Fashion statement
Like their clothes shop namesakes, boutique hotels are carving out a niche for individualism and style. But what exactly are they? And what is the secret of their success? Andrew Sangster investigates.
Boutique hotels are the sexiest thing to have hit hotelkeeping for decades. They have challenged the established and conservative hotel companies, initially prompting disdain and then emulation. At least two industry giants, Starwood and Hilton, have dipped their toes into the boutique water and another chain, Rezidor SAS, swooped on the Malmaison boutique chain when it was up for sale a year ago.
According to industry stalwart John Jarvis, boss of Jarvis Hotels, if he had his time again he would start a boutique operation. He describes the entrepreneurs behind these new hotels as "fashion terrorists" and clearly envies their business proposition.
So what are boutique hotels? Immediately, we come up against a problem: few people can agree on what is classified as a boutique.
According to Paul Dukes, non-executive chairman of TRI Hospitality Consulting and a non-executive board member of Myhotel, the best way to describe it is a concept hotel.
"Various names are bandied about, such as boutique, townhouse or design-led. There are no commonly understood definitions," he says.
Certainly star ratings, the traditional yardstick of the industry, have little meaning. In fact, the AA uses the term townhouse for those properties that defy its more conventional grading system.
Deborah Griffin, a director at consultancy Andersen, draws a parallel between boutique hotels and the clothes shop equivalent from which the name comes. Boutique clothes shops are typically small and sell fashionable items. The hotel equivalent is thus fashionable and is limited in size.
A key characteristic of boutique hotels is design. For Griffin, this can lead to guests describing the hotels as "cool", "urban", "leading edge" and "trendy".
But not all operators in the boutique field see themselves in the same way, as you might expect with a group that defines itself by its differences.
Gordon McKinnon, managing director of the Malmaison Brand Company, points out that the need to pigeonhole hotels such as Malmaison is essentially an industry issue that does not affect the customers.
"We don't regard ourselves as design hotels or boutique hotels,' he says. "It is more a case of being alternative to the mainstream."
Griffin identifies another common feature among boutique hotels - lifestyle. Indeed, McKinnon hopes to tap into what he describes as the new consumer movement. Another difficult-to-define grouping, this applies to about 30% of society - people with a higher-than-average wealth - and represents an even larger portion of the hotel-going public. "You ignore it at your peril," he says.
This new consumer movement exhibits key characteristics that boutiques can tap into. Marketing jargon such as "cash-rich", "time-poor" and "seeking out the authentic" sums them up. "It's the fastest sociological change happening right now," claims McKinnon.
Dukes offers a confident definition of a boutique hotel - "a focused lifestyle hotel product of under 100 rooms with specifically targeted niche markets with its own personality and identity".
Design is clearly a key aspect, with the likes of Ian Schrager making use of celebrity architects such as Philippe Starck. The lower number of bedrooms is also important in order to offer service at the customer's pace rather than the hotel's.
However, Schrager, a former nightclub entrepreneur who has also served time for tax evasion, has perhaps the highest profile of all the operators in the boutique niche, and he ignores many of the rules. Most of his properties are enormous, with hundreds of rooms, and accusations of terrible service have often been levelled.
Schrager's approach is perhaps an extreme, but his properties have an enviable reputation, attracting customers from the music, fashion, film and media businesses.
Most other operators, however, are keen to stress that boutiques are not fashion fads. "Like nouvelle cuisine, a boutique hotel may or may not be for you," says Dukes, "but the movement has had a significant and positive influence on the mainstream hotel operators."
Birth of the boutique
How long has the boutique label existed? The first London property to fit comfortably into the category was Blakes hotel, which was created and opened in 1980 by actress-turned-designer Anouska Hempel.
Since then, there has been a raft of openings in the capital, such as Tim Kemp's Firmdale properties, and more recently Gordon Campbell Gray's One Aldwych and Christina Ong's Halkin and Metropolitan.
Schrager, too, has ventured to the UK with St Martin's and Sanderson through a joint venture with Burford Holdings. This partnership is unlikely to last, however, and Schrager admits that he is seeking new backers for his European ventures.
The most significant development has been in the provinces with the Malmaison brand - the only boutique concept to see its value crystallised through a sale.
The Malmaison brand was launched in 1994 by Ken McCulloch, with the assistance of Gordon McKinnon. McCulloch, who has gone on to found the Columbus chain, opened hotels simultaneously in Glasgow and Edinburgh, focusing as much on areas such as the brasseries as on the bedrooms.
