U.S. President Donald Trump’s anticipated trade policies might mean the end for imported FF&E. Here’s what hoteliers had to say about the impact of potential trade changes on the hotel industry.
REPORT FROM THE U.S.—Hotel owners and developers are paying careful attention to President Donald Trump’s still-formulating international trade policies, fearing that potential new tariffs on foreign goods will have a major impact on imported furniture, fixtures and equipment used in construction and renovation projects.
Under such an unfavorable trade climate the only choice would be to buy American, whether hoteliers like it or not.
For decades FF&E manufacturing has been moving beyond the traditional United States centers such as the Carolinas, with larger amounts of goods arriving from foreign factories in China, Mexico and elsewhere abroad. If Trump’s administration cracks down on bargain-basement foreign trade as promised, FF&E prices may spike so dramatically, suddenly foreign vendors may no longer be a viable option.
Perry Molubhoy, CEO of Atlantic Hotels Group and chair of the Holiday Inn Express Brand for the IHG Owners Association, said he is worried.
"A lot of our FF&E is coming from overseas, and if the tariffs go in, that will definitely impact our cost of FF&E, and that will impact the total overall cost of the hotel,” Molubhoy said. “There are a lot of FF&E items that come from China—even the brand mandated prototypical stuff—so tariffs on that, and tariffs on stuff being assembled in Mexico and Canada, those things are of concern to us. We feel that the FF&E costs, if the tariffs are put in place, will definitely have an impact.”
Stockpiling items while they’re still being sold at pre-tariff prices isn’t an option for most hoteliers, either. Primarily, this is because of brand standards, which can change so rapidly, it would be risky to bank on pre-purchased FF&E remaining up to standard for long while in storage.
Molubhoy, whose company recently opened the upscale dual-branded Aloft and Element Dallas Love Field, and plans to further expand through 2018 with four additional hotels and one dual-branded, said it doesn’t quite make sense to stockpile FF&E.
“You don’t even know what the design is going to look like and what FF&E is going to be in place in the next six months,” Molubhoy said. “It’s an ever-changing process. You can build a brand new Holiday Inn Express today, and six months later it could be a different design that the brand comes out with, with a different color scheme, or a different market has different requirements, so it’s very difficult to stockpile anything.”
According to sources, the writing has long been on the wall. The cost savings from importing FF&E from countries such as China has been reportedly on the decline for some time, compounded by frequent issues with timing and dependability of orders. For some hoteliers, that’s already reason enough to buy American-made, even without any new Trump-era tariffs further eroding margins.
“People forget that the cost of buying from China isn’t as inexpensive as it used to be 10 years ago. The difference has become smaller and smaller,” said Navin Shah, president of Royal Hotel Investment, which is about to debut its new Holiday Inn Express in Conyers, Georgia. “We decided to go with FF&E made in America, because I think it helps us to do a better job of managing the project. If we delay one day, it’s almost $10,000 income. If you delay 10 days, you already lost $100K.”
Shah said his company purchases roughly 80% of its FF&E domestically, only going outside the U.S. for items that simply cannot be obtained elsewhere.
To make up for the premium his company pays for buying American products, he said Royal looks for other ways to save on the process. One of those methods comes during the FF&E assembly and installation stage, of which timing is crucial.
“To make sure we don’t delay, we’ll put all the furniture in a warehouse when there’s not enough room on the site to install,” Shah said. “The sequence of events is pretty predictable. You can go to the warehouse and get 60 mattresses, rather than installing everything in a trailer. It makes that easier. We figured out the cost of renting a warehouse for bulky items, and when you take the delivery piece by piece it costs you more money. So we’ll take the materials early at one time, and store them in the warehouse.”
But frugality and savvy aside, the general consensus is that as costs go up—in this case, the cost of FF&E under Trump’s predicted trade policies—the impact of those increases will be borne by the customer. Predominantly, that comes in the form of inflated room rates.
“It’s just a mindset that the cost of the hotel will be higher. Everything is going to get impacted,” Molubhoy said. “The consumer is going to be impacted because the cost of the hotel is higher, so the (average daily rates) will be higher, too.”
How much those costs and rates are affected but Trump’s expected trade policies remains to be seen, and the current/upcoming renovation cycles for branded hotels may not be affected, anyway, since that particular FF&E is likely already designed and ordered. But some believe that in the end, opting for closer, more reliable suppliers—and reinvigorating American manufacturing—may be worth the added cost.
“You don’t have to be in China to have robots. It will mean there’s more manufacturing going to happen in the U.S., but I think the trade-off with time and shipping and tariffs will give you a balanced approach,” said Paul Breslin, managing director of Horwath HTL. “In a way, these (potential trade changes) are good because it’ll make us look at what you can buy right here in the USA. It will also make us a little more accountable.”