Turn the other chic

Boutique is in the eye of the beholder, and too many people have looked elsewhere since 11 September. Gillian Drummond reports on the emerging sector's fightback in the USA.

The past year has been trying for most US hotels, but the fast-emerging boutique operations have felt the pinch more than others. With top-end decor, high-priced rooms and many trading without a large conglomerate behind them, boutique hotels have suffered the double blows of recession and a public that's nervous of travelling since 11 September.

Tom LaTour, president and chief executive officer of the Kimpton Hotel and Restaurant Group, speaks for most when he says that last September's terrorist attacks "took the legs out from under us". With occupancies falling from an average of 85% in 2000 to 70% last year, and 65% in the first quarter of 2002, San Francisco-based Kimpton has introduced a variety of discounts and promotions targeting the drive-in traffic around San Francisco's Bay Area. In other destinations, it has added value, such as inclusive breakfasts.

LaTour expects occupancies to keep rising throughout this year, but admits the group is now being "a little more conservative" with its target of having a Kimpton hotel in every major city of the USA.

Competitor Joie de Vivre Hospitality, also based in San Francisco, suffered a lot worse. Says vice-president of creative services Rob Delamater: "You can't compel even loyal guests to travel when they don't have any intention to."

For this reason, last September Joie de Vivre redirected its resources towards customers in the Bay Area who could drive to the city for a short break. The company spent more on advertising than ever before ($50,000 [£34,935]) and persuaded magazines and TV and radio stations to slash advertising rates by as much as 50%. Despite its efforts, it saw occupancies drop by about 35 percentage points last November and December, to as low as 25% and 30%.

Delamater says that in the last quarter of 2001 the company struggled against the big brands. "They've had the power to discount," he says, "and more resources to get the message out about value." Business was still slow in January and February, with the firm's San Francisco properties seeing average occupancy of 25%. But Delamater says that pre-bookings for March and April look better.

While the San Francisco groups have been suffering from the downturn in air travel and a weakening dotcom industry (being close to Silicon Valley), operators in New York have had different problems. "For one thing," says Steve Marx, chief operating officer of the Boutique Hotel Group (BHG), "the [World Trade Center] disaster happened here, plus over the past few years there's been a sudden surge of boutique hotels here." He adds that many of these properties don't have the backing of a major chain, which he believes gave a sense of security to traumatised travellers.

BHG, launched in 1999 and now managing five boutique hotels in New York City, saw occupancies drop to about 50% just after 11 September. But Marx is impressed by the swift rebound: occupancies are now in the 70-80% range. "We're going to have higher occupancies than last year," he says. But this is offset by decreases in average room rates of as much as $2 (£1.39) a night, a result of BHG making more use of Internet travel agencies such as Expedia and Travelocity. "They provide lower rates," says Marx, "but they do provide demand."

Marx is confident about BHG's future, with plans to have a "major national presence" in the USA. But, as at Kimpton and Joie de Vivre, there are no plans yet to move into Europe.

The mainstream boutique operations have been hurting, too. Although W Hotels continues to be a glamorous addition to the portfolio of Starwood Hotels & Resorts, last year it was the group's worst-performing brand, with occupancy at 66.1% and revenue per available room (revpar) down by 16.4% to $135.34 (£94.36). In the last three months of 2001 W's revpar nose-dived by 29.4%, and average daily rate fell by 22.8%. However, in the same quarter, occupancy - down by 6% to 64.2% - showed the smallest fall among Starwood's brands, which include Westin and Sheraton.

Among W's latest openings is the 509-bedroom W New York Times Square, launched in December. Three more US properties are slated to open this year, as is one in Seoul, South Korea, next year.

Most of the non-brand competitors seem happy for Starwood's investment to continue. Delamater believes that W has helped to raise the profile of the boutique movement. "They're mass-marketing it and doing so very successfully," he says, "and we're thankful."

Meanwhile, independent boutique operators are ploughing on in the face of increased competition and, with ever-larger properties describing themselves as "boutique", a debate over what the term now means.

Critics point to Marriott's Renaissance brand as another sign that "boutique" is entering the mainstream. Marriott's US corporate office denies the "boutique" tag but its newest property, the 637-bedroom, 22-storey Renaissance Hollywood hotel in Los Angeles, is described on its Web site as having "an atmosphere of a chic boutique".

In Boston, stockbroker-turned-hotelier Mark Hagopian says that "impostors" are crowding the market. "Independent and unique and upscale are what really define what a boutique is," he says, "and if you put it in terms of a hotel, to me it's something that's not a brand. If there are two of them, there's not a boutique any more."

Hagopian is bullish about opening his first luxury hotel, the 33-bedroom Charlesmark, in a difficult climate. He bought the 19th-century former residential building with co-founder Charles Hajjar, and they opened its doors in January. "We're providing luxury accommodation," Hagopian says, "but we still position ourselves at [rates of] about 20% less than the branded hotels in the area. Our rates are about $135 [£94.32], rising to $225 [£157.20] in peak season, so we'll average about $170 [£118.77]."

Hagopian, who predicts occupancies in the upper 80s or even 90% by next year, says that he can do this thanks to a lean management structure and being owner-operated.

It seems that all boutique operators in the USA have learnt lessons. Delamater says that the downturn has made Joie de Vivre hone its marketing skills. "When times are good, you do your own thing, and you think you're doing it well," he says. "But when the tide goes down, the scum is visible."

Kimpton Group

Web site: www.kimptongroup.com
Average occupancy, 2000: 85%
Average occupancy, 2001: 70%
Portfolio: 34 hotels in 11 US cities, two in Canada; three US openings in 2002

Joie de Vivre

Web site:www.jdvhospitality.com
Average occupancy, January 2001: 32%
Average occupancy, January 2002: 25%
Average occupancy, Nov-Dec 2001: 25-30%
Portfolio: 20 hotels in USA; two US openings in 2002

Boutique Hotel Group

Web site:www.boutiquehg.com
Average occupancy, March 2001: 65-75%
Average occupancy, March 2002: 70-80%
Portfolio: five management contracts in New York, one in Salt Lake City; two openings in 2002 in the Caribbean, one in Canada in 2003

W Hotels

Web site:www.starwood.com
[Figures for 2000 in square brackets]
Average occupancy, 2001: 66.1% [73.8%]
Revpar, 2001: $135.34 (£93.86) [$161.96 (£113.15)]
Average daily rate, 2001: $204.65 (£142.98) [$219.60 (£153.42)]
Average occupancy, three months to end December 2001: 64.2% [70.2%]
Revpar, three months to end December 2001: $121.86 (£85.13) [$172.50 (£120.50)]
Average daily rate, three months to end December 2001: $189.76 (£132.57) [$245.83 (£171.74)]
Portfolio: 14 hotels in eight US cities, one in Sydney; two US hotels to open in 2002, one in Seoul, South Korea, in 2003