Hotel Business Review

Mr. Walter

Spas, Health & Fitness

Communication and Accountability in a Troubled Economic Environment

By Todd Walter, Chief Executive Officer, Red Door Spa Holdings

Reduced occupancies...apprehensive associates...concerned creditors...all hallmarks of turbulent economic times and issues that we have each been facing during the past year. As business leaders, we directly affect how well our organizations weather the storm through our interactions with the various constituent groups that we rely on, namely our associates, our guests, and our vendors/capital providers. In people-intensive industries like ours, communication and accountability are inevitably critical to our success, and never is this more important than in today's economic climate.

Associates

Before joining Red Door Spa Holdings, I spent the better part of ten years in the turnaround management field, working as part of a team to help fix financially troubled companies. The first task in every new assignment was to build a fact base. This process always involved interviewing people at various levels throughout the organization and soliciting their opinions as to what contributed to the problems the company was facing. Invariably, two issues were cited by middle managers: poor communication from senior management and a lack of accountability. I found that as the senior managers of these companies faced increasingly difficult times, they communicated less and less with the rest of the organization. Presumably these managers were concerned about sharing the true state of the business and were, in their own minds, sheltering others from the scary realities they were facing. What they failed to realize was that in the absence of facts and information, peoples' natural tendency was to assume the worst. The best people in the organization had the greatest opportunities to move elsewhere, and left unchecked, they often did. Similarly, as the best people in the organization perceived a lack of accountability on the part of those making poor decisions, and just as important, those not making any decisions at all, they too were the most receptive to headhunter calls. While today's economic climate may limit employees' opportunities to move around, the best people in any organization will always be sought after.

At Red Door Spa Holdings, we have tried to ensure that we start with the "right" people for our business (i.e., those individuals that share and are aligned with our core values) and then seek to communicate with them frequently and through a variety of channels. We have created an internal message board called "Spa Chat," where any associate within the organization can post a question or provide feedback to me. The questions/comments and my responses are available for all to see. Others can then join the conversation by posting their own responses and comments. Our philosophy is, "ask a direct question and get a direct response; no topics are off-limits." In addition to open communication lines, we also have a certain rhythm tied to the calendar year including: weekly "huddles" in the field (a page taken from the hospitality playbook), monthly operating and financial review meetings for managers, quarterly newsletters, semi-annual town hall meetings, and annual summits. Ultimately, we seek to create a culture of shared beliefs and a sense of belonging. Ensuring that we are constantly communicating with our associates helps us achieve that goal.

Guests

Without question, our associates are a critical constituent group, since it is they who are taking care of our guests. Without guests, however, we obviously wouldn't have a business, and so communicating directly with them, particularly in today's difficult environment, is of paramount importance to us. The spa industry, like the hotel industry, is extremely fortunate to have incredibly rich customer data. Through our systems, we know who are guests are, how frequently they visit us, and what their preferences are. While having this information helps us to segment our guest population and allows us to market to the individual segments in a more targeted way, the communication is one-sided and not interactive. To address this shortcoming, we at Red Door Spa Holdings implemented a Guest Experience Survey based directly on noted customer-loyalty expert Fred Reichheld's concept of the Net Promoter Score. Very simply, we send an e-mail thank you to all guests for whom we have an e-mail address. In this communication, we ask our guests to take a survey to help us better meet their needs in the future. The survey is short and asks just two questions: 1) On a 0 - 10 scale, 10 being the highest, how would you rate your overall experience at Red Door Spas?, and 2) On a 0 - 10 scale, 10 being the highest, how likely are you to recommend Red Door Spas to a friend? Remarkably, in the six months since the survey was implemented, nearly 50,000 guests have completed the survey. Even more remarkably, 50% of those guests have provided us with detailed comments that help us to continuously improve our operations and realize our brand promise of exceeding our guests' expectations. In contrast, prior to the launch of the Guest Experience Survey, we used third-party mystery shop services; for all of 2008, we had a total of just 600 mystery shops across 50 locations and received no direct guest feedback.

Vendors / Capital Providers

The third important constituent group, and perhaps never more important than in today's economic environment, is our capital providers. The challenging business environment invariably leads to challenging financial results, and trade vendors, financial lenders, and equity investors, in the absence of facts and information, will often assume the worst. Before joining the turnaround industry as an operator, I spent four years in the workout group of a money-center bank working with troubled companies from a creditor's perspective. There was never anything worse than a negative surprise from a management team that knew about a problem but failed to disclose it until much later. Often when this happened, constructive solutions that could have worked had the problem been identified and disclosed sooner, were no longer feasible. Worse yet, these management teams lost their credibility at a time they needed it most. My experiences have led me to conclude that open and honest communications, no matter how difficult the message, leads to constructive partnerships; a breakdown in communication can lead to speculation, and at its worst, adversarial relationships. At Red Door Spa Holdings, we initiated a proactive communication strategy with our significant trade vendors and senior lenders last November. While we did not have any out of the ordinary course needs or specific requests, we wanted to ensure that the communication lines were open and that everyone had the benefit of the facts. As a result, our creditor relationships are excellent and all parties have a clear understanding of our outlook for the immediate and medium-term future.

As I reflect on the challenges of the past twelve months and review the cost reduction and capital preservation exercises employed at Red Door Spa Holdings, it is hard not to feel as though we have been going through a turnaround. In that sense, the analyses and the execution of plans are little different from what I had been doing in my previous career. As we at Red Door Spa Holdings and our colleagues in the hospitality industry face these challenges, I am reminded of the importance of establishing and maintaining open communications with various constituent groups.

Mr. Todd Walter is COO of Red Door Spa Holdings. He has experience in financial restructuring and turnaround management. Mr. Walter has provided financial and senior operating leadership to struggling companies in varied positions including: CFO and acting COO of Naked Juice, CFO of Cluett American Corp., acting Vice President of Operations for MobileMedia Corporation, and Treasurer of a private, post-secondary education company. Mr. Walter has a BA from Middlebury College and an MBA from the Darden Graduate School of Business Administration at the University of Virginia. Mr. Walter can be contacted at 203-905-1779 or twalter@rdspas.com

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