Ritz Carlton

The Ritz-Carlton Hotel Company operates within the upscale & luxury hotel industry. While it could be argued that Ritz-Carlton operates in the more broad and inclusive lodging industry, they offer a highly differentiated product and service and therefore find themselves operating in an exclusive industry alongside very few direct competitors, such as Four Seasons Hotels, HongKong and Shanghai Hotels, and Starwood Hotels & Resorts. Therefore when analyzing this industry I will not be including cheap hotels, motels, lodges, or inns, unless to offer potential substitutes to luxury hotels. In order to assess the attractiveness of the upscale & luxury hotel industry, an analysis of the general environment surrounding the industry must be conducted. The external environment consists of six interconnected elements: technological change, demographic trends, the economic climate, specific international events, cultural trends, and legal and political conditions.

The economic climate is certainly the most important environmental factor to assess when dealing with a luxury products and services industry. (Exhibit 1) Luxury goods are said to have high income elasticity of demand. That is to say that as people become wealthier, they will buy more and more of the luxury good. However, this works the opposite way as well. As people’s income decrease in times of economic recession, they will demand less and less luxury goods and settle less costly alternatives. With regard to the upscale & luxury hotel industry, during an economic downturn, such as the one we are experiencing today, demand for luxury accommodations declines considerably as people search for cheaper substitutes that can fulfill their basic needs. As noted in Exhibit 1, not only does demand for luxury goods decline during times of economic hardship, but so does travel. Many luxury hotel companies have locations all over the world, and these locations depend heavily on tourism. When people make less money,