Mr. Catrett

Boutique Hotels

Boutique Hotels: There's a whole new way of doing it

By Jeffrey Catrett, Dean, Kendall College Les Roches School of Hospitality Management

When they arrived in the 1980's then became popular in the 1990's, the new boutique hotels were referred to by many mainstream hoteliers as "hotel terrorists", suggesting they were mere niche players willing to go to the brink to disrupt accepted lodging norms but incapable of inflicting anything more than minor damage and annoyance to the grounded establishment. Economies of scale and loyalty programs, it was thought, would easily deflect any real threat from the boutiques, leaving them to a narrow niche among the avant garde.

But avant garde, of course, refers to the "advance guard", and today, boutique hotels are no longer just for the innovators and early adopters. Today, boutique hotels have captured the imagination of a very substantial portion of the travelling public with everything from edgy theme properties to cosy getaways.

Boutiques were designed originally by Baby Boomers for Boomers, but it was Generation X, flush with freshly earned dot-com money, that embraced these hotels as a generational statement. When Barry Sternlicht brought his "W" concept to the scene and when Kimpton expanded outward from its home base, boutique went from Ian Schrager underground to mainstream. If boutiques were once limited to New York City and then to the bed and breakfast towns of San Francisco and London, they may now be found in capitals and even secondary cities around the globe. Following Starwood's lead, companies from Hyatt to the Intercontinental Hotel Group have rushed to unveil relaxed hotels focusing on design, well-being and casual chic. This year, the world was treated to one of the most unlikely collaborations imaginable when two men from the opposite ends of the cultural spectrum - Ian Schrager and Bill Marriott - signed an agreement to develop and launch boutiques carrying the Marriott flag. What a far cry from the original boutique formula that spat in the eye of the established box hotels with a focus on design, PR, smaller than average rooms, off-beat locations with lower ground costs, favorable real estate conditions, as well as local market knowledge and supplier relationships that could take advantage of the diseconomies of scale of the big companies.

As these big companies race to incorporate a boutique concept into their portfolio of offerings, they may, however, be missing the point about the change that is occurring within the industry. The full-line producers like Marriott, Intercontinental, Starwood, Hilton and Hyatt may be thinking that they simply need to have one or more product offerings with features appropriate to Generation X or the emerging Generation Y, preventing competitors from nicheing away market-share or new entrants from gaining a foothold. What may be escaping the attention of many of these companies is that the boutique revolution very likely means a whole new way of doing business in the hospitality field.

Enhanced design integrity, updating of offerings to reflect current themes in wellness and personal luxury, improved personalized service, and adaptation of products to reflect generational tastes are all elemental changes which must be adopted across the industry regardless of hotel type by the companies that intend to be players of the future. The increasing sophistication of the general consumer can be seen in the culinary shows that dot the television landscape, the availability of fine wines even in remote locations, the improving design integrity of automobiles, and the expansion of the luxury goods field and is affecting the hotel industry accordingly. Total Quality Management practices and mass customization have meant that standards and SOP's are no longer the way of doing business for the most progressive companies in all industries, and yesterday's boring no-bad-surprises hotel room is inadequate for today's travelled customer. Local sensitivity both to the local community's needs and economy and to travellers' desires for authentic local experiences is increasingly demanded as companies adopt global and multi-domestic expansion strategies. Fanciful theme elements that first captured attention in Las Vegas and in Disney theme parks and that now typify the Dubai building boom are beginning to be incorporated into hotel offerings in more traditional locations. Today's sophisticated concept restaurants provide an idea of what tomorrow's hotels will be. All of these fundamental changes will affect all hotel types across the spectrum of hotels just as these changes have been reflected in the product offerings of retail stores from Target to Crate and Barrel to Fifth Avenue boutiques.

The less evident but greater change brought by the boutiques may be much more threatening to existing mainstream companies than are these fundamental elements. If retail or other service industries are an indication, then the boutiques represent the reinvention of the traditional hotel industry which may be moving from maturity into decline. In this case, the rapidly consolidating standardized hotelery may find that its aging core products are becoming albatrosses as new companies come to the fore.

