Hospitality Worldwide Services, Inc.
Hospitality Worldwide Services, Inc.
Incorporated: 1991 as Light Savers U.S.A., Inc.
Sales: $85.4 million (1997)
Stock Exchanges: American
Ticker Symbol: HWS
SICs: 1522 General Contractors-Residential Buildings Other Than Single Family; 1799 Construction-Miscellaneous Special Trade Contractors; 4212 Local Trucking Without Storage; 4215 Courier Services; 4225 General Warehousing & Storage; 7389 Business Services
Hospitality Worldwide Services, Inc. is the hotel industry’s largest renovation contractor and procurement service provider. Today, Hospitality Worldwide consists of six subsidiaries, all positioned to service the hospitality industry. The company offers hotel owners and operators a highly attractive one-stop shopping package, including complete renovations; procurement of furniture, fixtures, operating supplies, and equipment; and the ability to order online. Hospitality Worldwide Services also offers logistical planning for products ordered directly from the manufacturer and sent to warehouses around the world. Additionally, the company offers ground-up construction, development, and asset management services.
A Start in Fixtures
From its inception in 1991 to August 1995, Hospitality Worldwide Services was a specialized firm whose principal line of business was to design and market decorative, energy efficient lighting fixtures for the hotel and hospitality industry. The company’s primary marketing tool was Con Edison’s Apple-power Rebate Program, which offered substantial rebates to those who used energy-saving devices. However, in 1994 Con Edison substantially reduced its rebate program, robbing Light Savers of its marketing strategy and thus reducing its income.
As a result, the company’s board of directors decided to get out of the lighting business. The first move in this direction came in 1995 with the purchase of AGF Interior Services. AGF was a Florida-based renovation and construction company that, through its wholly owned subsidiary, Hospitality Restoration and Builders, moved Light Savers into the hospitality industry. Later that same year, Light Savers sold its lighting business and changed its name to Hospitality Worldwide Services to reflect its new strategy as a renovation services firm.
New Acquisitions, Start-Ups, Joint Ventures
Until January 1997, the company’s only line of business was to provide a complete package of renovation resources, ranging from pre-planning, to construction and remodeling activities, to the budgeting and scheduling needed to deliver furnished rooms on time. In that year, the company also raised net profits of $32.1 million through its sale of stock and purchased Leonard Parker Company. This acquisition moved Hospitality Worldwide Services into the procurement service business and made it the leading outsourcing company for the lodging industry, serving both real estate investment trusts and large hotel chains. Formed in 1969, Leonard Parker Company was the largest independent provider of procurement services to owners, developers, and operators of hotel properties worldwide. The company had projects in the United States, Southeast Asia, Central and South America, Africa, Europe, the Caribbean, and the Mideast, and corporate offices in Miami, Los Angeles, Johannesburg, South Africa, Dubai, United Arab Emirates, Singapore, and Amsterdam.
Leonard Parker Company primarily procured furniture, fixtures and equipment, and operating supplies and equipment for hotels. For most projects, it handled the billing and financial aspects of projects, prepared budgets, negotiated pricing and payment terms with manufacturers, issued purchase orders, and oversaw shipping, delivery, and installation services in connection with new hotels and renovations. It also acted as the intermediary between the property owner and designers, architects, vendors, contractors, and manufacturers. Based on its size and volume of business, Leonard Parker Company enabled Hospitality Worldwide Services, through its core business, Hospitality Restoration and Builders, to provide customers savings on such items as carpeting, bedding, wallcovering, artwork, and decorative lighting. With more then $302 million annually in procurement services, Leonard Parker Company became Hospitality Worldwide Services’ second core business.
Leonard Parker Company brought with it a second acquisition, Parker Reorder Company, a procurement service organization similar to Leonard Parker Company in targeting the hospitality industry. However, Parker Reorder Company’s scope of services focused upon reordering operating supplies and equipment: the daily purchasing of guest room supplies, china, glassware, linens, flatware, uniforms, engineering supplies, paper products, chemicals, and other regular use items. Parker Reorder Company and Leonard Parker Company customers had access to Parker Reorder, a computer software system, the first of its kind, designed to offer customers the ability to reorder supplies online. Parker FIRST (Fully Integrated Reorder Systems & Tracking) was initiated in 1995 and completed in 1997 with development money provided by Hospitality Worldwide Services. It became available for commercial release in the first quarter of 1998.
In 1998, Bekins Distribution Services, headquartered in St. Louis, Missouri, also joined the Hospitality Worldwide Services team. Bekins had been in business over 20 years as a provider of furniture, fixtures, and equipment for customers, including retail stores, convenience stores, and hotels who were opening, renovating, or relocating facilities. With its network of warehouses at more than 1,000 locations around the United States, Bekins boasted “just-in-time” shipping, whereby customers could control the flow of interior products from factory to distribution points to final destination. Under the auspices of Hospitality Worldwide Services, Bekins Distribution Systems began to expand its transportation department to handle the increased traffic expected from Hospitality Worldwide Services and its subsidiaries, and to reorganize its service department to provide more accurate delivery information.
Hospitality Worldwide Services also began a new business, Hospitality Development Services, in 1998. Hospitality Development Services was a real estate development company that provided in-depth knowledge of hotel markets and construction planning to customers. It worked in tandem with Hospitality Worldwide Services Real Estate Advisory Group, a 1998 acquisition, responsible for new business organization as well as feasibility studies, financing, and asset management. Hospitality Development Services and the Real Estate Advisory Group also worked with Hospitality Worldwide Services’ other arms.
