Is W Hollywood A Scene Stealer?
By DAVID HALDANE – 2/15/2010
Los Angeles Business Journal Staff

Will the posh new 305-room W Hollywood Hotel & Residences supplant the nearby Hollywood Roosevelt Hotel as the hangout for hipsters?

Several of those who know the market believe that the two establishments may go head to head at first, but in the long run the competition will help them both.

Nonetheless, the historic Roosevelt on Hollywood Boulevard, as well as the more middle-of-the-road Renaissance Hollywood Hotel on North Highland Avenue, have wasted no time in making improvements to keep themselves in the game.

Among other things, the Renaissance has been adding musical events, and will soon remodel its restaurant and corridors, even though it just opened in 2001.

The Spanish colonial Roosevelt, extensively remodeled just five years ago, will feature “new nightlife venues” this year, said Jason Pomeranc, who is co-owner of Thompson Hotels of New York, which owns the Roosevelt. And next year will see some room renovations.

“People choose to stay at the Roosevelt not only because of its location, but because of multiple layers of physical beauty,” he said.

And while there’s nothing wrong with a little healthy competition from down the street, Pomeranc added, “people will continue to go to the Roosevelt because of its intellectual soul.”

Yet the splashy debut of the $360 million W last month featuring just about every power player in town and a host of celebrities – including Los Angeles Mayor Antonio Villaraigosa, TV host Jimmy Kimmel and Robin Thicke – put its hospitality competitors on notice.

And the arrival doesn’t come at a time when tourists are exactly swarming over Los Angeles. Last year, hotel occupancy rates dropped nearly 11 percentage points – to 66 percent – while the average cost of a room fell from $170.50 to $151.50.

With occupancy rates not predicted to improve this year even as room rates continue to drop, some analysts believe that, at least initially, the W’s two main competitors will take a hit.

“I think initially the Roosevelt will see a decline,” predicted James Sinclair, the principal at OnSite Consulting LLC, a nationwide L.A.-based hospitality consulting service. “The new kid on the block always creates that for the competition. As long as the Roosevelt rises to the occasion and understands that competition forces innovation, however, then its business will ultimately increase because of the buzz created by the W.”

Hollywood institution

In fact, as far as glamorous and hip Hollywood haunts go, the Roosevelt has long had the town to itself.

Opened in 1927, the 12-story hotel was at the center of the excitement and elegance of early Hollywood, hosting the first Academy Awards in 1929. Marilyn Monroe is said to have lived in Room 246 and her first photo shoot was taken on the diving board at the pool. But as happened to Hollywood in general, the hotel eventually experienced a decline.

Then, in 2005, amid the neighborhood’s resurgence, the 83-year-old institution underwent a $46 million head-to-toe makeover aimed at restoring its glory for a new generation. Led by hot designer Dodd Mitchell, workers stripped the lobby’s ceiling to expose wood beams and stuffed its interior with oversized leather chairs to give it a smoking lounge feel.

Several new watering holes were added to attract the young.

The effort was a definite success with the hotel attracting A-list actors and celebrities such as Kirsten Dunst, Cameron Diaz and the late Heath Ledger. Actress Lindsay Lohan had a birthday bash there in 2008. Robert Ritchie – known more popularly as Kid Rock – reportedly had an altercation there in 2006 that was breathlessly reported by the Web site TMZ.com.

The room rates run the gamut from $199 to $239 for a standard room, up to $1,500 for a two-bedroom suite and more than $6,000 for a penthouse. The 300 units include a heavy mix of 58 suites and 60 poolside cabana rooms with private terraces. All of which has led some to conclude that the hotel attracts a different enough crowd from the W to sidestep a hard blow.

“People who go to the Roosevelt wouldn’t necessarily go to the W,” said Kristofer Keith, the owner of Spacecraft Design which does hospitality design and construction in Hollywood. “The Roosevelt has more of a boutique-type vibe, while the W reeks of corporate. I don’t really see a conflict.”

On the other hand, the 632-room Renaissance Hollywood Hotel and Spa, owned by L.A. real estate developer CIM Group, has largely targeted the tourist and convention crowd. Rooms start at about $239 a night (though the hotel has 33 suites, including a 3,500-square-foot penthouse that rents for $7,500).

