I’m sorry being a flip-flopper here, because I was bullish on its stock until last Thursday. But like many things in life, I think sometimes it’s worthwhile to have a second look, this is especially true on investment. It’s no good to hold on a stock “no matter what”, or “fall in love with a stock or a company”, because we don’t want to throw away our hard earned money. At least I don’t. 

With that being said, here is some unpleasant experience I had being a Home Inns customer, I mentioned in my previous post, but you may have not noticed:

“But the rooms in Shanghai Pu Xi areas are ususally old and its condition are not great (sound insulation, bugs, etc.)”

You may ask why they have bugs in the bathroom? Can’t they find some better places? Well, the problem is the properties (real estate) prices in Shanghai and Beijing have sky rocketed in recent years, i.e., HMIN is paying more for the lease of its hotels. You may ask why those old buildings suddenly become hot? Well, in recent two years a lot money has been poured into budget hotels, because they are (potentially) very lucrative investments. So, budget hotel developers are bidding up those otherwise-no-good buildings, as long as the locations are good (a.k.a, near a business hub, near a metro station, etc.).

On the other hand, with so many budget hotels under development, there is a shortage of experienced people. You can read this Chinese article from 21cbh for a glimpse. Basically it’s saying some key managers at Home Inns are leaving to take more important positions at rival chains. What does that mean? I think Rujia has to offer some more incentives to keep or lure some talents. Translated in plain English, the labor cost will also rise.

All right, the cost is rising, how about passing those to customers? The answer is no. Chinese budget hotel customers are very price sensitive, especially in the second tier cities HMIN is entering now.

So…in a word, HMIN’s got squeezed at both ends. While Home Inns tried to be the “sweet home when being away from home”, it may not turn out a sweet investment, at least in the near term.