Schrager Boutiques Mean Biz

By BTN / March 25, 2001

Schrager Boutiques Mean Biz

With eight high-profile properties open and seven in development, Ian Schrager, chairman and CEO of Ian Schrager Hotels, is credited with creating the boutique hotel concept. This month, he provided BTN hotel editor Bruce Serlen with an update, including the important role he attributes to corporate travel buyers in his success.

BTN: Your hotels are known for being hip and fashionable, but you've also said business travel is essential to you.

Ian Schrager: It's the backbone of the business. You can have no viable hotel business without being supported by the corporate travel market. It's the consistency, the frequency and the continuity of their travel. We like to generate a minimum of 35 percent of our business from this market.

BTN: Do the needs of the business traveler enter into your thinking when you're planning a hotel?

Schrager: Of course they do. Basically, I'm a businessman and I do the kind of hotel room that I like. By extension, businesspeople who have the same attitude and sensibility that I do will want to stay there. I want the same desk space and ease of computer hook-up, the same good lighting and comfortable desk chair and space to spread out my papers and get my messages.

BTN: So corporate accounts--and negotiated rates--are important to you?

Schrager: It's what I call the wholesale end of the business. Our market is made up primarily of two markets: discretionary travelers who may be businesspeople who just choose to stay with us because they like it, and those people with whom we make volume deals. For this market, we negotiate off the regular rate, depending on the amount of business. The reason it's so important is that you really don't have that much control over the discretionary market. You do a good product, you price it right, and you hope the discretionary travelers come. With the corporate market, once you have a deal in place, there's a greater sense of control. Also, given the cities we're in--New York, London, Los Angeles, Miami--usually the corporations we're doing business with have offices in those locations.

BTN: Is this one of the reasons that your hotels are in gateway cities?

Schrager: Certainly, I like to be in a city that has the business. Then it's just a question of getting it to your hotel. And that means doing something strong enough, providing an innovative product. Plus, the 24-hour, international gateways have high barriers to entry, so they're not easily accessible to other hotel companies.

BTN: In many of these locations, availability of rooms has been the major issue for the past year or two, particularly midweek. As a result, have you gotten involved with yield management?

Schrager: Well, I know I don't want to follow the same approach the airline companies do. All that did was educate consumers how to get around it. It's the same thing with department stores. People wouldn't go out and buy when a new product was put on the floor, they waited for the sales. For me, I like to pick a price that has integrity--that represents a certain perception of value for what we're offering--and stick with that price, whether it's a Tuesday or a Saturday. I go along with Wal-Mart in this way. I'm not saying the price you pick necessarily has to be the low price, but once you go to market with a rate, you stick with it, if you believe in your property.

BTN: What if the economy softens?

Schrager: The same strategy applies. When business gets bad, you don't lower that rate or discount that rate, because when business gets good, it takes you too long to get where you're supposed to be. It means having fortitude and belief in your product. Of course, if you create a product where people want to stay, there'll be less concern for price. That's the edge in doing an innovative product because you offer something unique and an alternative.

BTN: When you and partner, Steve Rubell, started in the early-1980s, what did you mean by calling hotels such as Morgans and the Royalton "boutiques"?

Schrager: Coming from New York, we were very influenced by the retail and fashion businesses. So the way we explained it, if the other hotels were department stores trying to be all things to all people, we were a boutique in that we had a very specific point of view and represented an alternative, something different than the mass-produced, monotonously similar hotels that had been done for the previous 70 years.

BTN: Does it have to conform to a certain size?

Schrager: Definitely, not. Boutique has nothing to do with size. It has to do with attitude and approach. I have a 1,000 room hotel, The Hudson, that I consider a boutique. In fact, a store can be 500,000 square feet, but if it has such a specific point of view, such a specific vision and is so singular, it can be a boutique as far as I'm concerned. I consider The Gap a boutique, by the way.

BTN: With so many other hotel companies entering this market segment, do you feel the term's become overused?

Schrager: No, it's just picked up a generic meaning of its own, even though we coined the term. The important thing is that people really want to stay in hotels like these. What we're doing, by the way, is not at the end or the peak, it's at the beginning. The success of chains like W and other boutiques just shows what a huge, underserved market there is out there, because none of the boutique hotels that have opened have had any effect on my business. Everyone just misunderstood the depth of the market, that people weren't going to accept the mass-produced model of a hotel.

BTN: And you think the lodging industry can go further with it?

Schrager: Absolutely. And it doesn't mean the boutiques I'm talking about have to be as quirky and on the edge as my properties. They just have to be better than the generic, institutional things that are out there.

BTN: How important would you say their cutting edge design has been to the visibility that the hotels have achieved?

Schrager: I never considered our hotels about design. Never. Design was always a marketing tool for me. Otherwise, it's like saying great movies are about special effects. I mean, special effects make the movie better and more exciting, but really if it didn't have the fundamental story and emotional pitch that moved you in some way, the special effects won't make a bad movie a good one. In other words, I view the design as the special effects we use. Really, it's about a different approach, a different attitude. It's not based upon the efficiency of our distribution system or the number of employees or the kind of service we give you, which of course is very important. Rather, it's based on doing something that's a little bit provocative, on the edge and original, something that's going to get a rise out of you.

BTN: But certainly design has been an element in the success?

Schrager: Yes, but you can have a classic, antique, even baroque design--not modern or on the edge in the least--and still be a successful boutique hotel. In fact, when people say "designer hotels," I cringe because I don't consider them that. They're hotels that have something to say, that are individualized, that may be subversive to the status quo and give travelers a choice.

BTN: You've referred to them as "lifestyle hotels for the 21st century." Does that sum it up?

