How did OYO begin its expansion in Japan?
The decision to join the Japanese market was motivated by the growing demand in the country’s hospitality industry, which was expected to see a major upturn over the next two years, due to hosting the 2020 Summer Olympic Games in Tokyo, its capital city.
OYO Technology & Hospitality Company, Japan, announced the launch of OYO LIFE services in the country in 2019, a joint venture between OYO and Yahoo Japan Corporation (“Yahoo! JAPAN”). They officially launched in Tokyo with over 1000 keys spanning over 20 Ku (distinctive zones), offering trouble-free furnished rental apartments, and removing the need for a security deposit, key money, and entry fees for rental home seekers in the region.
Within days of the service announcement, the company had already received more than 11,000 + pre-registrations and was incredibly popular with students and young professionals, reaching occupancy of more than 114 percent when it was launched. The event was organized in the presence of Kentaro Kawabe, CEO Yahoo! Japan and Hiro Katsuse, CEO, OYO Technology & Hospitality, Japan, by the CEO of the Founder & Group, Ritesh Agarwal.
OYO’s downfall in Japan
The number of hotel operations of OYO in Japan has declined to 150 from 600 in October through layoff and job re-assignment to Soft Bank. Oyo has also struggled in Japan even after the full endorsement of Soft Bank. It is one of the largest startups of Soft Bank’s portfolio.
It is losing its hold and its headcount in Japan as bookings in the country decline due to the travel restrictions. Moreover, it has also cut its regional presence in Japan by closing offices in Sapporo, Sendai, Nagano, Hiroshima, and Omiya at the end of June. These moves increase the company’s current efforts to abate internationally as it adapts to the small tourism industry in the virus hit Japan.
OYO is also telling its employees to leave and also offering them a four-month allowance. The hotel industry overall is facing a tough situation because of the virus, and it will connect those employees who wish to find a new job with a recruitment agency.
Changes Taking Place In Japan
The changes that are taking place in Japan are part of a global retrenchment by the startup which a few months ago was looking all set to become the world’s largest hotel operator by room count. But unfortunately, the company’s expansion proved overly aggressive and it also started scaling back even before the outbreak of the coronavirus, reducing its staff in China by almost half and also reducing its global manpower by almost 5,000 people.
Oyo also furloughed another thousand of its employees as the virus started spreading rapidly and is now offering those employees stakes in the company a discount to cover up the drop in their pay.
Japan is a type of particular import market to the hotel-booking industry startup, whose founder and also the Chief Executive Officer Ritesh Aggarwal earned Soft Bank supreme Masayoshi Son’s commendation and is also benefited from Soft Bank’s brand association and its promotional activities.
It has struggled in Japan even after the full endorsement of Soft Bank. Masayoshi ’s global brand is one of the country’s largest wireless carriers and it is also the leading web portal and also the Fukuoka Soft Bank Hawks, the team which has won five out of the last six baseball championships. OYO’s push for the swift growth in the country was obstructed by technical problems and a public counterblast from the hotels, leaving it short of its targets.
Overseas visitors to Japan totalled 1,700 in May, marking approximately 100% decline from the previous year, according to the country’s tourism agency. Domestic tourism had also been at a decline during the state of emergency that was covered in both April and May. The postponement of the 2020 Tokyo Summer Olympics to the next year and also the fears of a second wave of the infection is likely to increase the pain for the hospitality industry in the country.
OYO In Other Countries
Whilst Oyo does not plan to quit fully, it will either terminate contracts with loss-making hotels or will not renew them.
As part of a broader restructuring that began last year, the startup had already displaced some loss-making properties.
Some sources also stated that the company could accumulate additional employees in countries where travel restrictions persist in order to prevent the spread of the virus and make the hotels difficult to operate.
The retreat was only one year after Oyo became one of the world’s most influential room brands, with its frenetic growth beyond India and China to Europe, Southeast Asia, and the US. However, last year’s losses also increased to $335 million.
It wasn’t entirely apparent how often hotel contracts Oyo plans to conclude nor in which countries.
It is very sad that the economy all over the world has suffered tremendously. In the present scenario, there is no medicine or vaccine for this virus. The hotel industry like the other industries is undergoing difficult times. Only time will be able to tell the future aspects. It’s reasonable for Oyo to brace for the worst considering how unimaginable the current situation is.