The wreckage in the US retail landscape is growing. Virtually every segment of the industry is feeling the impact of being squeezed between two intensely heated plates of steel.
On the one side is e-commerce – dominated by Amazon – and on the other side a profound shift in consumer behavior. Research has long suggested that for educated, affluent consumers with the means to choose, experiences trump possessions. The evidence of this preference in action appears to be a large part of the retail industry’s current existential challenge.
Richard E. Jaffe, retail analyst at the investment firm Stifel Nicolaus, observed: “whether it’s going to a festival or sharing a car ride or going to a new city,” it’s becoming more about the experience. “The religion of consumption has proven to be unfulfilling,” he said. “The ‘pile it high and watch it fly’ mentality at department stores no longer works.”
The birth of a new tourism market is a rare thing to witness. In fact, it is not entirely accurate to describe Cuba as a new tourism market, given the country’s history as a booming travel destination prior to the 1959 Revolution and more recently with non-American visitors. But Cuba’s newness to Americans is causing the island nation to brace for massive growth from the largest, richest country in the world. At a recent investment conference about Cuba, Southwest Airlines’ Director of International Business, Steve Swan, suggested, a “huge influx” of Americans is expected in Cuba. The start of scheduled flights from the US to Cuba is expected to commence later this year and will bring huge numbers of additional travelers.
In terms of overall tourism demand, Cuba received a record 3.52 million visitors last year, up 17.4% from 2014, making it second to the Dominican Republic in tourist visitors in the Caribbean. Digging a little deeper shows a more striking statistic; only 160,000 (non Cuban-American) US citizens visited Cuba last year. That compares to 20 million Americans who visited Mexico last year. A recent poll suggested 37% of Americans are considering a trip to Cuba – especially among the prized affluent millennial segment. That’s more people than is reasonable to forecast, but the point is that Cuba has visibility on massive growth in its travel and tourism sector (presently 50% of the economy).
The reasons behind Cuba’s rapid growth have as much to do with its Caribbean location as with the recent changes in US consumption trends that emphasize experiences over possessions. The objective reasons for travelers wanting to visit Cuba are obvious. The island has 40% more coastline than Florida, most of which is beautifully unspoiled by development. There is also the allure of visiting an island-nation seemingly frozen in time that many find so captivating. It’s no wonder that rock stars, politicians, business leaders, the President of the free world and the Pope have all rushed to visit Cuba over the past several months. Even Kim and the Kardashian clan recently paid homage to Havana.
Airbnb, the holiday rental platform, was one of the first US tech companies to operate in Cuba. Since integrating with Cuba’s casas particulares program last year, Airbnb has paired more than 13,000 guests from all 50 US states with rentals in Cuba. More than 4,000 casas particulares owners have added their homes to Airbnb’s network.
According to the company’s founder and CEO, Brian Chesky, “Cuba is the fastest-growing country on Airbnb ever in the history of our platform.” A shortage of hotel room availability is no doubt part of the equation of the company’s success, yet Airbnb’s presence and impact in Cuba points to a bigger dynamic at work.
The economic impact for average Cubans who put their homes up for rent on Airbnb is profound. And for American tourists in search of an authentic experience in forbidden Cuba, the appeal of staying in someone’s private home is exactly the kind of genuine, cultural immersion they crave. Everybody wins in this situation. It’s a private sector triumph that should raise the eyebrows of the central planners. More specifically, the magical, sought-after quality present in Cuba today is a case of reverse nostalgia, and the urge to experience it is not likely to fade for some time.
Airbnb’s experience in Cuba reveals a lot about the dynamic between Cuba and the urge for Americans to experience travel that offers less predictability and more authenticity . In fact, in confirmation of travel companies recognizing this trend in consumer behavior, Airbnb is looking to expand into the leisure sector, according to co-founder Nathan Blecharczyk, who said the company has plans to move the business “beyond accommodation.”
In a recent interview with the BBC, Blecharczyk stated: “what we’ve demonstrated is there’s an immense appetite to travel more authentically and immerse yourself in culture… as opposed to having a commoditized experience.” As a result, the company is contemplating a plan to assist travelers in arranging holiday activities by pairing hosts and guests for city tours and sporting activities, among other pursuits.