In the retail sector as well as in many other service industries, a phenomenon referred to as "the collapse of the middle" has been perceived over the last decades. Retail has divided into two relatively clear strategic groups - the commodity providers such as Walmart, Home Depot, or Target, based on massive economies of scale, logistics, and distribution, and the boutiques offering differentiated product classes serving niches of various sizes all along the price spectrum. As has been the case until very recently in hospitality, boutiques moved from being small exclusive stores located in selected cities with large concentrations of wealth - New York, Paris, St. Tropez, Hong Kong - to being outlets in everyone's hometown mall or strip mall. The mainstream department stores that once anchored American retail - the name stores in cities and towns, the five and ten cent stores such as Woolworth, and the Sears and Roebuck's and J.C. Penney's - have experienced a precipitous decline in popularity and prosperity. What if the mainstream Marriott's, the Hyatt Regencies, the Sheraton's and Westin's and Hilton'ss and Radisson's are doomed to go the same way?

The naysayers among hospitality watchers point to the economies of scale of the major players, to the speed of consolidation of these groups, to their preferable access to funds and absolute cost advantages, to the full-service offerings such as spas, shops, banqueting and meeting facilities and the restaurant choices they can offer, to the high exit barriers of established players and to the differences between hospitality and retail or financial services. While Americans may not want to wander through department stores or shopping malls anymore to seek out the styles they prefer, and while they may choose private banking or low cost on-line brokers based on pocketbook, they do not necessarily want to be in an expensive undersized facility without the full-service extras when travelling. The boutique doubters insist that the loyalty programs of the big players will make certain that even the "W" or Indigo boutique guests will accept a Sheraton or Holiday Inn box when travelling en lieu of choosing a one-off boutique, ensuring that Sheratons and Holiday Inns remain viable and that fixed assets can still be productive. The large boxes, they argue will continue to serve a mainstream business and meetings market effectively.

Maybe. The one-size-fits-all grand hotels of a bygone era with widely varying room types did find a new raison d'^etre as convention hotels. They at least offer a charm and architectural distinction lacking in many of the big box hotels constructed during the past fifty years. Nevertheless, a great many of these hotels are already going by the wayside, being gutted and converted to condominiums or being torn down for real estate redevelopment. Nicheing has been a trend in hospitality since the arrival of Four Seasons and Ritz-Carlton based on spending power, and all-suite, long-stay, and focused resorts based on usage. There is every reason to believe that the hospitality industry will mirror retail and other service industries as it fragments not only into price-driven, usage-driven or demographics-driven niches but into psychographic differentiation as well.

In a world of customization, psychographic marketing, grouping together individuals of similar tastes and providing product classes associated with their desires and ways of thinking, has come to dominate industries from the automotive industry to retail. Today's boutique store captures a specific feeling that will appeal to a specific group of shoppers. Increasingly, hotel boutiques are also creating these differentiated experiences.

As with the retail boutiques, one may expect that mid-scale mainstream hospitality boutique concepts will gain economies of scale through national branding and distribution. Today's major hotel companies may continue to be the players of the future if they adapt all of their offerings to this new psychographics-driven environment. Alternatively, some pure lodging (as opposed to experience) providers may retire to a low-cost position providing a commodity product at the lowest possible cost mirroring the roles of Walmart or K-Mart or Southwest Airlines in the hospitality field.

But what about the offerings of full service hotels? Will spas, shopping arcades, restaurants, and banqueting and meeting facilities simply disappear? Perhaps these elements are simply destined to separate themselves from hotels, especially as they themselves differentiate into boutique offerings.

Jeffrey Catrett is Dean of the Les Roches School of Hospitality Management at Kendall College, Chicago having served previously as Dean of the Ecole hôtelière de Lausanne in Lausanne, Switzerland and Academic Dean at the original Les Roches School in Bluche, Switzerland. Prior to joining academia, he held a number of management positions in hotel companies including Omni International and Swissôtel. His career spans twenty-five years and four continents. He holds a BA from Middlebury College and an MMH from the Cornell University School of Hotel Administration. Mr. Catrett can be contacted at 312-752-2418 or jcatrett@kendall.edu Extended Bio...

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