325 | Unique Experience: Independent boutique hotels rebuild the post-pandemic playing field

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NYC REOPENING: Dream Hotel Group’s Dream Hotel Downtown in New York City reopened in May after a year-long shutdown caused by the coronavirus pandemic. In a virtual session on June 2 during the Boutique & Lifestyle Leaders Association’s boutique investment conference, Jay Stein, CEO of Dream Hotel Group, said his company closed four hotels in New York. Two are open and the other two will soon resume operations.

Hundreds of boutique properties closed in 2020 but reopened faster than branded counterparts and had greater RevPAR results, say analysts

During the Boutique & Lifestyle Leaders Association’s virtual investment conference last week, hotelier Jay Stein, CEO of Dream Hotel Group, said some of the company’s hotels that closed during the coronavirus crisis recently reopened or are on track to reopen in the next few weeks.

At the same token, many more of Dream’s boutique properties remained open throughout the crisis.

Such is the mixed performance of the entire U.S. hotel industry amid the pandemic.

According to analysts, in the initial days of the pandemic, the independent hotel sector was hit the hardest and had the highest number of closed properties. However, independent boutique hotels recovered business faster than their branded counterparts and managed to increase RevPAR by holding rate even during the darkest days of the coronavirus crisis.

“The independent boutique sector lost the most supply,” said Kim Bardoul, partner in The Highland Group Hotel Investment Advisors and author of its Boutique Hotel Report 2021. “I think the reason for that is many of them are located in urban, densely populated markets, which were heavily affected by the pandemic.” Hotels in cities such as Chicago, Los Angeles and New York, were and continue to be heavily impacted by government restrictions on travel and public gatherings.

Kalibri Labs reported that last year nearly 600 independent hotels closed. According to its June 1 update, 380 independent hotels remain closed.

STRONG ADR: The Highland Group’s Boutique Hotel Report 2021 breaks the sector into three segments – independent boutique, branded lifestyle and soft brands. It notes only a “slight decline in the RevPAR index in 2020 compared to 2019.”

Holding Rate

Overall, Bardoul said, independent boutique hotels saw business performance improve in the latter half of 2020 because of smart rate management amid lower occupancy.

“Occupancies weren’t coming back as strong. The RevPAR indices analysis that we did in the report is heavily led by the ADR,” said Bardoul.

The Highland Group compared boutique hotels’ 2020 RevPAR index against the RevPAR indices averaged from 2017, 2018 and 2019 combined. “And largely the recovery at the latter part of the year in the upper-upscale/luxury independent [segment] was an 18 percent gain against that average in 2020.”

The Boutique Hotel Report 2021 breaks the sector into three segments – independent boutique, branded lifestyle and soft brands.

The introduction of the report notes the independent boutique sector is large and ranges from small 40-room properties to large assets of 300 rooms. Some of the hotels are independent non-franchised brands such as Citizen M, Acer and 21 C.

Many more stand alone.

The report focuses on hotels in the upper-midscale to luxury price tiers.

Boutique hotels comprise one of the fastest-growing sectors in the U.S. lodging industry. Bardoul has tracked the boutique hotel sector’s growth for the past seven years.

She expects the trend to continue, especially as post-pandemic travelers hit the road this summer in search of new experiences.

“For the past, probably at least two years, the boutique hotel segment collectively was the fastest growing segment,” running neck and neck with the growth in extended-stay hotels.

UNIQUE EXPERIENCE: The lobby at Le Parc Suite Hotel in West Hollywood, California. The property is part of Springboard Hospitality’s portfolio of independent boutique hotels. Springboard Hospitality is a founding member of Curator Hotel & Resort Collection, a consortium of independent hotel owners and operators that launched in November. Episode 325 of Lodging Leaders podcast explores how the independent boutique hotel sector continues to grow and evolve amid pandemic -related challenges.

Small Counts

As Lodging Leaders reported in Episode 323, independent hotels at the height of the coronavirus crisis in 2020 focused on generating revenue through their restaurants, bars and other F&B programs. Bardoul said that could be a factor in boutique hotels’ survival.

But in other cases, many independent boutique properties have their limited size going for them or as the saying goes, “The best things come in small packages.”

“Independent boutiques are typically small and they’re a little more nimble,” Bardoul said. “There are some very large ones, but in our database the majority are under a hundred rooms. They don’t have that large franchise fee, so they can be a little more nimble with their operational costs as well.”

Independent boutique hotels have been around for a long time.

But bringing together boutique hotel owners, developers and others in the sector is the brainchild of and Frances Kiradjian in Los Angeles. In 2009, she launched Boutique & Lifestyle Leaders Association or BLLA as a spin-off of sorts from her hotel marketing company.

Several years before founding BLLA, Kiradjian was working to expand her distribution company and frequently heard from independent boutique hoteliers that there was no channel that served their unique market niche.

Kiradjian worked with New York University, Purdue University and the Hong Kong Polytechnic University to define the independent boutique sector and help BLLA clarify its mission.

Fundamentally, a boutique lodging hotel creates curated or one-of-a-kind services, programs and experiences for its guests. It has a unique story to tell and operates within its story’s ethos. It appeals to guests’ values as defined by their lifestyles.

Today BLLA has verified more than 10,000 independent boutique lifestyle hotels worldwide. Its booking platform connects travelers to more than 2,500 boutique lifestyle properties.

