August 17, 2010 / 5:53 PM / 9 years ago

Analysis: Hotel companies see the future in boutique lodging

NEW YORK (Reuters) - The word “boutique” in business implies small, specialized and unique — precisely the concept big hotel companies are adopting as they veer away from their time-tested, but formulaic lodging models.

Nearly every top hotel company from Starwood Hotels & Resorts Worldwide Inc HOT.N to Hyatt Hotels Corp (H.N) to InterContinental Hotels Group Plc (IHG.L) has unveiled or expanded boutique concepts, also called lifestyle brands.

Now, Marriott International Inc MAR.N, the largest U.S. hotelier by market value, is opening its first Edition hotel in Waikiki Beach in October in partnership with hotel magnate Ian Schrager.

“We’re interested in getting into the market as fast as we can and with as many as we can,” Marriott Chief Executive J.W. “Bill” Marriott said of the boutique segment in a recent interview.

Undoubtedly, lifestyle hotels are the wave of the future, experts said. Boutique hotels can charge as much as 12 percent more than other hotels of similar quality, according to Lodging Advisors LLC, which surveyed the top 15 U.S. markets.

Last month, Marriott bought the former Seville hotel in Miami Beach and announced plans to refashion it as an Edition.

The move was rare for Marriott, which prefers to operate, not own hotels, and underscored the growing importance of the segment for the future of the company and the industry.

“This heightened experience and individuality is something that I think is the future of the hotel business and other businesses,” Schrager said. “It’s really about how it feels.”

Still, the shaky economy and moribund financing for new hotels raises doubts about how quickly Edition and similar brands can grow. Investors and developers still view the boutique hotel segment as riskier than more well-known and widespread traditional chains.

Hotel experts add it is difficult to duplicate or even define the boutique hotel segment. Such hotels can range from around 100 rooms to 1,000 and from two-star to five.

“You can insult someone by saying their hotel is not a boutique and they think it is,” said Robert Mandelbaum, director of research with Colliers PKF Hospitality Research.


Schrager, who opened the Morgans Hotel in 1984, is widely credited as the creator of the modern boutique hotel. But the launch of Starwood’s W in 1998 was the first attempt to create a brand around the concept.

So when Marriott came knocking, Schrager seized the chance to build a brand on a scale he could not achieve alone and signed on in 2007.

“The kinds of (hotels) that I got started with about 25 years ago, there are hundreds of versions of them in virtually every city in the world,” Schrager said. “Well, they could have been mine.”

As of the first quarter of 2010, there were 390 lifestyle hotels run by lodging companies in the United States, according to data company Lodging Econometrics. And 100 boutique hotels have opened or are set to open in 2010 and 2011.

Hyatt is growing its Andaz brand and InterContinental has its Hotel Indigo chain. Eva Ziegler, who oversees Starwood’s W, said it would be “realistic” for the chain to grow to 100 hotels in the next 15 to 20 years, up from 35 as of July.

In 2008, Marriott projected there would be 100 Edition hotels globally within 10 years.

The Edition project has touched off a debate that persists today over how swiftly and successfully the boutique concept can grow.

Schrager is knee-deep in the details, eyeing elements as small as the stitch on a couch.

He argues he can churn out original ideas as quickly as Marriott can seal hotel deals, adding that Edition need not “fall prey to that traditional mass market model.”

Others disagree.

“It is impossible for that level of care to be replicated over and over,” said Michael Achenbaum, president of the Gansevoort Hotel Group. “As talented as Ian is, even he can’t spread himself that thin.”


Lenders worry about the long-term viability a hotel’s design, Lodging Advisors CEO Sean Hennessey said.

Brands such as Holiday Inn or Westin tend to outfit their hotels with similar bedding or artwork. By contrast, the decor of a boutique hotel is subject to the whims of the designer.

“Purple flower plastic wallpaper or a shark tank in your lobby — it sounds good when you open, but it has to have longevity,” said Brad Wilson, chief operating officer of Denihan Hospitality Group. “Otherwise, you’re going to be renovating every five years.”

Such concerns matter because financing for new hotels is still well off the levels of two years ago. U.S. hotel projects under construction or in the planning stages in the second quarter of 2010 were down 43 percent from 2008, according to Lodging Econometrics.

With the economic downturn, financing for hotel projects has dropped, undercutting Marriott’s expansion plans for Edition.

A Marriott spokesman declined to comment on whether Edition could meet its target, but CEO Marriott said the company could open as many as 10 Editions within three years.

“As the global economy improves and credit markets begin to loosen up, we are seeing greater interest in the EDITION brand from developers,” the company said in an e-mail. “That interest will only grow with the opening of the first EDITION hotels this year.”

Reporting by Deepa Seetharaman; editing by Robert MacMillan and Andre Grenon

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