional Marriotts for them and find the best deal for both customer and individually property as "stakeholder."
2) also, Sales 2000 was a plan by Sorenson and COO Bill Shaw to get rid of older sales managers and hire cheaper younger ones (lawsuit San Fran federal court, so you can check.) Between 2001-2006 they managed to layoff, fire, or exasperate into resignation many of their most talented sales managers, who, guess what, went directly to Starwood or Choice and took their Rolodex with them.

Believing that the hotel boom was somehow a product of Bill Marriott's genius--rather than of macroeconomic forces--Marriott built and built and put young and very marginal people in charge of sales at both property and regional level. Masked by the general hotel-REIT boom, this scheme seemed to work for about one year, 2006.

In 2007 we reach Sales One, being the next step in Sales 2000. Bill Marriott, David Rodriguez and Arne Sorenson are allergic to payroll and always looking to ways to get rid of people. It bothered Mr. Marriott no end that each individual Marriott-managed property had its own Director of Sales, Catering Sales Manager, etc. Arne felt that "Marriott was competing against itself" because sales managers from different hotels were competing against one another in the same markets.

Sales One is an attempt to trim payroll by appointing one or two directors of sales for any local group of 6-12 properties, leaving only inexpensive high school dropout "sales assistants" at each property. Dave Marriott, Stephanie Luntz, Paul Goslin and a few others were put in charge of implementing the plan.

Dave is really clueless, dumb beyond words, but his name is Marriott, so nobody (including me) dared speak against the fundamental flaw in the program: Each hotel is typically owned by a different owner; Owner X is now paying for the sales team working for Owner Y. "Area Directors" as they're called, have an inherent conflict of interest in that they will always prefer to sell a high-rev Ritz-Carlton or Renaissance over a Courtyard or a Fairfield. Why should the owners of a Courtyard pay for Ritz-Carton sales team? How is corruption and favoritism avoidable in such a scheme? Add to that the fact that penny-pinching Rondriguez and Sorenson fired the best (and most compensated) sales people, and you have a potential owner's revolt in the making.

All of these problems were masked when the market was booming, and by Bill Marriott's skill at persuading sycophantic GMs that the whole crazy scheme was actually a stroke of divinely-inspired genius that would help individual property revenues. In 06 and 07 there was so much demand that Marriott actually turned away, for example, most government-rate travelers and most non-traditional catering events (Kosher, Hindu, Muslim etc, another lawsuit now crawling in Massachusetts.)

Now that the BT b2b market has totally tanked, Marriott's weakness in every other sector (SMERF, Groups, etc.) together with inexperienced and panicking sales teams, over-supply of Marriott rooms in nearly every market= Oops, major bob boo.

Dave Marriott was pushed aside so he wouldn't have to share blame, Stepahnie Luntz was promoted to Dave's old job and I bet she'll be the fall gal when owners revolt.

The above is why I think that Marriott will fare much worse that, for example, Starwood in the current recession.
4

OldHiltonGuy

12/09/08 | Report as spam

RE: Marriott's Financial Woes are Everyone's

I don't understand why, if Marriott's sales business plan for regional efforts was so flawed, then WHY did Hilton follow right behind them? In the Boston area, Hilton did the exact same thing and took all the sales people out of the hotels and put them in an office park in the suburbs. It created havoc in the hotels at the beginning, but how is it working now?
5

bryanbruce

08/28/09 | Report as spam

current marriott associate comment

I am reading this persons complaint of the new marriott sales force one- and although I understand her description of the one inherant flaw - sales people selling for different owners - I do not agree that it is a flawed system. there is a ton of fat in hotel sales and marriott is the first to finally say enough. the fat was a product of the order taking days, but with sales force one, that will not exists as often. the best sales people will sell the best product to the right custom for the right reason. the customer buying Ritz, is not going to by Marriott, unless it makes sense. It allows marriott to sell its tiered products vs. selling againts each other. I see this canabalism of our own brand all the time within markets.

those skeptical of Sales force one are probably on the outside looking in....if so, I can see why sales force one would not be favorable in their eyes.

you must also rememember, marriott has spent many years and money implementing sales force automation software that was in motion long before DAVE MARRIOTT took over as VP of sales. SFA consolidates inventory both on the rooms and space sides to one desktop computer. consolidation, but keeping the best of the best, or those who believe in the system.

god bless marriott.