Starwood Eyes Future

By BTN / May 06, 2001

Starwood Eyes Future

Barry Sternlicht, chairman and CEO of Starwood Hotels & Resorts Worldwide, last month sat down with BTN hotel editor Bruce Serlen to discuss Starwood's approach to the corporate travel buyer and the effect of the current economic downturn on the marketplace.

BTN: What are the advantages of being a multi-brand company in economic times like these?

Barry Sternlicht: Well, there's a brand for each customer, so people can trade down if they want to, or if they feel it's necessary. If you're leaving a one-brand company, there's no place else to go, but if you're leaving St. Regis, you can go to W or Westin. If you feel W is too expensive, you can go to Sheraton or to Four Points. So the structure of our company responds very well to the economic climate we're in right now. There's no question the economy is softening.

BTN: Given this strategy, would you like to be in other price points or segments?

Sternlicht: There might be further brand extensions, but I think we're going to concentrate on building bigger distribution behind our major brands. That's our primary goal. We've been looking at other sectors of the lodging industry, extended stay or high-end suite products, that would give us a different product to continue to enclose the corporate buyer and meeting planner into our system, so they'd never have to leave. We'd like to try to have everything for everyone.

BTN: Is the idea behind increased distribution to have a presence in more markets?

Sternlicht: Yes. With 725 assets in 80 countries, we want to have a product everywhere travel buyers want to go, but Westins are missing in key cities; Sheratons are missing as well, internationally in particular. One of our big challenges in this country, for example, is that we don't have a big-box 800- to 1,000-room hotel in Washington, D.C. We have a very loyal group of meeting planners, but when they go to D.C., they leave our system because they have to.

BTN: While the environment has changed in the past few months, were you satisfied with the way negotiations for 2001 rates concluded?

Sternlicht: Our people were pleased. Some of the rate increases we were able to achieve were very good. The number of hotels people selected in their plans were broader than in prior years. Of the accounts we targeted, we shrunk our targeted list from 43,000 to something like 2,000 or 3,000 big accounts.

BTN: Were those negotiations competitive?

Sternlicht: The corporate market is very competitive and that's not a new trend, it's always competitive. It is getting more demanding, as in all kinds of negotiations. They want you to do as much as you can for them, and they don't want to pay for it. But in the future of direct connect, travel managers are going to be managing more of their travel expenses and will get tougher with their employees about where they can stay. For our part, we have to make sure we win that battle from both the top down and the bottom up. In other words, we want their employees to want to stay with us and then we want to make sure the top guys let them.

BTN: What will the effect of the economic slowdown be on managed travel?

Sternlicht: The trend has been for companies to try to manage their travel expenses aggressively and say, "You can only stay in this hotel." In the go-go world we were in, that didn't work. If we were making travelers go away without their families, they wanted to stay where they wanted to stay. Because of the nature of the employment market in this country, nobody was going to have thousands of frustrated employees because you mandated a savings of $3, not if you had gone to great trouble to recruit them. Today, it depends on the length and breadth of this downturn. Companies are going to be more willing to mandate travel policies. You might be seeing that right now. Companies are saying, "You know, forget about where you stay. We don't want you traveling at all." It's a moot point.

BTN: Is this your sense of where the market is right now?

Sternlicht: Anecdotally, what we're hearing is that the low end of the market is doing just fine--3, 4 or 5 percent RevPAR growth--and it's the business travel hotels that are being hurt, the chains for business travelers.

BTN: So trading down is happening?

Sternlicht: Apparently, yes, at the moment.

BTN: Up until very recently, availability of rooms was a major concern for buyers and still is midweek in the gateway cities. Do you think negotiating something like last room availability is fully understood?

Sternlicht: People are making a big deal to understand it. Companies negotiate hard with us on that and we try to accommodate them where we can, but it's give and take. It's a very tough balance. Our new yield management system that's being installed now will help us on this and we'll do a better job meeting customers' needs.

BTN: How will the new system be an improvement?

Sternlicht: One of the issues is that we always sell out on Tuesdays and Wednesdays and we don't know how to price length of stay. We do it manually, so we don't know how to tradeoff a one-night stay against a three-night stay. If we do, it's all intuitive as opposed to based on historical demand patterns. Are we going to have so many people call up on such-and-such date or should we lower rates because last year we were pacing at x and this year we're pacing below x? We need to react more quickly. One of the issues with yield management systems is that they're populated with historical data. Therefore, they get better and better data the longer they're in place. But with some of our assets like W, there's no historical data because they're new. Plus, obviously, the economic climate can be different.