The brand first attracted the attention of leisure entrepreneur Robert Breare who, through his Arcadian Hotels, lent the business money to expand. This, in turn, led to Malmaison being swallowed by US giant Patriot American (now Wyndham) when it purchased Arcadian.
A clearer valuation was put on the Malmaison concept at the end of August 2000, when Patriot sold the chain to property company Marylebone Warwick Balfour (MWB) for £65m. As part of the deal, Rezidor SAS and MWB jointly forked out an additional £11m for the Malmaison brand. The multiple on earnings before interest, tax, depreciation and amortisation paid was a healthy 11.7 times for what was five open hotels and five development sites.
This has been the first significant exit for the boutique segment. Operators have faced a number of issues, mostly tied up with the uniqueness of the vision of the creator. If the entrepreneur that fathered the concept leaves, what becomes of the child? And how big can a chain grow before it is suffocated by bureaucracy?
The task for McKinnon is to prove that Malmaison is sustainable as it breaks into double figures and falls under the aegis of a big corporate. Although MWB bought all the existing Malmaison properties, McKinnon stresses that he has complete flexibility with financing further units. Non-MWB owners are very much under consideration.
Mooted projects include a 90-bedroom hotel in a former Oxford prison - heads of terms are understood to have exchanged - and sites in other cities such as Liverpool, Cardiff, Belfast and Dublin.
As for expansion outside the UK, the strategy is to create critical mass or footprints in particular markets first. A favoured target market is Germany and Benelux, where up to four hotels are being considered, but further developments may take a little longer.
At Starwood, too, sustainability is the issue for its W brand, created by Starwood boss Barry Sternlicht immediately after the acquisition of ITT Sheraton in early 1998. The 16th in the chain opened in Times Square, New York, at the end of last year, a huge 509-bedroom property that for boutique purists breaks all the rules of the genre.
Whether Starwood can maintain the boutique ethos without the clear management team separation of Malmaison remains to be seen. Starwood is unrepentant about bringing big-company disciplines to the brand. It says it can offer the reliability and comprehensiveness of typical business hotels with the personality and style of boutiques.
The key to sustaining any brand - however the management team is structured and however large the chain becomes - will be the ability to evolve.
At Malmaison, this has seen it abandon its policy of no room service and tone down the traditional elements of its brasseries - although there is still no turn-down service, and porterage and conference facilities remain anathema.
One criticism levelled at boutiques is the higher cost of furniture, fixtures and electronics relative to conventional properties. Some operators, however, offer a lower cost approach.
Schrager in particular boasts about the lower costs of his minimalist fit-outs, which feature cotton and recycled taps rather than chintz and swirly carpets.
McKinnon, too, is adamant that the furniture, fixtures and electronics reserve is lower at Malmaison compared with traditional hotels.
The business positives are the high levels of repeat business and strong loyalty factor to the brands, which have enabled boutique operators to charge a premium room rate.
There are fears that this premium will evaporate in a downturn but events since 11 September have shown that this is not the case. According to McKinnon, Malmaison suffered a minor blip in trading during September but since then has, overall, been performing better than ever.
According to MWB's results in early December last year, Malmaison's occupancy was holding up at more than 85% and room rate was similarly solid.
Malmaison is helped by its provincial location but even boutiques in London have not suffered any more severely than other properties. The sample of townhouse and boutique hotels in the Andersen Hotel Industry Benchmark Survey for London saw a 15.6% drop in revenue per available room during 2001. The drop for conventional hotels with an average rate of more than £200 was 15.4% and for hotels for a rate between £160 and £200 the drop was 16.4%.
The situation in the USA may, however, prove different. There is much industry talk that, reflecting a change in mood since 11 September, business people are shunning the more fashionable boutiques in favour of more sober accommodation. Starwood's W was its worst-performing brand in 2001, with revpar dropping 23%.
The more wily boutique operators have avoided alienating too many potential clients by toning down the avant garde elements in their design. "We don't want to challenge too much," explains McKinnon.
Ultimately, it will be a chain's ability to successfully balance individuality with acceptability that will make or break it.
And to maintain that balance, concepts must continue to evolve. As McKinnon says: "Even if the perceived popularity peaks, the performance shouldn't."
Malmaison: the way forward
The hotel chain defines itself as "not a luxury hotel, not a boutique hotel, not a designer hotel. In fact, we defy those descriptions".
With six sites open, and one in London opening this spring, the chain has a total of 835 bedrooms - the total stood at 460 at the end of 2000.
Malmaison's gross operating profit margin is "close to 40%" and it is looking to expand to 25 properties in the "next few years".
