Personality equals popularity and profits at boutiques

These days, the urban traveler wants more than “just another hotel stay.” According to a report issued by Sydney, Australia-based Jones Lang LaSalle Hotels, a real estate investment advisory group, boutique hotels' skyrocketing popularity illustrates the 21st century consumer's increasing desire for a unique hotel experience.

“As hotel owners, developers and operators search for advantages in today's competitive environment, boutique hotels are spreading like wildfire,” the report states. “Today's traveler … is looking for a hotel that offers not only a comfortable guestroom, but also a storyline that fits his or her image.”

Boutique hotels offer travelers much more than the standard toiletry kit and ironing board, as each one is uniquely designed to reflect the surrounding area or a particular theme. Often, such hotels represent the adaptive re-use of an older, urban property. The atmosphere at these hotels can range from minimalist to decadent, the report notes.

And in an age of dot-com customization, personality equals popularity — and popularity translates to profits. In fact, the report emphasizes that the boutique segment's success is not a fad. Statistics show that boutique hotels are outperforming other hotel types, and mainstream companies want in on the action.

“With the technology-driven environment we live in today, there is a shift in people's psyche. They want to be cutting-edge,” said Jones Lang LaSalle Hotels Senior Vice President Thomas Fisher, who authored the report with associates Amelia Lim and Erik Warner. “Products that are different often attract people.”

The secrets of success

According to Fisher, market differentiation propels the boutique segment's strong performance. Apparently, differentiation works. The Jones Lang LaSalle report notes that boutique hotels reached an average daily rate (ADR) of $209.45 and an occupancy level of 71.7% as of year-end 2000. The report also predicts that boutique hotels will hold steady at 71% occupancy through 2003 and that the sector will reach an ADR of $268.03 in the same year. In addition, revenue per available room (RevPAR) in the boutique segment has “exceeded luxury segment levels since 1996, and the gap has continued to widen through 2000.”

Alan Lieberman, the owner of South Beach Hotel Group, said his properties mirror these trends, with occupancy rates reaching 80% on a seasonal basis. “We're more in the moderate price range, so we appeal to more of a price-conscious traveler in the summer,” he said.

For The Kimpton Group, San Francisco, differentiation takes the form of a highly stylized, customer service-oriented lodging experience at Kimpton's more than 30 European-style properties.

“Design gets people in the door, but it's the operation, the staff and the attitude the staff has toward the guests that get the guest to come back,” said Jim Whelan, chief development officer for Kimpton.

Customers often write cards thanking the staff for assisting them, he added. “They say, ‘I forgot something, I was lost or late, and somebody came up and offered to help me, and they didn't charge me for it,’” he said.

The boutique segment's success also can be attributed to value, according to the Jones Lang LaSalle report. Despite the fact that many boutique hotels now charge high rates because of strong demand, “boutique hotels in the early years were often frequented by value-conscious leisure and independent business travelers,” the report observes. Because they save on branding-related fees and property purchases, most boutique hotels charge less than their luxury counterparts.

“Boutique hotels provide a wonderfully unique experience with a price comparable to Marriott,” said Robert Mandelbaum, director of research information services in the Atlanta office of Hospitality Research Group, a research affiliate of San Francisco-based PKF Consulting.

Take, for example, the Park South Hotel in New York City, the newest boutique hotel of Newport, Rhode Island-based Atlantic Stars Hospitality Group.

“I think we have comfortable products and I don't think they're overpriced, although they're not cheap, that's for sure,” said Don Glassie, CEO of Atlantic Stars Hospitality Group. He calls the 143-room Park South “a contemporary take on a neoclassic structure with the first DVD library that's coin-operated.”

And South Beach Group Hotels capitalizes on the Miami area's existing art-deco buildings, turning them into such lodgings as the 42-room Asian contemporary Hotel Chelsea, which offers Japanese-style furniture, bamboo floors, slate bathrooms and VIP passes to South Beach clubs, all for $95 per night. “In the moderate price range, we do very, very well,” Lieberman said.

The industry takes notice

From the numbers, it seems boutique hotels have found their niche in the lodging industry. Certainly, more mainstream hotels also will demand a share of the limelight. Hotel operators say the industry is capable of accommodating a new “mainstream boutique product” while keeping the identity of the “true” boutique hotel intact.

The Jones Lang LaSalle report cites the “chain” of W Hotels by White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide Inc. as making “considerable headway into mainstreaming the ‘non-traditional’ segment.”

“Given the success of the W brand, other chains are looking at how to add boutique elements to their properties or creating boutique lines by themselves,” said Fisher.

But some operators say just because a boutique element is added, that doesn't make a property “boutique.” And, a strict definition of a boutique hotel is hard to articulate. “Trying to talk about what really is a boutique hotel is like trying to talk about what is art. There are a number of characteristics that vary,” Whelan said.

Mandelbaum agreed. “Boutique hotels have no strict standards, so more hotels can call themselves a boutique hotel,” he said.

What does this mean for the non-franchised operator? “I think the more the merrier,” Lieberman said. “The more rooms, the more people, the more opportunities.”

What's next?

The boutique hotel phenomenon has created an opportunity for industry expansion, particularly in areas with high barriers to entry. “If the demand for boutique hotels is underserved in a particular market — for example, Washington, D.C. — people see that as an opportunity and are willing to pay the price to convert to a boutique hotel because they believe that the returns will obviously be worth that,” Fisher said.

Now that the boutique segment has cemented its identity in the hospitality industry, operators are looking to keep offerings creative. “The challenge for boutique hotel companies is to always be fresh and to always be new,” Fisher said. “It's maintaining your competitiveness in the market by always creating an atmosphere that's boutique in nature so the properties don't get tired. You don't know what to expect, and I think that is what's exciting.”

Jessica Miller covers the office and technology beats for NREI.

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