Why do hostels fail?

[mordcomm]

Greetings all!

Just wanted to pose a question to the fellow members:

What are the top reasons why hostels fail?

Is it the poor choice of location? Running out of funds? Mismanagement?

Would love to hear a few perspectives on this - especially if you have some actual examples of certain scenarios.

Thank you!

Boris

[Hostels]

What are the top reasons why hostels fail?

By "fail" do you mean go out of business, or that the hostel fails by being a bad hostel?

[mordcomm]

I meant primarily - why they go out of business.

Boris

[Hostels]

I've seen these things hurt hostels in combination, though don't know any specific hostels that have closed because of them:

• increasing competition with no hostel self-improvement
• no one knows the hostel exists (marketing problem)
• decreased number of tourists in a destination (e.g., destination marketing problem, economic problem, or current events problem like 9/11, H1N1, war)

Apparently, many hostels have closed in Budapest recently -- possibly because of the economic crisis combined with increased competition(?)

[santa klaus]

Budapest is an extreme example. There are A LOT of hostels, and many bad ones at that.

In Munich, not a single hostel went out of business since I started working in hostels there - in 1992. Even though some hostels there were benchmark-setters in mismanagement.

In Vienna, only one closed, because the owners retired and sold the house. They were too stupid to realize the house would be worth much more with the hostel still in it. It´s a pity I didn´t know they give up until it was too late - I would have liked to take over their business. I would have provided them with a much better pension than they have now.

I´m also not aware of a Berlin hostel going out of business in the last five years.

[Scotch Argus]

I think bad business planning combined with unrealistic bednight numbers are often to blame - people put together a business plan taking on too much debt and needing a very high level of occupancy to get enough money to service that debt. If you can open a hostel in a building you already own, or buy one outright you should do alright. Or if you're renting and the rent is reasonable given realisitic occupancy rates you can do alright. If however you take on a lot of debt, you can end up just working to pay the bank off. And if bednight numbers fall, they take over the building or sell it from under you.

[livaus]

I just checked on HW a lot of hostels in the major European cities. From ratings and descriptions it seems that it is mainly to do with poor location and poor staff, the latter is largely fault of mis-management.
In Riga those hostels that have closed usually are reopened couple months later with different name and owners. As fas as I know most of them are based in rentals (as far as I know we are the only ones who own the property) so when the lease comes up and it is renewed on worse terms (as it was often the case in boom times) many businesses closed (not so many hostels, but pubs, clubs, shops etc).
What puzzles me - why hostels in Paris, London have so low ratings on HW? Like 83% is the top rated hostel in town Don't their care about their business?

[santa klaus]

Like 83% is the top rated hostel in town Don't their care about their business?

Imperial arrogance, I would say.

Everybody travels to London and Paris, so even the worst dumps fill up.
Who works harder than he has to?

There might be other reasons as well: very few of the hostels in those cities are run by the people who own them. Some have several hostels. Real estate prices in these cities are so absurd you can only rent, not buy. More often than not, you only get short-term lease deals or bad deals: the landlord can triple the rent as soon as he sees you´re actually making money. Hence, nobody invests in improvements. The other problem is staff. Renting a room in London or Paris is so expensive that many people volunteer to work for free in a hostel as long as they can sleep in a moldy basement room in exchange. We have seen job announcements like that here on this forum - and people replying to them, hopeful they get that slave job. You can´t expect that staff to be very motivated - and indeed, turnover is high.

It was the same in Rome a few years ago, then came a wave of new hostel openings, some with very good ratings. Some even won HW awards. Now, everything is back to normal, 85% enough for being "top rated".
Or in Madrid: the "united World International Hostel" was frequently in the monthly top 10 Hostels on HW - now they score 63%. "Cat´s Hostel" won the best hostel worldwide award in 2004. Now, they score 82%, with cleanliness at 75% and staff at 73%...

I expect angry replies from London, Rome and Madrid now. Not really from Paris, I know how much you hate to communicate in English!

[JimmyEv]

I think this is an interesting question. In particular, does anyone know of specific reasons why a hostel failed? I keep wondering why the hostel in Pittsburgh failed. It's a city with really cheap overhead and the hostel got really good reviews.