36Kr reported that Islands, an urban shared lodging startup, had raised tens of millions of yuan in its A round of financing in March. Banyan Capital was the lead investor and Plum Ventures also participated.
Established in July 2017, Islands received a total of RMB 10 million in an angel round of financing from Zhen Fund, China Growth Capital, Prophet Capital and 01VC just one month after it was incorporated.
Formerly known as iSeven House, Island has progressed to the third generation of its product model after six months of fine-tuning. It has turned regular rooms into spaces for travel photography and comfortable lodging. Guests can rent a room by the hour according to personal needs, so as to make use of a room at a preferential rate when it’s not occupied.
In the United States, the supply of upscale, midscale and economy lodging is in the ratio of 49%, 40% and 11% respectively, whereas the room composition in China is more bottom heavy, with 86.3% budget hotels and 8.1% midscale hotels. Whilst there are fewer midscale hotels, more than 40% of the total hotel demand goes to midscale hotels.
Islands builds its room inventory in ways totally different from traditional hotels – it chooses to pool existing room inventories and upgrades them.
As economy and midscale hotels in China only achieve a 46% occupancy rate, there is a large quantity of unused hotel rooms as well as high-quality apartment properties to generate hundreds of billions of yuan for Islands to tap, and the inventory size is equivalent to half of what is available in the entire hotel industry. Islands hopes to get a return for the investments already sunk into economy hotels or apartments.
Typical hotels can’t make use of certain room stocks as they have to maintain a level of room flow and public areas. But Islands has the flexibility of making use of the room stocks. “If we have at least 50 rooms in a centrally located neighborhood at controllable operating costs, we can lease the rooms at 80% of the hotels’ costs, and provide highly competitive accommodation in central locations,” said Mr. Yizhe Gan, founder and CEO of Islands.
So far, Islands has close to 1,000 rooms in more than 10 cities, including Beijing, Xi'an, Chengdu, Wuhan, Shanghai, Dalian, Nanjing, and Hangzhou. Users can place orders through its APP, OTAs and online short-term rental platforms.
Mr. Gan disclosed that Islands’s average room rate per night is lower than that of midscale hotels. The monthly occupancy rate is over 80%, and can reach 100% during peak seasons.
Islands has launched its investment and franchise system, which is different from the models of traditional hotels and B&B, in that property owners of the latter make the investments and the management companies take the profits, whereas Islands charges only for a share of the profit, and does not share in operating income nor require a franchise fee. With this business model, it plans to turn a profit within six months.