Starwood Hotels & Resorts had seven years of steady
growth under CEO Frits van Paasschen, who resigned Tuesday, but the bar has
been raised for how fast U.S. hotel companies need to expand, board members
indicated in a conference call announcing the leadership change.
While Chairman Bruce Duncan praised the CEO for Starwood’s
“successful evolution into a global company with leading lifestyle brands,” he
also said that “now is the right time to take steps to accelerate Starwood’s
growth, improve performance, and sharpen our focus on operational excellence.”
A look at Starwood’s financial reports revealed that hotel
count grew 37%, to about 1,200 hotels, since van Paasschen was named CEO in
September 2007.
Starwood’s hotel count grew 4% in 2014. In comparison,
larger competitors Marriott International and Hilton Worldwide grew their
footprints by about 6% and 5% in the year ended Sept. 30, 2014 (both companies
will report fourth-quarter earnings on Wednesday).
“We really need to focus on accelerating the size of our
pipeline and footprint as we seek the objective of higher net rooms growth. I
do think we can execute and implement better than we have of late,” said
Starwood director Adam Aron, who was named interim CEO while the company looks
for a permanent replacement. In his career, Aron has been CEO of Vail Resorts
and Norwegian Cruise Line, and senior vice president of marketing for United
Airlines and Hyatt.
Meanwhile, Starwood reported last week that fourth-quarter
revenue fell about 1%, to $1.49 billion, lagging Wall Street’s expectation of
about $1.52 billion. Also, Starwood’s earnings forecast for 2015 trailed
analysts’ forecasts.
“It came to a head this weekend, but it’s been something
that’s been building over the last few months,” Duncan said about a leadership
change. Starwood said the company and van Paasschen mutually agreed to part
ways.
Neither Aron nor Duncan provided specifics on how the
company would achieve desired growth. Aron offered a hint by noting that
Starwood is “not as strong in select service as we might be.”
The company’s select-service brands — Four Points by
Sheraton, Aloft and Element — total about 300 hotels, less than 25% of
Starwood’s total. Smaller competitor Hyatt’s 267 select-service properties
account for almost half of that company’s total hotels. Marriott International
and Hilton Worldwide have an inventory of about 2,700 and 2,000 select-service
hotels, respectively.
Beyond that, Starwood has been pushing the expansion of its
Le Meridien upper-upscale brand throughout North America, opening five U.S.
properties since last June. Le Meridien has 100 hotels worldwide, and 17 in the
U.S.
Additionally, Starwood said last week that it would launch a
hotel collection. Marriott’s Autograph Collection of independent hotels has
grown rapidly since its launch in 2010, and Hilton started its Curio collection
last year. Choice Hotels’ Ascend Collection of boutique hotels has grown to
about 120 properties since its launch in 2008.
Van Paasschen said on the company’s earnings call last week
that Starwood started talks with some developer partners late last year, but he
declined to disclose the name of the collection or when it would launch.
Whatever plans are in store for select-service brands and a
hotel collection, the company is looking to speed up that timetable with new
leadership. And investors appeared to respond positively, as Starwood’s shares
rose almost 3% Tuesday.
“Such strategic change could be the introduction/development
of new brands or acquisition of new brands to target less penetrated
segments/geographies,” J.P. Morgan analyst Joseph Greff wrote in a note to
clients Tuesday morning before Starwood’s conference call. “What broke the
camel’s back, so to speak? In our view, losing footprint growth and operating
momentum to Hilton and Marriott given Starwood’s relatively narrow focus on the
high end and international markets.”