I'll never forget a Washington Post headline that one of our reporters once wrote.
"Marriott: Hotels Hurting," read the big type, atop a periodic update on the fortunes of one of the Washington area's largest enterprises and private employers. Recessionary winds were blowing at that time, back in the early 1970s, and Marriott's hotel occupancy rates were off a bit even though overall business remained strong.
The hint of business softening deserved attention, but the people at Marriott allowed as how they didn't think much of the Washington Post headline-writing skills, since the company's occupancy rates (a key measure of hotel business) always had been above industry averages and had remained so. Business was very good at Marriott hotels, they contended.
The editors agreed the emphasis was wrong, and the reporter involved was retired from a brief career at writing headlines.
I was reminded of this incident by some recent developments affecting Marriott, a $1.5 billion international restaurant and hotel company that literally began as a root beer stand in the District more than 50 years ago. As a growth-oriented business in recent decades, it is natural that Marriott has gone through many stages of change.
But there have been some fundamental shifts in policy in the past couple of years that have created a Marriott Corp. far different from that of even two years ago. And these changes have not been documented thoroughly. Again, headlines don't tell the full story but we could probably bring out that controversial headline of many years ago and run it again, because in another recession, Marriott's occupancy rates are off a bit.
The hotels aren't hurting, however. I doubt if many people in the Washington area know how much of a commitment Marriott is making to expansion in the worldwide hotel business. Today, Marriott has hotels with more than 20,000 rooms compared with about 13,000 in the mid 1970s, reflecting a previous policy of gradual expansion.
However, Marriott has embarked on a program of expanding its room numbers by 20 percent to 25 percent a year for the next five years. Hotels obviously are becoming the primary growth sector of Marriott's diversified businesses.
In an interview, President J. W. (Bill) Marriott Jr. said that during 1981, his company will open 23 hotels with 8,900 rooms, bringing the total room count to 32,000 by the end of that year. "The most we ever opened in a single year before was six, and we're spending most of this year in training and developing the expertise to run those hotels," he said.
In the Washington area alone, Marriott expansion includes new units at Tysons Corner and Gaithersburg as well as the firm's first District hotels -- in the West End at 22nd and M streets NW, (opening next year,) and the 850-room flagship Pennsylvania Avenue redevelopment project Marriott plans to open in 1983 across from the old Willard Hotel.
With a goal of 46,000 rooms by the end of 1983, Marriott has been transformed suddenly into the fastest-growing hotel business in the world, with properties in the Middle East, Europe and Mexico but a concentration on U.S. hotels.
The reason: Marriott hotels contributed half of the firm's overall $71 million in profits during 1979, with pretax hotel profits up threefold in five years.
In the first quarter of the current fiscal year ended March 21, hotel profits jumped 23 percent from last year while sales rose 25 percent. Marriott said last week that the occupancy rates at hotels in business a year ago remained strong (in the 80 percent and higher range), but that overall occupancy was down slightly because of new hotels and room expansions at existing hotels.
With the new emphasis on hotels as a key to Marriott growth, the company obviously has to concentrate attention on this business. Marriott said the most significant factor about the current recession is that business travel and hotel reservations are holding up at a stronger level than during the recession of the mid-1970s, even though many individuals' private travel or vacation plans have curtailed.
To Marriott, this indicates a milder recession in progress. "We don't see business taking it on the chin as much this time. Capital goods spending is staying stronger, although the consumer is spending less," he said.
More importantly, Marriott said he believes that the "buy now, because it will be more expensive later" consumer-spending psychology has taken a beating in recent months.
As for Marriott's overall business, it has remained unusually strong. Operating profits rose 24 percent in the first quarter, not counting interest costs associated with the firm's borrowing to help buy back 12.5 million shares of its outstanding common stock in the last 16 months. Earnings per share jumped 29 percent to 40 cents from 31 cents a year ago, reflecting fewer shares outstanding.
The stock buy-backs, sales of marginal assets and Marriott's ongoing program of selling hotel properties to other investors (but retaining the management) have changed the company's financial structure and enhanced its return on stockholders' equity. The return on average equity last year was 17 percent compared with a low of 9.5 percent in the mid-1970s.