To make itself more competitive in the new Hollywood market, Dan Shaughnessy, sales and marketing director, said the hotel in the last year has added such attractions as Indy Thursdays, during which independent music artists showcase their talent in the hotel’s lobby, and Sunday Standards, a Sinatra-style show. In addition, the hotel is in the process of remodeling its guest rooms as well as two major suites. This fall it will begin remodeling the lobby, corridors, restaurant and meeting space.

“Where they’re pushing the edgier side,” Shaughnessy said of the Roosevelt, “we’re more in the middle. We’re just edgy enough to attract some of the hip crowd, but not too edgy to drive away the more conservative customers.”

Power operator

However, there is no doubt that the W will pose a threat. The brand was founded a decade ago by hospitality giant Starwood Hotels & Resorts Worldwide Inc., the operator of the Sheraton, Westin and other hotels, to respond to the fast growth of independent boutique hotels that attracted younger crowds.

The first hotel in New York was a smash hit and since then Starwood has opened 54 W hotels. The Hollywood property is part of a complex that includes 143 condos and an adjacent apartment building. It has a spectacular, cavernous lobby designed for hanging out, with rooms ranging from about $219 to $850 a night. It includes 40 suites ranging from $3,000 to $10,000 per night. Next month, a swank $12 million Las Vegas-style rooftop nightclub called Drai’s Hollywood is scheduled to open.

“The response so far has been wow,” said General Manager Jim McPartlin, who said occupancy has hit 50 percent and is growing, “It’s been a thrill ride for the last two weeks. We’re about double where we thought we would be.”

Still, Seth Horowitz, vice president of operations for L.A.-based Luxe Hotels, which operates several establishments on the Westside, is another who believes that that W in the end will be good for business.

“Our position is that the more hotels there are in a particular area, the more visitors they can draw,” he said. “There is a desperate need for quality rooms in Hollywood. The Roosevelt and the Renaissance pretty much owned that neck of the woods; bringing in the W creates a triangle that will benefit the economy.”

Economic crisis, lower than average consumer spending, third party booking sites, commission based sales and tourism taking a  turn for the worse are all paths that lead to the same location  – lower average room rates (ARR). The strain from the online retail model continues to put tremendous pressure on rates, forcing operators to believe that even lower rates must be offered to these online consortia. We believe, however, that using online market places are in fact detrimental when rooms are too widely offered. Obviously judging  a hotel’s performance cannot be based on ARR alone as the single metric to determine success or strategy. One must look at other key indictors such as occupancy rates and REVpar to assess whether the lodging facility is performing against industry standards. However the hotel industry has long since been under attack by the very industry that sprouted to promote it.

Events took a turn in 2004 when American Express announced the BAR (best available rate) program which sought to assure customers that the rate quoted was always the best rate available for each night of a multi-night stay. It was often complimented with additional value add benefits (internet, breakfast, airport pickups). In theory a great new model for pricing, the reality is that it now requires a new level of management, control or forecasting that can quickly deflate the REVpar if left to untrained personnel.

It is the industry’s fault. It created mass confusion in the industry. The same hotel and 40 different websites with different pricing carried a room and suddenly booking directly with the hotel directly became more expensive over third partes. Hotel Booking Agents recommending a customer visit a third party site to get better rates and MOVING reservations to outside their control became the norm. What seemed like such a clever way to increase occupancy and ADR turned into a tool for lazy hotel workers and ultimately the problem we are in now.

This lack of pricing congruency has now left the hotel wholly exposed. This is compounded by poorly trained operators and sales clerks in hotel reservation departments mishandling direct calls from customers who have found a price online at a competing hotel or online retailer and asking the hotel to match it. Bringing the customer back to the hotels sales portals, often through the BAR program, is one of the projects every operator is working on. The smaller companies are, meanwhile, waiting to see the results of the larger hotel operators and will copy the model. Just when solutions are being found to bring back that price hopping customer to hoteliers with the assurance that hotel pricing is the same whatever the channel, along come companies who search the mega agencies and portals and hotel sites seeking best prices. Yet another intermediary tacking their commission and fees into your ARR.

