Atour sold 12 million pillows by the end of the second quarter of 2026, with pillow and quilt sales representing 40% of its total revenue for the first half of the year. Retail revenue reached 41% of Atour’s overall income during this period, reflecting rapid growth from 254 million yuan in 2022 to 3.67 billion yuan in 2025. The company raised its full-year retail revenue growth target to 40%, driven by strong demand for sleep-related products.
Atour Retail Margins and Marketing Costs
Atour’s gross profit margin on its retail business increased steadily, reaching 53.3% in the second quarter of 2026. The pillows, produced by OEM factories
in Dongguan, Guangdong, have a retail price margin between 65% and 83%, with purchase costs representing 17% to 35% of the retail price. However, Atour’s sales and marketing expenses rose sharply by 54% year-on-year to 606 million yuan in Q2 2026, causing the sales expense ratio to double from 6.2% in 2022 to 13.5% in the first half of 2026. Concurrently, retail costs surged 70% for Atour in the quarter. Competition increased as other hotel brands introduced memory pillows priced below Atour’s products.
Huazhu’s Asset-Light Franchise Expansion
Huazhu added 498 new stores in a single quarter in 2026, operating over 13,000 hotels worldwide by
June, with 93% under management, franchising, and licensing models. Its first-half revenue totaled 13.117 billion yuan, up 11.0% year-on-year, with net profit at 2.394 billion yuan. Revenue from management, franchising, and licensing grew 22.9% year-on-year to 6.592 billion yuan, accounting for 50.4% of total revenue and becoming the largest source of income. Conversely, revenue from directly operated and leased properties declined by 4.9% year-on-year as of Q2 2026. The company’s hotel operating costs increased by 7.4%, a slower pace than revenue growth, reflecting its shift to an asset-light business model.
Huazhu Store Performance and Closures
The overall occupancy rate for Huazhu’s hotels in China fell
to 79.8% in Q2 2026, down 1.2 percentage points year-on-year and continuing a six-quarter downward trend. The company closed 176 stores during the quarter, of which 157 were franchise locations, with plans to shutter 600 to 700 stores throughout 2026. Huazhu’s directly operated hotels report room rates 86 yuan higher and occupancy rates 3.2 percentage points above franchise stores. Franchisees face pressure to upgrade facilities or risk exclusion from recommendation systems or closure, while paying commissions exceeding 12% on orders made through Huazhu’s central reservation system, which generates 65% of bookings.
Hotel Industry Revenue Model Shifts
The hotel industry is moving beyond reliance on room
rate profits to diversified revenue streams, including retail sales of branded pillows and bedding as seen with Atour, and asset-light franchising demonstrated by Huazhu. Atour’s marketing strategy uses hotel rooms as experiential showrooms, encouraging guests to purchase pillows during or after their stay. Huazhu’s franchise model allows rapid expansion with limited capital but imposes operational challenges on franchisees.
Impacts on Guests and Franchisees
Hotel guests may be encouraged to buy pillows after stays, as Atour’s retail business is embedded in the lodging experience. Huazhu franchisees bear costs for property upgrades and mandated pillow purchases while facing intense pressure to remain competitive within the chain’s central
reservation system. Directly operated hotels offer higher room rates and occupancy, indicating tougher market conditions for franchisees. Both Atour and Huazhu illustrate an industry trend where room revenue is only an entry point, with profitability increasingly dependent on retail product sales and franchising fees.
