Indian hotel chain Oyo is planning to lay off 60% of its workforce in China as it struggles to contend with a number of setbacks, the most recent being the deadly Covid-19 virus which has immobilized the country for weeks.
Why it matters: The current novel coronavirus outbreak has weighed on the troubled hotel chain, which has seen widening losses as well as an increasing number of partner hotels exit and rising user complaints over the past year.
- Oyo, one of the $100 billion SoftBank Vision Fund’s flagship investments, is often compared to WeWork because of its charismatic CEO, aggressive expansion plans, and profitability struggles.
Details: The budget hotel chain is planning to cut around 60% of its employees in China, according to a former employee of the company who asked to stay anonymous due to the sensitivity of the topic.
- The layoff scale will vary by business division, from 70% to 80% of the tech team to 60% to 70% for business development teams, the source told TechNode. The employee in question had worked for more than a year at the company’s business development unit in the Shanghai headquarters.
- Oyo claimed (in Chinese) more than 10,000 employees in China as of Sept. 22, and said then that it expected to expand the size of its team to 20,000. The former employee told TechNode that Oyo China had around 8,000 employees as of late February.
- The source said that the company began discussions with staff on Monday and will finish layoffs by the end of this week.
- A verified Oyo employee relayed similar figures for Oyo’s job cuts in a post on social networking app Maimai.
- Oyo did not immediately respond to TechNode’s requests for comment.
- The company’s losses increased more than six-fold to $335 million in 2019. Losses from China operations reached $197 million, or 64% of the total, according to a Bloomberg report.
- The company’s operational problems in China, one of its largest markets, made it particularly vulnerable during the crisis.
- “Oyo’s troubles in China stem from its decision to retrospectively revise revenue sharing and marketing support terms with its hotel partners,” said Michael Norris, leader of research and strategy at AgencyChina in reference to a series of new initiatives the company included in its 2.0 strategy in June.
- “Incensed hotel owners left the platform in droves, destroying the platform’s proposition for independent hoteliers and dramatically reducing consumer choice,” he added.
- Oyo’s struggles add to the Vision Fund’s problems, Norris said, and present a challenge to the likelihood of a second Vision Fund.
Context: Founded in 2013, the six-year old company’s strategy was to find budget hotels with little visibility or online presence, then renovate them to operate under the Oyo brand.
- Entering China in late 2017, it operates a network to 10,000 hotels and more than 500,000 rooms across 337 cities in China, according to the company.
- Oyo has been widely publicized in recent months to be laying off across markets in India, China, and the US.