Schrager: In a way, yes. Other areas of our life, like the clothes we buy and the music we choose and the films, books and cars, reflect something about the lifestyle we live. But hotels didn't because they became generic and institutionalized. I'm trying to do hotels that reflect the lifestyle of the people who frequent them and that's what creates the bond with the customer. People give their loyalty to clothing designers and cars because they feel these things say something about the kind of choices they've made in life. But when you stay in a hotel in New York and it's the same hotel as the one in Seattle and in Puerto Rico, what does that hotel say about your lifestyle?

BTN: How do you respond to charges that the guest demographic you're going after, whether business or leisure, is too young?

Schrager: It's not too young. I'm 54 years old. You see guests who look like me in my hotels. When I opened my first hotel, people expected to see go-go dancers in the lobby and then they only expected to see people who wore black and lived in SoHo. It's a fiction. In the same way, people are surprised when I tell them how important corporate business is to me. Believe me, I'm not just for 18-to-34 year olds. I can't build a business on them.

BTN: You've spoken about the guestrooms in your hotels being interactive. Do you see that as an extension of travelers' lifestyles?

Schrager: Yes, but not interactive from a technology point of view. We started from the notion of wanting to give people a measure of control over their environment, to sort of let them interact with their room, to make it what they want. So in London, we did St. Martin's Lane that allowed people to adjust the lighting in the room to reflect their mood. Also in London, at Sanderson, we allowed people through the use of curtains to define and abbreviate the space, altering the way the room works. Interactivity is the thing we're exploring and we want to get more involved in. It's really about allowing individuals to personalize the space they're in and make it their own in some way.

BTN: What is the next step?

Schrager: We're trying to take it even further, allowing people to adjust not only the lighting and the space, but to change the furniture that's in the room. Each room would have its own little storage area, which you could use to make certain adjustments. You might like more desk area, for example, or more sitting area or dining area. It would be more adaptable. See, we used to sit in front of the TV and had to accept everything the TV played. The only option was to change the channel. Now we sit in front of a computer and can go anywhere and see anything we choose. It's that liberating feeling that I'm trying to put into a hotel room.

BTN: So when you think of a guestroom, you don't necessarily think of a bedroom, a bathroom, a living area, etc. It's much more fluid.

Schrager: Exactly. Every hotel room has those elements, but you can change the emphasis--you can change the way it works--and that would be an empowering and liberating thing for a guest to be able to do. It all depends on what the individual might want. If you're in the room during the day and having business appointments, then you might want one feel and one sense of space. If you're there at night, then you might want another.

BTN: Does any of this entail less of a commitment to guest service?

Schrager: In the same way you have no business without the business travel market, you have no business without excellent guest service. Initially, innovation may have been the major core value of our company. As you mature and refine what you do, however, you realize that while innovation is important, good service is more important. So it's an area we look to get better at.

BTN: Operationally, what's the experience been like running a 1,000-room hotel such as The Hudson, compared with your smaller properties?

Schrager: Certainly there are differences from operating a 100-room property. Apples and oranges are still fruit, but they're just different things. My approach is really one from the entertainment business anyway--making it theatrical. That's what interests me and what I think lifts people's spirits. So it doesn't really matter much for me whether it's 1,000 rooms, 5,000 rooms or 50 rooms. It's the same basic approach. No, the operations aren't smooth and part of the reason has been the success of the project. We haven't had the opportunities to work things out the way hotels normally do. We're like a show. We open, we pull the curtain and we're busy. That has its challenges.

BTN: Is your plan to continue to saturate the key markets?

Schrager: I'm opportunistic. I do something because it makes sense. I do a hotel not because I can get financing, but because this particular place needs a hotel. The strategy is still to saturate the cities we've been talking about with hotels at various price points, The Hudson being an example of midprice.

BTN: Are there other segments you're interested in exploring?

Schrager: Every segment. The Astor Place Hotel we're doing in New York, for example, is going to have 300 rooms and there's going to be a separate building with rooms that have shared bathrooms. People are going to be able to get into these rooms, which are very stylish and all, for about $45 a night because there's a market for that.

BTN: Early on, the hot bar scene that was part of your hotels received a lot of attention. In hindsight, do you think that was fair?

Schrager: The bar will always be important for this reason: People come to the city, they like to participate in the excitement the city has to offer. It's almost like we want a hotel to be a microcosm of that city and really to give a traveler a flavor of the social fabric of that city. Accordingly, people come to a hotel, they want to go to a bar--as well as a restaurant--the people in that city go to. So instead of some boring bar only the hotel people and nobody else goes to, this bar's the vibrant, in-demand, ground-zero place where everything's going on. The bar's there for the bar business in itself, but it's also there for the hotel--to make the hotel more enjoyable. So you don't have to leave the lobby, you don't have to leave the premises to go to the hottest bar in town. Yet that success, like any success, has problems. I learned, however, that I'd rather deal with the problems of success than the problems of failure.

BTN: They're too popular?

Schrager: Sometimes. You have to make sure it doesn't disenfranchise the hotel guest. The bars are there for the hotel guest. Yet, I want them catering to the people of the city because that's where the hotel guests want to go. In other words, the bar is geared for you, people in the city, but it's not really for you. That's the problem.

BTN: Given the stressful lives of many business travelers today, there's often a blurring of business and leisure travel. With Mondrian in Los Angeles and the Delano in Miami, how is your company suited for this kind of guest?

Schrager: For me, where does my personal life stop and start and my business life stop and start? It's a moving line and all part of my life. The two are inseparable. So, of course I'm a business person, but I want to stay at a cool hotel. And if I'm at the hotel Thursday and Friday on business, I'll want to stay Saturday and Sunday as a leisure guest, if it's a fun place to be.

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