BTN: So the new system is looking at length of stay?

Sternlicht: Yes. We probably hold fair or exceed fair market share on a RevPAR basis midweek, but we don't do that around the shoulders. In the end, yield management is just a tool to help the properties price their product better.

BTN: Would you say hotels have emulated the airlines in this area?

Sternlicht: Yes, except our boxes are more complex. Airlines don't do length of stay, which is a big deal. They also don't deal with other spending habits of the guest. In the group market, for example, you book a group into a resort that doesn't play golf or use the facilities, you'd be better off having an individual book at a lower rate who played golf, ate in the restaurant and used the spa. As we get better database tools, we can pick the guest that's going to maximize the return and it might not be in room rate.

BTN: In terms of service and amenities, what would you say business travelers' biggest demands are?

Sternlicht: During the past few months, we rolled out Six Sigma, which will bring us better consistency and allow us to focus on more things customers want. We're striving for much greater consistency of product and service in all our brands. I think we're fairly consistent as you go higher up the brands, because employee turnover is lower the higher you go. The job is considered more prestigious at that level.

BTN: Has there been one stumbling block?

Sternlicht: Service in an industry that has 40 percent annual turnover at the property level is a challenge. You need to build a machine that replicates itself. You can't satisfy the customer if 40 people out of 100 change every year.

BTN: Compared with Sheraton, which Starwood acquired, W Hotels was a brand created from whole cloth. In hindsight, what are the reasons for its success?

Sternlicht: Part of its success--and hopefully its sustainability--is that it appealed to a younger traveler. They were prevalent, had money and wanted to travel. The brand started to build enough critical mass that when you went from San Francisco to Los Angeles, you said, "Is there a W here?" The key is to keep it up. Cool is not easy to keep cool. We have to make sure the hotels are sustained in their genre.

BTN: Your midprice brand, Four Points, carries the "by Sheraton" sub-brand. Certainly competitors of yours use sub-branding frequently. Do you see yourself using it more? And what about the Starwood name itself as a brand?

Sternlicht: Because Sheraton is located in like 85 of the top U.S. markets, it has very high brand awareness already. Accordingly, it doesn't make sense when you already have a big brand to introduce another brand. In general, though, we really don't want to do a lot of sub-branding. If we get into the extended stay area, we might use a sub-brand, if the brand was a big brand.

BTN: How important is compiling guest histories to the lodging industry and, by extension, to Starwood?

Sternlicht: Customization is not only going to be demanded by customers, but we need it because it enhances loyalty. It's really the hook into people. It's how we do what they want us to do for them. This is going to be a huge field, but it's going to cost us a lot of money. Hopefully, we'll gain a competitive advantage from it, but I expect we'll be spending this money just to stay even with our competitors. The good news for companies like ours is the pace at which this is happening. In my opinion, technology of various kinds got ahead of consumers' ability to adopt it.

BTN: Do you mean all the anticipation around Internet access?

Sternlicht: Broadband Internet access in hotels probably will be a big deal in five years, but we were ahead of the customer. Usage rates range from 1 percent to 3.5 percent; customers weren't ready. They didn't need it and they didn't want it. It also didn't pay for the equipment at that rate. What's good for us is technology as a tool to improve our basic business, not something in and of itself. We need to proceed at a pace that not only is reasonable for us, but reasonable to expect customers to adopt it. We have great visions of what we can do with tech, but people are overwhelmed.

BTN: Are you considering direct connections to your corporate accounts through their intranets?

Sternlicht: Yes. We're also working with IBM and Cisco Systems on direct billing electronically. There's no reason customers today have to check out at the front desk. They can just walk out, we'll e-mail their full folio to them. It'll go directly to their payroll department and save the traveler having to fill out all the expense forms. Then the company can track the travel better and we can help them manage it. It reduces distribution costs. We can be an industry like the chip industry that can lower prices and make more money, if we can lower some of the distribution costs.

BTN: What do you think the hotel room of the future will look like?

Sternlicht: One of the big issues for us is investing in wireless. Where is wireless going? And what will it allow you to do in a hotel? There'll be big innovations in checkin and checkout, billing technology and high-speed Internet access. You'll probably end up having a personalized portal. You've heard people say you'll have your own personalized music. However, I don't know if I'd stay in a hotel if they played my five favorite songs over and over; this can be overdone. Sometimes when you go to a hotel, it's an escape. You sort of want to be surprised as opposed to familiarized. Surprised good, not surprised bad. The jury's out.

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