Retailers entering hotel sector, banking on brand loyalty

Furniture retailer West Elm's first hotel is due to open next year in Detroit.
Furniture retailer West Elm's first hotel is due to open next year in Detroit.

NEW YORK -- As hotel companies cater to more loyalty members by broadening both their number of brands and soft-branded collections, non-hospitality retail brands are preparing to bank on loyalty of a different type as they enter the hotel sector within the next two years.

Home furnishings company West Elm will open its first hotel in Detroit next year and will add a second in Savannah, Ga., shortly thereafter.

Fashion icon Karl Lagerfeld will debut a hotel brand with a Macau property next year.

Fitness club operator Equinox is set to open its first hotel in New York in 2019.

Representatives of all three brands discussed their plans in a panel discussion in June at the Boutique & Lifestyle Lodging Association (BLLA) conference here.

"We're taking a domestic retail brand and making it commercial," said David Bowd, principal at Experience West Elm Hotels. "For us, it's about the residential feel."

Bowd said he believes the hotels will appeal to millennials but will cost about half as much to furnish as a comparable hotel.

Equinox Hotels CEO Christopher Norton said the company's first hotel, which will have 200 rooms, will be part of the Hudson Yards mixed-use project being developed by Equinox's parent, Related Cos. In all, he said, Equinox has seven hotels under development, including one that's part of a mixed-use project in downtown Los Angeles being designed by noted architect Frank Gehry.

"We're looking to have all U.S. gateway cities covered within the next five years," Norton said.

Karl Lagerfeld, which first announced the move into hotels in 2014, will debut its 270-room hotel by the end of next year.

Tony Kurz, CEO of BrandMark Collective, which will oversee the brand, said, "Macau is ground zero for the aspirational consumer. If you can create an intense signature experience, you may have something."

With hotel developers looking to offer a greater point of differentiation against the growing presence of branded hotels, well-known retail brands are seen as a way of garnering the trust of a prospective guest while capitalizing on an existing customer base, said Mark VanStekelenburg, New York-based managing director at CBRE Hotels Consulting.

"Anybody who has built up brand value as it relates to wellness or green or something that can create a lifestyle story, that is an immensely powerful tool," he said. "So were seeing some of that translate into the launching of hotel brands by some of these larger non-hotel brands."

Additionally, STR senior vice president Jan Freitag said, retail branding can help developers finance properties that might not otherwise garner a bank's confidence.

"They need a product that they can go to the bank with and say, 'Hey, give me 70% of my loan,'" he said.

Such hotels will compete in the upper-upscale boutique sector that, at least in the U.S., has outpaced the overall market in terms of occupancy and room rates. Last year, the sector had a 78% occupancy rate -- 12 points higher than the overall average -- while the average daily rate of $244 was about double the U.S. average, according to STR and CBRE Hotels data.

The trend isn't new among fashion brands. The first hotel under Italy's Versace brand opened on Australia's Gold Coast in 2000, while the first hotel under the Bulgari name debuted under Marriott International's Ritz-Carlton umbrella in 2004. The first Armani Hotel opened in Dubai's Burj Khalifa, the world's tallest building, in 2010.

The move by home furnishings brands into hospitality is more recent. West Elm, a division of Williams-Sonoma, took its first steps last year when it partnered with Marriott's SpringHill Suites brand, which included West Elm furnishings in all Spring-Hill lobbies and in the guestrooms of 30 new hotels. All SpringHill properties that are either opening or being renovated this year will feature West Elm furniture.

Meanwhile, home furnishings company Restoration Hardware this year won New York approval to redevelop a 130-year-old building in Manhattan's meatpacking district into a 14-room hotel called RH Guesthouse. No opening date has been set.

The strategy has not always worked. Missoni, which once had two branded hotels under an agreement with Carlson Rezidor, discontinued that deal in 2014, quashing plans for Missoni hotels in Oman, Qatar, Turkey, Brazil and Mauritius.

And while Marriott has four more Bulgari properties in the works, the Armani hotel brand has added just one property, in Milan, since debuting, while Versace continues to brand a single hotel.

In 2013, Marriott said it would partner with furniture giant Ikea on its fledgling Moxy badge, but it subsequently and quietly pulled the plug on that agreement.

Still, the panelists were all confident there would be enough niche guests to support such entrants. In addition to Detroit and Savannah, West Elm has plans to open four other properties by 2020.

Kurz, who referenced Tommy Hilfiger and its current efforts to transform South Beach's Raleigh Hotel into a branded property, said his company will eventually oversee another half-dozen retail branded hotels.

"The filter is that everyone in this room has heard of these brands," Kurz said.

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