Mr. Marx

Boutique Hotels

Boutique Hotel Brands From 'Legacy' Chains - Will They Work?

By Steven Marx, Managing Principal, Lifestyle Hospitality

It is clear that the boutique/lifestyle hotel niche is longer occupied by just a handful of rogue, counter cultural hoteliers. The evolution of lifestyle hotels from a very small, extremely specialized industry segment, to its current status as one of the fastest growing product types, has been nothing short of astounding.

It is sometimes debated who actually was the pioneer who developed the first of what has become generally known as contemporary boutique hotels, in the United States. But clearly, the concept did not come from the mainstream hotel industry. Depending on to whom you talk, Ian Schrager, starting with Morgan's Hotel in New York, gets the credit; others will say that Bill Kimpton was the founder, converting broken down old small hotels in San Francisco into "gems", with "hot" restaurants next door.

However, the "winner" may very well have been a gentleman by the name of Ashkenazy, who converted several vintage apartment buildings in the West Hollywood district of Los Angeles into genuine, high style boutique hotels back in the 1970's; one of which was the original Mondrian on Sunset Boulevard, now one of the most notable and successful boutique hotels owned by the Morgans Group, and originally redeveloped by Ian Schrager.

All three of these gentlemen were visionaries, highly creative, and none came from either a hospitality or even corporate background. Also, the hotel industry at large was moving in an entirely different direction; but these entrepeneurs weren't taking notice. They were following their passions and instincts, with no track record or "feasibility studies" to support their initial projects. Many of the properties weren't instant successes, but these hoteliers pressed on nonetheless, knowing that they were onto something that would bear fruit in the years to come.

What's most noteworthy, however, is that the ultimate success of the segment that these brave men launched arguably was derived from an entrepeneural vision of one individual; as opposed to flowing from a corporate, risk-averse, large public, or even private, hotel company. The idiosyncracies that made at least a couple of these hoteliers challenging with whom to deal, were the same ones that were vital to the singular vitality and innovation of their respective products. The concepts were not formed by committees, work groups, or brand teams, as they typically are today. Despite the obvious advantages of "group think", and gleaning opinions and recommendations from a variety of people with complementary disciplines, I would contend that at the end of the day the final result may not have the leading edge 'push the envelope' attributes of those derived from one briliant, take no prisoners, pioneer, with no shareholders of Boards of Directors to whom to account.

For most of the period during which the boutique hotel concept was forming and growing, the industry at large generally regarded this product type as an oddball, replete with challenges that the legacy chains found to be too daunting to take on. The conventional wisdom maintained that boutique hotels were: too small to be truly profitable, couldn't stamp them out and thus too expensive to build, couldn't compete effectively with a chain affiliation's marketing clout, difficult to finance, didn't perform as well in an economic downturn, etc. So the chains allowed the niche operators to dominate this segment, while they watched from the sidelines.

To most of the chains, the byword was "segmentation" and branding; clarity of delineation of brand attributes to the consumer who, they felt, wanted and expected "no suprises". Their first priority was to create sub-brands in specific segments (limited service, extended stay, hard budget, etc) offered by their big name competitors. The chains were for the most part playing 'follow the leader', as opposed to undergoing groundbreaking efforts to create new and highly unique lodging products that could appeal to a hidden target customer that would flee the big box hotels in large numbers, if they had a choice. That's not to say that there wasn't innovation going on; there certainly was. The Courtyard concept redefined limited service in its time; Embassy Suites went against the developer's conventional wisdom of squeezing as many keys as you can into a site, opting for creating a more residential and spacious experience for its customers, as well as inventing the free cocktail hour/breakfast concept; all of which presented significant 'value added' for both the mid level corporate as well as family leisure traveler, to great success. But "cool", hip, non-flagged hotels, with trendy, free-standing, and stylish restaurants and bars; with less than 200 rooms worth of revenue to flow to the bottom line? No thank you! Meanwhile, Schrager and Kimpton hotels were slowly, under the radar screen, grabbing up market share and their own customer "brand loyalty", resulting in Revpar indexes in many markets heading north of 100% against competitive sets made up of the full service chain brands.

But not everyone was just watching and waiting. Barry Sternlicht saw the potential of combining the allure of the lifestyle concept with the marketing and financial clout of a large hotel company. So Barry followed his vision and created W; and in the process, defied and proved wrong the Kimpton and Schrager mantra that boutique hotels and a hard brand could not co-habitate successfully.

The W phenomenon proved that, under the right circumstances, a successful niche lifestyle brand could be developed and rolled out by a large, brand-oriented hotel organization. As a result, some of the legacy chains have now hit the drawing boards to design their own lifestyle brands, so as not to be left in the dust by continuing to ignore this product typ; with its success being fueled by ever more sophisticated and affluent travelers with time and money on their hands; yes, the famous 'baby boomers' and 'gen-exers'; the key target lifestyle hotel consumers, who are now coming out of the woodwork as a dominant consumer of literally every type of product and service, in addition to travel and leisure.

However, I would challenge the big boys to take care regarding how they develop, and who is made responsible for developing, their lifestyle hotel prototype. Designing a brand that can compete successfully with the W's and Kimptons of the world requires a change of mindset and approach. This task is far different from creating brand which is for the most part a variant of the traditional hotel product. It is a leap of faith to believe that the same executive team that has made a living rolling out and operating legacy brands can all of a sudden reinvent themselves and magically alter what may be their more traditional viewpoint of the industry. Everyone knows that the pioneers within Kimpton, now the dominant player in the segment, most of which are still with the company, were for the most part home-grown entrepreneurial types who left the chains to follow Bill Kimpton's vision ; and no one would accuse Ian Schrager's original team of being conventional hoteliers.

Many people don't realize that W was not born from the Sheraton and Westin brand teams; but from a hand-picked group of "outsiders" that operated virtually independently from the White Plains team, and taking direction from Barry himself. In fact, many of the people initially responsible for designing the look and feel of W were from the lifestyle retail industry, from companies such as Pottery Barn, as Barry felt that retail and fashion veterans were inherently more creative and marketing savvy than many of their hotel industry counterparts. Who knows what W would have become if Barry didn't take this "hothouse" and groundbreaking approach to birthing this brand?

So, I would suggest that the legacy chains not ignore the unique dynamics, as well as the profiles of the people themselves, that have been behind the successful evolution of the lifestyle segment. I would take a long, hard look in the mirror, and take inventory of the tools in their company's toolbox before embarking on developing a boutique brand. After all, hammers and nails are great for building a house, but won't work too well for carving a sculpture. The same brand attributes that attract the traditional corporate "road warrior" and family leisure customer don't cut it for the prototype lifestyle hotel target demographic It will take more than an interesting design package, and young employees dressed all in black, to lure away loyal customers from the dominant boutique brands. It is the "soul" of a true lifestyle hotel, not the body, which is its true differentiation. The legacy chains will need to find that "soul" within their organization, or import it from the outside, to become real players in this fascinating and growing segment of our industry.

Steve Marx is an expert in lifestyle properties. While leading Kimpton Hotels, Loews Hotel Corp, and W Hotels, Steve guided each company through growth and stellar financial results. At Kimpton, he grew the company from 12 to 30 hotels. Steve and his team launched the Monaco brand. With Loews, he repositioned several properties, and spearheaded the largest growth period in Loews' history. Mr. Marx's most noteworthy accomplishment with Starwood was to transform W Hotels from the least to the most profitable brand in one short year. Mr. Marx can be contacted at 203-698-2772 or smarx@lifestylehg.com Extended Bio...

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