Financial Myths: It’s Better to Light a Candle Than Curse the Darkness, Part III

Michael McTague  |

Image of Dante's Tomb via YouTube

This myth yields real eye openers about leisure – enjoyable activities people pursue vigorously as wealth penetrates all levels of society. In previous entries, we looked at cruise ships, airlines, night baseball and television. A few additional leisure business areas deserve investigation.

Hotels Spread

Travel is exploding including budget airlines, ship tours and endless beaches. Hotels are on a tear. A building boom is underway in major European cities. Italy – the land with the greatest mass of cultural material -- is undergoing a renaissance – pardon the pun – in hotel development. Milan, for example, has risen in popularity and has the hotel listings to prove it. The number of five-star hotels in the smaller cities in Italy has also increased significantly. The hotel giants are everywhere. According to Hotels and Chains in Italy 2016, the land of Michelangelo and Leonardo had 35,600 hotel rooms owned by chains in 2003. By 2015, the number had risen to 148,400 and includes Best Western, Starwood (HOT), Marriott (MAR), Hilton (HLT) and Sheraton (owned by Starwood). [Ramada (owned by Wyndham), not one of the Myth Buster’s favorites, failed to make the cut.] Florence -- the love of American tourists and students, which may already be saturated with places to stay – trails Rome and Milan in the hotel race.

Keeping with our investigation of the attraction of culture, we looked at the birthplaces of three great Europeans -- Dante, Beethoven and Shakespeare. Ravenna (Dante) lists three luxury hotels and thirty-one total hotels. Bonn (Beethoven) offers fifteen luxury hotels and a total of seventy nine places to stay. Shakespeare’s birthplace, Stratford upon Avon, shows eight in the luxury column and thirty total. Of course, these cities are full of life apart from their histories and illustrious natives. Ravenna has never made the list of hot tourist destinations and the Bard’s birthplace lies in a small city. Only in a business publication will you find a luxury hotel percentage study.

Apart from the many other factors one might consider, the English city that lies 100 miles from London holds the highest percentage of luxury hotels (27%) from our three-city list. Bonn follows (19%) with total luxury hotels exceeding his symphony output by six. Dante’s birthplace, also a Byzantine art center, follows with the smallest luxury percentage. Of course, we have an explanation. While Stratford upon Avon repeats Shakespeare’s plays and Bonn can offer thirty-two sonatas from the master, it would be difficult for Ravenna to recreate the Inferno. Nearby Rimini boasts more hotels than Ravenna, which did not even make Italy’s top ten. However, here is a business idea for a brave entrepreneur: a Dante theme park showing the three faces of Satan. (Disney perhaps?)

Is That a Leisure Suit You’re Wearing?

The leisure expansion takes in many industries and generates a great deal of revenue. Less-expensive airlines such as Jet Blue (JBLU), Carnival Cruise Lines (CCL), Norwegian Cruise Line (NCLH), great hotels such as Marriott, Hilton, Hyatt (H) and mammoth Disney (DIS) enjoy the leisure-inspired cash flow. Curiously, leisure suits have fallen by the wayside. The whole garment industry has faded to a memory in the US. Even in swanky Palm Beach, men on vacation prefer Dockers, shorts and baseball caps. With a few exceptions, suits lack the panache of Air Jordans from Nike (NKE), Chopard De Rigo Vision Sunglasses or Honma Five Star Golf Clubs. Tiger Woods and Michael Jordan have generated many millions in sports-related sales.

Suits lie in a commodity wasteland and their prices reflect it. Tailoring is a lost art. Off-the-rack or online suits are ubiquitous. Imagine: Calvin Klein suits for $150. Leisure suits, which promised comfort in the blazing sun, have fallen into the dustbin of history along with pith helmets, personal fans and straw hats. Suit makers compete with ordinary retailers, earning a good deal of their revenue from jeans, boots and bags going head-to-head with the Gap (GPS), Aeropostale (AROPQ) and JC Penney (JCP). Ralph Lauren (RL) shows steady revenue and profit over the last three years. But the legendary suit master finds its marketing costs rising and its cash shrinking. Coach (COH) finds its share price slipping 50% over the last four and a half years [$76.49 (2/27/12) to $36.91 (10/3/16)]. Aside from the obvious conclusion that people don’t dress up to enjoy their leisure time, it seems obvious that the real investment opportunities lie in the activities that people enjoy. This proves people are smarter than the advertising they must absorb and that this myth is insightful.

In these three entries, we have looked into some real business and investment opportunities. The myth holds up well. Its literal meaning pleases investors in utilities and energy. Antique collectors take comfort because candle holders are valuable. Blue chip investors are happy because candles have new life as aroma providers. The more figurative meaning of the myth proves powerful as well. The human desire for leisure advances more rapidly thanks to light and electricity. Tourism, travel and leisure form quite a mixture, loaded with business opportunities. Increasing wealth makes the concoction boil. A peculiar mixture of the profound and the superficial occupy the hopes and dreams of travelers from Magic Mountain (Disney) to Vesuvius. Next month, the Myth Buster will pursue more insights into real business opportunities.

Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Companies

Symbol Name Price Change % Volume
CCL Carnival Corporation 44.06 -0.42 -0.94 2,565,132 Trade
HLT Hilton Worldwide Holdings Inc. 97.76 -0.33 -0.34 2,314,973 Trade
JBLU JetBlue Airways Corporation 19.58 0.28 1.45 3,389,574 Trade
NKE Nike Inc. 91.29 1.79 2.00 5,954,868 Trade
HOT Starwood Hotels & Resorts Worldwide Inc. n/a n/a n/a 0 Trade
RL Ralph Lauren Corporation 110.66 -0.70 -0.63 1,243,568 Trade
DIS The Walt Disney Company 148.72 10.14 7.32 46,367,287 Trade

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