The effect of this price pressure has been most felt  by hotels designed to appeal to the widest audience possible – thus in theory attracting a greater audience base. Satisfying everyone but delighting no one if the model or customer base are not loyal, or if the venue does not have a unique selling point, can be a formula for mediocrity.

These generic concepts created by brands for broad appeal without reward  programs or the benefit of an existing brand’s loyal customer base have had a very harsh reality check during this economic climate. Hotels with broad appeal are losing significant market share to more defined and concept positioned properties. Conversely, the boutique hotel phenomenom is less hit by these portals because customers are demanding alternatives to the mass market offerings. This creates significant opportunity for those who have planned and executed a strong concept and are able to differentiate themselves.

Customers are demanding / expecting more and taking their business where it is both fought for and wanted. Often customers do not want to be a number in a generic hotel but rather where their travel needs are best suited. Pricing is not always the primary driver. The demand exists for special and unique product offering to suit these individual travelers’ needs that mass market cannot fulfill.

By focusing on your brand and your USP’s, a hotel is often better able to capture the market. Of course as a developer or owner, there is a risk and potential exposure in being different. Multi unit hotel chains will not want to lease your site is if doesn’t conform to their mould. However the potential increased value from attracting the boutique market is the reward for those who chose to build a hotel in this style.  If there is a case for this model, think long and hard before you build a generic site.

In this circumstance, the operator has to work backwards. Assuming the  NEED / DEMAND for this sort of hotel has been determined and assuming your ability to deliver on the customers’ expectations then the steps to being unique are fairly simple. Of course strong analysis and financial modelling, marketing and sales are still required. Again, this is not the location, demand, product & coverage phase,  as we have assumed that this has already been determined through demand existing.

The process from differentiating your brand and creating loyalty from others is through allowing no-one to compromise on the level of service, facility and customer quality. This is concept positioning and the key to why two seemingly like hotels having significantly different ARRs.

Positioning the brand is positioning the entire facility and its outward and inward appearance to serve the customer. What is it that you are attempting to create and does it match what the customers need? This is just as much about the linens as it is about your restaurant or food offerings. You cannot compete with the large brands on marketing or advertising budget but what you do have the advantage on is press and that is where the attention should be focused.

Yes, we recognize the benefits of ‘outsourcing’ discounts to a third party. Getting rooms rented out is critical to the hotel industry and at times it is worth taking a hit on the ARR in order to have customers on site spending in the restaurant or golf club or room service. We recognize equally that with fixed costs and staff on site, sometimes it is worth selling a room at little or sometimes no profit to increase footfall. We also know hotels often do not want to be seen to be offering discounts directly to protect their brand name.

That being said, a whole sub-industry has grown which no longer serves the very hotel venues who subsidized their set up costs and acted as their first customers. If you are building or repositioning your hotel, slashing the rates is not the answer to increasing revenues. Your competitor and neighbor may be doing this but you do not necessarily need to follow suit. If your hotel lends itself to being slightly unique, if your location adds specific value to business or leisure travelers, if you have an ethic and tradition reflected in your fit out, let the customer know. Look at your customer service standards and whether you enjoy repeat customers. Look at the additional revenue streams your hotel could be benefitting from. Look at how you can reach customers directly and ask yourselves, should I be spending the same on targeted and intelligent marketing as I am losing on offering constantly reducing room rates?

Of course someone can fill your hotel tomorrow – rooms just need to cost $5. OnSite works with many hotel clients and our first job is to look at financial information. All too often, hotel directors have given us incorrect room costs, omitting to factor in deals with third parties. Costs often don’t include the fees incurred in renting out a room from a website or agency the data analysis is therefore inaccurate. Take back control of your pricing by knowing what your pricing is. Consider Opera or other software as a tool not a solution and instead, read the data and make decisions based on the correct information.

The lesson is that just because ‘everybody is doing it’, it doesn’t mean that the obvious solutions to cash flow or reduced customer flows is obvious. Gather the right financial information, take ownership of how you attract customers and how much you will pay to attract them. We know the importance of these lessons in stabilizing or growing a business and work with our clients to ensure they recognize this too.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com