Renovating the Hospitality Industry
According to a source within the company, Hospitality Worldwide Services has benefited by not being geographically limited. Jefferies & Co. has said in its reports that Hospitality Worldwide Services was in the “right place at the right time.” The year 1996 was the most profitable year ever in the U.S. lodging industry. Even though the demand for rooms slipped slightly in 1997 from 65 percent to 64 percent, the industry’s profitability increased to $14.5 billion, up from $11 billion in 1996. A near record number of rooms came on board in 1997—approximately 127,000—equaling the previous high of 1987, and the average daily room rate increased at a rate faster than inflation. Hotel starts rose 16 percent from 1996 levels, with more than 1,200 new hotels opening in 1997, the most ever in a single year.
In the late 1990s, some of the Hospitality Worldwide Services’ largest renovation customers included real estate investment trusts, such as Felcor Lodging Trust, the Griffin Group and Service, Inc. In addition, Hospitality Worldwide Services had longstanding relationships with such clients as Prime Hospitality, Hyatt, Marriott, Chartwell Leisure, Meristar, Patriot American, and Hutchison Wampoa, all of whom were looking to expand their presence in selected lodging markets. In 1998, Hospitality Development Services was in the early stages of a joint venture with Prime Hospitality Corporation to develop 20 AmeriSuites over the next two years. Hospitality Restoration and Builders also signed contracts that same year valued at more than $35 million with Felcor Suite Hotels, Inc.; Service, Inc.; and The Griffin Group. Leonard Parker Company also agreed to act as the buying agent for Marriott International Inc.’s overseas properties, using software that was multilingual and translated multiple currencies.
Hospitality Worldwide Services also began to seek out opportunities for near-term growth in joint ventures to acquire, renovate, and sell hotels at a profit in the late 1990s. The goal was to seek out undervalued hotels in key markets, upgrade the properties, and sell them for a sizable equity return. Its late 1990s investment of $5 million in the Warwick Hotel, part of a joint venture with Apollo Real Estate Advisors L.P., to restore the Philadelphia hotel to four-star status, was expected at the time of investment to yield $50-$60 million in contracts for purchasing and renovation. A second joint venture with Prime Hospitality called for Hospitality Worldwide Services to provide onsite development, construction, and purchasing services for 20 properties through its subsidiary companies. ING Group Partners was Hospitality Worldwide Services’ financial associate in the acquisition, renovation, and refurbishment of a third site, the Clarion Quality Hotel in Chicago.
Room for Growth
In 1998, Coopers & Lybrand, a big six accounting firm tracking the hospitality industry, predicted a 2.2 percent growth in the demand for hotel rooms, down from 1997’s 2.3 percent demand, but enough to produce another good year for Hospitality Worldwide Services. Room rates were predicted to rise 5.6 percent while revenue per available room was expected to jump 5.5 percent. Industry profits were projected to rise to somewhere between $16 and $17 billion, a 16 percent rise over 1997’s record profits of $14.4 billion. In the highly fragmented market for hotel renovation and purchasing services, of which Hospitality Worldwide Services controlled only 1.5 percent of the market share, all of this meant continued growth possibilities for Hospitality Worldwide Services and its subsidiaries.
In the late 1990s, too, a major industry consolidation was taking place, a trend which boded well for Hospitality Worldwide Services. There were about 32,000 hotels in the United States, half of them full-service institutions. A few years earlier, these upscale hotels had been owned by banks and insurance companies but, by the late 1990s, they were owned by real estate investment trusts, and large hotel firms were buying up the bulk of these properties. As a result, Hospitality Worldwide Services was in a position to cement relationships with fewer owners of more hotels. “It doesn’t have to market its services every time it wants to increase its revenues,” said one Hospitality Worldwide Services insider. “It can grow along with real estate investment trusts and other hotel consolidates.”
Hotels also were spending money to update their properties. Lenders, seeking to ensure that hotels maintain the value of their assets, required that hotels reserve three to seven percent of their gross revenue to reinvest in properties. Hotels which, in addition, had to return dividends to shareholders, were choosing outsourcing as a means of providing services at lower cost rather than maintaining large staffs of people. Outsourcing was being relied upon increasingly as a way to handle procurement, logistics, freight, management, and installation of supplies.
Hospitality Worldwide Services had just begun to market its comprehensive service package to the hotel industry at the close of 1998. In that year, the emphasis at Hospitality Worldwide Services was on selling itself to the industry. Most of the services it offered were not done any longer in-house by lodging companies, for whom provision of services was simply a cost of doing business since they made money solely from rooms and catering. The hotel industry increasingly contracted services out to small local providers, good news for Hospitality Worldwide Services because of its convenience and economies of its scale over local providers.
Hospitality Worldwide Services was poised to enter the year 2000 looking to expand by adding new clients, some of them assisted living facilities, others, dormitories and timeshares. It also sought to acquire additional purchasing and renovation companies.
Bekins Distribution Services; Hospitality Restoration and Builders; Hospitality Development Services; Leonard Parker Company; Parker Reorder Company; Real Estate Advisory Group.
Chang, Martin J., and James F. Wilson, “Making Hotels More Hospitable,” Equity Research: Property Services, Jefferies & Company, Inc., September 23, 1997, pp. 1-11.
Giovanetti, Toni, “Hospitality Worldwide Services Builds Multi-Faceted Service Company, Looks to Expand Scope,” Hotel Business, September 7-20, 1998.
Parets, Robyn Taylor, “Renovating Hotels for Consolidating Industry,” Investor’s Business Daily, September 29, 1997.