Buy A Franchise – Hotel Franchises Spruce Up

October 17th, 2010

(Buy A Franchise, Seattle Franchise, Bellevue Franchise)

Hotels Use Downturn to Spruce Up

 

Starwood Hotels and Resorts Worldwide is planning guest room redesigns for its Sheraton and Westin Franchise brands. An announcement is expected on Tuesday.

And some top business travel hotels are undergoing total or major refurbishments in cities like New York and Los Angeles, as well as London and Shanghai. Holiday Inn, a Franchise brand of the InterContinental Hotels Group, meanwhile, says it will complete its systemwide, top-to-bottom upgrading of all its hotels by December.

Starwood’s redesign plans will affect just 30 Sheratons and 11 Westins out of a total of 576 hotels worldwide next year, at an estimated cost of over $100 million.

Industry experts predicted that these and other refurbishments would continue to be unusual, perhaps for years.

Hotels mostly are Franchised or managed, not owned, by companies like Starwood and Marriott, though the companies set standards for décor and service that hotel owners must maintain. The owners, not management companies, must pay for upkeep.

Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University, estimated that capital spending at existing hotels in the United States climbed to a record high of $5.5 billion in 2008. But he estimated that spending fell to $3.3 billion last year and would drop further, to $2.7 billion, in 2010.

The decline in hotels’ overall upkeep “is starting to become evident to guests,” he said, “from scuffed wall coverings in hallways to torn drapes and faded, worn and stained carpeting and upholstery.”

Many hotel owners cannot afford to improve guest rooms or public spaces because of declining room revenue and other income, which may be enough only to pay debt service, said Rick Swig, president of RSBA & Associates, a consulting firm in San Francisco that advises hotel owners.

The biggest exception is the Holiday Inn Franchise brand, including the midscale, full-service Holiday Inn and limited-service Holiday Inn Express hotels. IHG announced a plan for widespread improvements in 2007, before the worst of the economic downturn hit. But it went ahead with the plan.

“Research from every recession since the Great Depression demonstrates brands that increased investment on their customer experience and marketing activity during the recession gained market share both during the downturn and during the recovery,” said Kevin Kowalski, senior vice president for global brand management at IHG.

The plan, which is costing an average of $150,000 to $250,000 for each hotel, entails upgraded lobbies, guest rooms and bathrooms, plus a new employee training program.

Mr. Kowalski said the Holiday Inn upgrades had increased revenue per available room by 3 to 7 percent, on average, compared with hotels that had not been upgraded.

Sheraton — with 406 hotels worldwide, it has more than half of Starwood’s hotels — is introducing two new guest room designs, one inspired by the early 20th-century Regency revival, the other by early 19th-century Regency décor. Both will feature oversize armchairs with ottomans, bedside tables with built-in outlets for electronic equipment and water-conserving plumbing.

“When business travelers come back, it will be good to see a revitalization of the Sheraton Franchised brand, in particular,” said Steven Kent, lodging analyst for Goldman Sachs, who said the Sheraton upgrades would “bring them up to par with other names.”

Westin — the second-largest Starwood Franchised brand, with 170 hotels worldwide — is introducing two guest room designs, inspired by elements of nature and an Asian aesthetic

Henry H. Harteveldt, travel analyst for Forrester Research, called the new Sheraton and Westin guest room designs “attractive, but not cutting-edge.” He said the designs were “not distinctive enough to justify a rate increase, but they will help preserve rates, which is a victory when demand is uneven and consumers are price-focused.”

A few other hotels frequented by business travelers are undergoing major refurbishments in the United States, including a new Conrad in New York’s financial district, occupying a former Embassy Suites and opening in late 2011, and the Bel-Air in Los Angeles, set to reopen next July.

 

Savoy, the luxury hotel in London, reopened on Sunday after a complete refurbishment

Two luxury hotels in London are reopening after a complete refurbishment, the Savoy, which reopened Sunday, and the Four Seasons Hotel London at Park Lane, scheduled to reopen in December.

Shanghai also has two newly renovated luxury hotels on the Bund, the Fairmont Peace Hotel, which reopened last July, and the Waldorf Astoria, opening in phases in a former British men’s club.

The owners of these hotels “probably have deep pockets, large balance sheets or prearranged financing, and can afford to make improvements,” Mr. Swig said.

Longer term, his outlook for hotel owners’ capital spending is not particularly rosy. He predicted that hotel revenue could remain depressed until 2013, and would not fully rebound until 2016.

(Buy A Franchise, Seattle Franchise, Bellevue Franchise)

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