Business restructuring has Outrigger Enterprises walking tall

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Just a few years ago, it might have seemed that Outrigger Enterprises Group was reducing its presence in Waikiki, converting a portion of its hotel inventory into condominiums even while it completed plans for its Waikiki Beach Walk development. But what looked to be a declining room count has surged forward, as Outrigger has re-established its presence with the addition of hotel inventory.

Outrigger went through a process of making existing inventory more upscale under its Outrigger and Ohana brands. The company also added hotels to its portfolio in Waikiki.

"The idea was to improve the product, to have fewer buildings and add inventory that suited today's market," said David Carey, president and CEO of Outrigger Enterprises Group.

Outriggers's oldest hotels were built in the 1950s and 1960s.

"At that time it was all about affordability and creating a product for a mass market," he said. "Just a bedroom, a bed and a decent bathroom -- that was what worked, and we built hotels that were very well suited to that market." 

Tearing down to build up

At the turn of the 21st century, however, Outrigger found itself at a point where it couldn't make money with its existing business model.

In some cases, the buildings had outlived their usefulness and needed to be replaced, said Carey.

"The rest needed to be stripped back to the concrete and reconfigured," he said. "Either way, it meant thinking big and spending hundreds of millions of dollars."

The bottom line dictated that a move upscale was the only way to cover the cost of rebuilding. But the company didn't want to just increase prices and hope for the best.

"It wasn't just about charging more, [it also was about] improving the product for people willing to pay for the better experience," Carey said.

It was also in line with the Hawaii Tourism Authority's master plan for Waikiki. With a mere half square mile of real estate, much of it already high-rise, the neighborhood offered little room for growth.

Going upscale and redefining target markets was the only way the state and city governments could finance the infrastructure improvements needed to preserve Waikiki's reputation as a world-class destination. 

"It's a matter of better assets providing a better yield," Carey said. "That meant higher-quality accommodations in line with the expectations of today's travelers and an exciting mix of restaurants and stores.

"The stuff that we pulled from inventory at the bottom end wasn't making money," he added.

For example, Outrigger shuttered the Ohana Reef Lanai and Ohana Edgewater, two budget hotels.

The debut of the Waikiki Beach Walk, the heart of Outrigger's upscale transformation, meant a dramatic reduction in room count, as old hotels were razed as part of the project.

New properties such as the Embassy Suites Waikiki Beach Walk, the Wyndham Waikiki Beach Walk (a timeshare property) and the Outrigger Regency on Beachwalk (a condo hotel) have replaced them.

In general, the guest rooms in the new properties are much bigger. Small rooms have been replaced by one- and two-bedroom suites that are priced two to three times higher.

"We're hosting a customer looking for the appropriate amenities and finishes: luxury beds and bedding, flat-screen TVs, bigger and better bathrooms and great dining alternatives." Carey said.

The upscale trend applied to more than just the Waikiki Beach Walk, as Outrigger has added upscale properties to its portfolio elsewhere in Honolulu and has upgraded Ohana hotels.

Carey said the entire transformation was accomplished without any layoffs, which he called a significant accomplishment considering the complexity of the effort. 

Most of Outrigger's newest inventory comes in the form of management contracts. Outrigger manages the Embassy Suites Waikiki Beach Walk, the Wyndham Waikiki Beach Walk, the Ala Moana Hotel and the Wyland Waikiki.

The result is that today's Outrigger Enterprises Group offers more than 6,000 accommodations units, a mix of hotel rooms, condominiums and timeshares marketed under a variety of brands. That's about 1,000 more rental units than at its previous peak. 

Outrigger's crown jewel

The Waikiki Beach Walk, Outrigger's centerpiece, took nearly a decade to complete.

"Most of that time involved complicated issues of ownership and land use that were resolved by an enlightened city government," Carey said. "Financially speaking, the Waikiki Beach Walk was our No. 1 priority."

Nearly $500 million was spent on the project, including $100 million to upgrade the Outrigger Reef on the Beach to four-star status. But the idea was about more than just hotels; it meant creating an exciting dining and entertainment destination in Waikiki with a mix of hotels, restaurants and shops that would attract locals and visitors.

Carey likened the development of the Waikiki Beach Walk -- with its five hotels, six specialty food stores, 10 restaurants and 30-plus shops, all within one block -- in the heart of Waikiki to the revitalization of Miami Beach's once desolate South Beach district.

With much of the Waikiki Beach Walk project completed, Outrigger has turned its attention to restoring lost midrange inventory. The result has been a rapid growth in inventory that will strengthen Outrigger in a market dominated by larger hotel companies, Carey said.

"We set out to create a good future revenue picture for Outrigger," Carey said. "At first it seemed that we would be axing about 800 rooms in Waikiki, but recent opportunities have allowed us to take advantage of our brand and marketing power for a number of new properties.

"We've been managing properties for owners here and in the Pacific for quite a while, so this wasn't really something new as much as taking advantage of opportunities that came our way." 

As for the future, Carey doesn't envision much additional growth. More upgrades are likely for the remaining low end of Outrigger's inventory.

For now, Outrigger is focused on communicating to travel agents the changes it has made.

"This is not your daddy's Waikiki," he said. "It's not even the same place it was five years ago. It's a much more sophisticated destination. People come here because they like the mix of resort options in an urban setting."  

To contact reporter Allan Seiden, send e-mail to [email protected].

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