Cuba appears to sit squarely at the intersection of Americans’ desire for authentic travel experiences and Airbnb’s brand mission to increase cultural empathy and decrease cultural boundaries. Consider the description of Airbnb’s brand in this interview with Airbnb EMEA marketing director Alex Dimiziani:
Airbnb is not the only company to identify and exploit a major shift in America’s consumption trends. The Leading Hotels of the World conducted a global study to understand this new segment of educated, affluent traveler — and how to better serve them.
“Over the past few years we have seen a subset of the affluent traveler emerge that Leading Hotels has termed the ‘Curious Traveler,’ said Ted Teng, President and CEO of The Leading Hotels of the World. In an effort to understand the mindset and motivations of the discerning “Curious Traveler,” the report paints a portrait of someone who is captivated by exploring diverse cultures and who thrives on discovery around art, culture, history and cuisine.”
Here are some of the key findings:
- 79% of curious travelers feel that travel is an essential part of life.
• 30% of curious travelers intend to take more trips in 2016 vs. 12% who plan to take fewer.
• 78% express interest in exploring a destination’s hidden gems.
• 54% look for unique and different travel adventures.
• Only 32% seek the “hottest/trendiest” spots.
• The curious traveler will spend 7% more on hotel accommodations per night this year than they did in 2015 ($419 per night/$390 per night).
One unexpected finding in the report defies conventional thinking about Americans. Apparently, Americans are especially curious, and the Curious Traveler thrives on cultural immersion.
According to The Martini Report, The Affluent Traveler, experiential travel trumps bling. A whopping 80% would choose a luxury experience over a luxury item.
The Affluent Traveler details the online behavior of three key segments of the Affluent Market: the Hyper Affluent, 3% of Americans with at least $250,000 in annual household income; the Mass Affluent, one quarter of the U.S. population who falls in the $100,000- $249,000 income range; and the Emerging Affluent, aged 18-39, with household income in the $75,000- $249,000 range.
“The memories made from one-of-a-kind travel experiences are something that money cannot buy,” said Vincent Krsulich, Senior Vice President of Sales at Martini Media, an Evolve Media company. “The Martini Report showed that while older affluents are more interested in relaxing with family while on vacation and younger affluents actively seek out new experiences to learn about other cultures, they have one thing in common: Affluents would rather spend money on vacation than on material possessions…” What’s more, the amount of time and money Affluents plan to spend over the coming year is only expected to increase.”
If you think the communist island nation is blind to the bottom line impact of the so-called “Curious” or “Affluent” Travelers — you would be sorely mistaken. Luxury hotels, yacht marinas and premium upgrades to exiting all-inclusive resorts is where Cuba’s leaders are currently focusing hundreds of millions of dollars of investments.
The Cuba Journal’s Q1 2016 hotel pipeline in Cuba illustrates the country’s emphasis relative to this trend. Because all hotels are owned by the Cuban government – mostly through government-controlled entities like Gaviota – the development pipeline shows how vital travel and tourism is for the long term future of Cuba’s growth and development strategy.
The cruise ship industry has responded to the new Cuba opportunity. Fathom, a sub-brand of Carnival Corporation, launched a special small ship that emphasizes immersive cultural exchange. Fathom’s cruise ship, the Adonia, lacks a casino and large scale theatrical productions and instead offers an experience designed to focus on sustainability, community and learning in a upscale setting. There is even a library.
Finally, the country’s pristine natural endowments virtually ensures a steady flow of large numbers of affluent travelers seeking a tasty last bite of an endangered species – and in this case it may be nature as a whole is the endangered species. The variety and number relatively-untouched terrestrial, surface water and underwater locations is greater than the entire Caribbean combined. Last week, Orvis, a large US retail company and leader in all things fly fishing, announced a plans to take anglers on fishing tours of Cuba. Packages start at $6,150 per person for a week of fishing and cultural engagement.
Expansive, rarely-fished saltwater flats. World-class bonefishing with shots at tarpon and permit. Delicious, home-cooked meals. Vibrant culture. Warm, welcoming people. Illuminating conversation. You’ll discover all this and so much more on our one-of-a-kind fly-fishing adventure in Cuba – Orvis