Airbnb is a phenomenal company that continues to disrupt the hotel industry. It’s a beast of a competitor with about five million listings on its website while 3.5 million people stayed at an Airbnb property on its best night in August this year.
This has helped it gain a valuation of more than $30bn but its co-founders are concerned. It earned only a modest $100m on its impressive $2.6bn of revenues – equating to a return of only 4%. This is nothing like the margin levels many of its traditional rivals such as Hilton or Expedia achieve.
Airbnb has no obvious opportunities at this stage for extensions into other lucrative areas, unlike many of its Silicon Valley compatriots. Amazon, for instance, is profitably extending its tentacles all over the place and it’s a similar situation with Uber and Google, which are moving well beyond their initial profitable core businesses.
While Airbnb mulls over potential areas of growth to help deliver the massive (ten times being an expectation) returns its many venture capital backers are now demanding, its founders have another pressing, and possibly conflicting, issue. They are looking at positioning the business as an entity that isn’t wholly beholden to delivering financial results.
They have recognised the company needs to work on what is best for the broader Airbnb “community”, which includes its guests, property hosts, employees and cities in which it trades. Managing this array of parties, not just shareholders, has also been increasingly on the mind of Deliveroo, whose “community” consists of food-buyers, riders, restaurants and cities.
There is growing recognition that consumers are increasingly unwilling to spend money with companies that solely focus on short-term financial returns and fail to take into account broader responsibilities such as sustainable practices. Those businesses that fail to be socially conscious are being shunned by a growing number of young people.
This new way of thinking and operating is starting to permeate the fashion industry, which is being called out by consumers for unsavoury practices such as waste, animal welfare and child labour.
Kresse Wesling, co-founder of sustainable luxury brand Elvis & Kresse, has called the wasteful actions of many companies “unacceptable” and is vehement about unshackling from what we regard as success – purely sales and profits. She prefers a situation where the planet and people are equal to shareholders.
Elvis & Kresse’s model is about operating with different metrics. Wesling says while traditional company models are inextricably linked to revenues and profits, her business success is based on the level of donations it gives to charities and renewable energy projects, and the amount of materials it reclaims from waste and landfill.
The company converts this material into luxury products, including belts and bags, many of them created from end-of-life hoses sourced from the fire brigade. These narrative-driven or action-oriented products represent the future, according to Wesling. This approach has caught the attention of big fashion brands and Elvis & Kresse now works with the likes of Burberry, from which it rescues significant amounts of leather off-cuts.
Elvis & Kresse is proving a successful agitator and has helped push adoption of sustainable practices up the agenda of large fashion brands. More than half (52%) of fashion industry executives have said sustainability targets act as a guiding principle for almost every strategic decision they make, according to the Pulse Of The Fashion Industry report by the Global Fashion Agenda and Boston Consulting Group, up 18 percentage points on last year.
At a time when many leisure and hospitality businesses are finding it tough to justify their existence based on old practices, it’s time they took a long hard look at the “story” they are trying to tell and ponder whether the tried-and-trusted metrics they have been beholden to are no longer fit for purpose.
Glynn Davis, editor of Retail Insider
This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.