Soho House eyes opportunity despite pandemic crisis
Private members’ group presses on with new openings and weighs move into long-term rentals
Nick Jones has lost more sleep over paint colours than his company’s finances during the coronavirus pandemic.
The chief executive of Soho House, the private members’ club group, had committed to a five-year strategy that includes an extensive refurbishment programme, five new sites a year, and a revamped app.
A move into long-term rentals is also on the list.
Despite global lockdowns “nothing stopped” at the business, said Mr Jones, looking up at a green ceiling in 180 Strand, a new Soho House that was due to open in London in April. The clubs, known as celebrity hang-outs frequented by the likes of Prince Harry and Kate Moss, closed in the pandemic and finishing touches at 180 were paused.
The Strand site is now due to open in August. The ceiling, which Mr Jones had pondered over “in the middle of the night”, will be blue.
Since March, Soho House has spent £5.4m refurbishing properties and amalgamating its 24 websites into one. It has relaunched its app, which now offers a social network for members and a contactless in-house payment method.
It will also open new houses in Mykonos, London, Tel Aviv and the British Virgin Islands this year.
Hospitality businesses have borne a heavy burden through the crisis as governments across the world banned social gatherings. Many have turned to shareholders and debt markets to survive, including hotel heavyweights such as Marriott and Hilton.
Soho House has been able to continue its aggressive expansion through a mixture of cost cuts, fundraising and incoming membership fees.
“Our membership model is pretty robust through a serious crisis,” said Mr Jones, who reckoned that the lengthy wait to become a member — up to 18 months in some cases — put people off cancelling.
The first Soho House opened in London in 1995 and just before the financial crash in 2008, millionaire restaurateur Richard Caring invested £105m helping boost growth despite the downturn.
There have been concerns about high debt levels, prompting the group to pull a planned £200m bond sale in 2015, but Soho House says turnover has continued to grow.
Applicants are vetted and membership costs between £980 and £1,750 a year in return for various levels of access to Soho House accommodation, co-working spaces and interiors products.
Only about 10,000 of its 110,000 members have frozen their memberships during the crisis, despite many working in the hard-hit creative industries. Those who have continued paying have been offered their fees back as vouchers to spend in the Houses and Soho Works, the company’s co-working sites.
The majority of Soho House’s 26 sites are in the UK, where hotels and members’ clubs can reopen from July 4.
The business has benefited from deep-pocketed backers. Its majority shareholder, the US billionaire Ron Burkle, led a group of five investors to provide $100m in a fundraising in June that valued the company at $2bn.
And it is cost conscious. One supplier of furnishings to Soho House described the company as a good customer but “a bit tight”.
The next step is home rental. “There are a lot [of our members], from say the age of 20 to 35, who don’t want to buy but want to rent and want to rent something that doesn’t have big deposits . . . They want areas where there’s more public space and you don’t have to have your washing machine in your flat,” said Mr Jones. “I think there will be a huge demand for it.”
He said that he expects hotel failures to result in sites that would be well suited to long-term accommodation with shared facilities coming on to the market at a good price.
Peter Backman, an independent industry analyst, said Soho House “has good brand recognition and stands for something. In marketing terms, if you can make that work in another environment there is a good chance that it will work.”
Despite the expansion, the pandemic period has not been without pain. Mr Jones and his senior management took pay cuts of 40 per cent that they paid into a fund for employees in need.
Staff are now working four-day weeks, cutting 20 per cent from payroll costs, and the company has used the lockdown period to identify “efficiencies”. Mr Jones has vowed that job cuts will be “in the single digits” but less travel and more Zoom meetings will be encouraged.
The group has also extended its debt covenants and is negotiating with its lenders to move from a leverage-based to a liquidity-based covenant, in order to reduce interest costs.
Net profitability is another two to three years away, due to the expansion efforts, Mr Jones said, but on a house-level the business will break even this year. “Every house makes money. It’s just the continuous growth.”
According to its most recent accounts, development costs leapt from £68,000 in 2017 to £696,000 in 2018 across its European business.
For the short term, reopening means random temperature checks for visitors to houses in Asia and the US and limits on how many guests members can bring.
Houses will operate at roughly 70 per cent of capacity and the company is converting its events spaces into co-working areas. From September, overnight accommodation will no longer be available to non-members.
Mr Jones, who signed the deal for the New York Soho House around the time of 9/11, is unwaveringly optimistic: “I’d like to think we have quite a positive story out of all this.”