It has 14 categories for boutique lifestyle hotels, including historic boutique, adventure boutique, branded boutique, concept boutique, classic boutique and boutique on a budget.

“Even though that study was done 11 years ago, I occasionally will bring it out and look at it again. And it’s still pretty much the same,” Kiradjian said. One thing that has changed is grouping boutique and lifestyle hotels together to create a category called the boutique lifestyle.

“It is a lifestyle,” Kiradjian said. Especially amid the pandemic impact’s travelers are looking for a unique experience driven by creativity.

“Boutique is not a thing. It’s not a store. It’s not a room. It’s an experience. Something that incorporates all five senses in our current culture. And even though I said that a few years ago, it’s still true today.”

REASONS TO BOOK: Frances Kiradjian, founder and CEO of Boutique & Lifestyle Leaders Association, shared the photo of the lobby of the Proper Hotel in San Francisco, in an opinion piece she penned that appeared online in September touting reasons travelers should consider staying in a boutique lifestyle hotel.

The boutique hotel categories are growing but no matter how you slice it, the sector experienced dramatic declines in business at the height of the 2020 pandemic.

Vail Ross, senior vice president of global business development and marketing at STR, last fall shared some statistics with BLLA and provided a forecast of boutique business performance for this year.

The biggest drop in business in the boutique hotel sector came last July when RevPAR was down nearly 28 percent.

As Bardoul testified, location mattered for independent boutique hotels.

Properties in urban markets saw July RevPAR decline 58 percent. RevPAR at suburban boutique hotels was down 54 percent while small town or metro hotels were down 42 percent. At the same time, independent boutique properties in resort areas reported a 28 percent loss in RevPAR.

Transient leisure demand is driving recovery in the independent boutique hotel sector, which is seeing more bookings than branded luxury and upscale hotels.

STR forecasted by the end of this year, independent boutique hotels will see occupancy increase an average 33 percent. ADR will see a 3 percent uptick and RevPAR will be up by 37 percent.

However, the sector will not see 2019 business performance levels return until 2023.

Kiradjian believes independent boutique hotels will emerge from the coronavirus crisis even stronger than before.

“What we’re seeing right now are these hotels been able to pivot, no matter what. They’ve been able to do whatever needs to be done. And the nice thing is they don’t have to go ask for approvals or follow a brand book, et cetera. Even if they’re part of a small brand, it doesn’t matter. It’s still a boutique hotel and it’s got its own personality and its own structure. They’ve been able to do things like in a minute, whatever they needed to do to whether it was change up their food and beverage or change up their staffing or what have you.”

Catch Lodging Leaders’ complete series on independent hotels doing business amid the pandemic. The series holds lessons the entire lodging industry can use as it shifts toward recovery.

Episode 323 features owners and managers of independent hotels sharing their experience and advice on how they kept their properties in business.

Episode 324 explores the growth of soft brands amid the crisis.

Join the Club

Kiradjian has seen some BLLA members gravitate to franchisers that offer soft-brand agreements. But for the most part, independent boutique hoteliers are creating their own forces by coming together under one umbrella while remaining wholly independent.

An example of that is Curator Hotel & Resort Collection, co-founded by Pebblebrook Hotel Trust, a lodging REIT, along with Davidson Hotels & Resorts, Viceroy Hotels & Resorts and several other ownership and management companies.

Rolled out last fall, Curator has more than 120 independent hotels in more than 80 markets, mostly in the U.S.

It’s a loose consortium with easy exit terms that applies economies of scale to strengthen independent hotel assets with shared research and data analytics as well as collective buying power that cuts costs.

The grouping of independent hotels will probably continue to grow and evolve.

Here are some numbers Lodging Econometrics provided to Lodging Leaders:

  • At the end of the first quarter of this year, the total construction pipeline of unbranded hotels in the U.S. was 605 or more than 105,000 rooms.
  • Last year, 50 unbranded hotels or more than 7,000 rooms opened.
  • In the first quarter of this year, seven unbranded hotels or nearly 1,000 rooms opened.
  • By the end of this year, 67 unbranded hotels or another 7,000 rooms are to open.
  • On track to open in 2022 are 50 unbranded hotels or 7,600 rooms.

Boutique Storytelling

Besides coming up with programs that will help a boutique hotel eke out new revenue amid the pandemic and post-pandemic recovery, Kiradjian said it’s important each independent asset owner or manager captures the hotel’s stories amid the pandemic and shares them with the world.

It could be as simple as going on social media to tell how a guest had a problem and the hotel solved it. Or the how hotel came up with a solution to a customer-service challenge.

“Customers are looking for those wonderful personal stories,” she said.

Social media outreach and digital marketing are re-defining the playing field for independent boutique lifestyle hotels.

Those that grasp the limitless possibilities to tell their stories and promote their brand on a digital platform will strengthen their recovery mode.

“A lot of hotels kind of taking the time to rebrand digitally and to rebrand fully,” Kiradjian said. “So they need to focus on their website, their messaging, their email marketing, their digital advertising and so on.

“They’re also looking at their tech stack. Technology is a really big deal now, from contactless customer service to being able to modify it to a little bit contactless and a little bit human being. Because the boutique customer is looking for something and maybe they want all contactless and maybe they don’t. So it’s being able to serve both kinds of customers.”

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