<B> Starwood Starts Reign</B>
By Maria P. Vallejo
The final chapter of the long-awaited merger between Starwood Hotels & Resorts and ITT Corp. is set to close today, and the unfinished story of what is now the world's largest hotel company begins.
The final agreement brings the Westin and ITT Sheraton brands under one roof and raises a series of questions regarding the integration of the companies, the fate of several high-powered hotel executives, the establishment of new brands and development plans. It also has prompted the Clinton Administration to ask Congress to restrict the expansion of paired-share REITs that made this union possible.
"I think Barry Sternlicht, Starwood's chairman and CEO, is going to look at everything," said Bjorn Hanson, New York-based Coopers & Lybrand's hospitality industry chairman. "He's putting together a company that doesn't happen very often. There is the transition from separate companies to one, where he will try to take advantage of the economies of scale, the overlap of services and executive functions."
While Juergen Bartels has been appointed as CEO of Starwood Hotels & Resorts Worldwide Inc. (see story, page 3), as to the other key players on the Sheraton and Westin management team, Sternlicht told BTN that "the hardest part is to pick who goes where. I've got a lot of all-stars."
Sternlicht said sharing Westin's and Sheraton's best practices and services across Starwood's properties is vital to creating a cohesive company. Technology and staff programs are two of the most notable assets that will be spread throughout the properties. Sternlicht plans to meld all the brands under one reservation system, ITT Sheraton's Res4 system, within six months. Simplifying the assimilation process, the management systems in Starwood's independent hotels and Westin properties already can interface with Sheraton's backbone reservation system.
"Technology will drive an awful lot of stuff that we do," Sternlicht said. "I think to some extent we have to learn to microtarget our audience and really be there for the core group of customers. In Westin's and Sheraton's case, it is definitely the business traveler."
Centralized technology will allow individual hotels to refer reservation overflows to other nearby Starwood hotels, he said. Sales and call centers also will be merged, allowing more money to be reinvested in advertising key programs, such as the frequent flyer program.
Westin will contribute its staff training program, called "Service Westin Style," to which Bartels attributes Westin's first place rank in BTN's hotel chain survey (see story, page 44). "The customer has become more finicky because they are more price/value focused and they're international business travelers," Bartels said. "I can't move a location of a hotel, but I'm responsible for the hotels' renovations and training--the two variances."
To facilitate the absorption of the two companies into Starwood, Sternlicht will marry the companies' assets in distribution, programs and technology. Known as having a ravenous appetite for acquisition, Sternlicht plans to improve national and international distribution of the company's brands. Starwood will spread its reach out into foreign waters. "Distribution for this company is the be all and end all," he said. "We have to be everywhere the customer wants us to be."
Sternlicht said Starwood looks at Marriott International as a role model for increasing its distribution and brand focus, but it also will try to mirror and surpass Marriott's occupancy rate. Currently, Starwood trails Marriott by 3 to 4 percent in occupancy rates.
As Asian countries continue to endure currency devaluation and receive offers of financial aid from the International Monetary Fund, Starwood executives view the continent's current financial downfall as an opportunity for growth. With an optimistic outlook that the continent soon will turn itself around, Starwood plans to take advantage of the currency exchange and cheaper property costs, Bartels said.
Westin is developing several hotels in Asia, while Starwood is developing properties in Melbourne and Sydney, Australia. Sternlicht plans to grow ITT's midpriced Four Points brand in the Asia/Pacific with offshore partners. Opportunities also exist for the other Sheraton brands.
"There are a lot of places around the world where new construction would make sense," said Richard Hartman, Sheraton Corp.'s president of the North American division. "Asia is in trouble, as everyone's been talking about, but we have to differentiate between a cyclical downturn and a structural change. I don't think there's been a structural change there. And that's where a lot of the new construction by the company would happen."
Nationally, new construction is less feasible and Sheraton executives expect Starwood to grow its brands primarily through acquisition. Given Westin and Sheraton's tendency towards a strong bi-coastal presence, the brands may give added attention to development in the middle of the country, said Frank Camacho, ITT Sheraton's senior vice president/director of marketing and operations staff for the North American Division.
"With Starwood's appetite to buy assets, we could easily fill the holes we have in our network in North America without having to get into two years of construction, tying up capital with no returns for that period," Hartman said.
Starwood also plans to reflag the majority of the hotels in its portfolio into Westins, Sheratons, Four Points or a new St. Regis brand. Thus far, about 20 hotels are set for reflagging in cities including Atlanta, Denver, New York and Philadelphia. The management of all Starwood hotel brands and other individual hotels in its portfolio will fall on Bartels, the former Westin CEO.
Speculation on Sternlicht's plans to launch a St. Regis luxury brand were confirmed earlier this month with the renaming of Luxury Collection Hotel Aspen to The St. Regis Aspen. The new brand is expected to work cooperatively, rather than cannibalistically with ITT Sheraton's Luxury Collection, which does not assume a generic brand name. Sternlicht expects to open between 12 to 20 St. Regis hotels.
"We've been approached by a lot of people who want to do St. Regis with us," Sternlicht said. "It's one of the few brand names that could probably out-compete other brand names, including perhaps Four Seasons and Ritz. It's obviously high end. They probably won't work in many cities in the country."
Analysts agreed that Sheraton's Luxury Collection and the St. Regis brand will complement, rather than compete with one another. Some gateway markets can accommodate both hotels without being parasitic in striving for high occupancy. Hotels using third-party management agreements often own several hotels in the same market, but lease those agreements. In those cases, a set of protocols will assure the proper treatment of owners.
"Since Starwood owns much of the real estate and management, it's not a matter of competition at all because the owner of the real estate is the same," Hanson said. "This company will control a larger share of the deluxe market and will have two brands to offer."
Sternlicht also confirmed that he plans to launch a new unnamed hotel brand with "fun" appeal and a new style of guest rooms catering to the business traveler. Sternlicht , who is helping design the rooms, plans to convert some of Starwood's individual hotel properties into this brand. "I think the new brand should have all the services business travelers would want and it should be fun," he said. "I think the opportunity and the challenge in the industry is to break out of the mold and do it cost efficiently.