Offering more class for less cash

The world's largest hotel companies, stung by the industry's biggest declines since the Great Depression, are trying to do for lodging what Ikea did for furniture: Offer fashionable products at low prices.

Starwood Hotels & Resorts Worldwide Inc., the third-biggest U.S. lodging company, is developing boutique hotels for frugal travelers that cost about $119 a night. That's a far cry from the $399 to $639 at the company's upscale W Hotels. InterContinental Hotels Group PLC is following a similar strategy with its boutique chain Hotel Indigo.

Both companies are seeking to capitalize on a formula popularized in the 1980s, when small, individual properties with luxury amenities, designer interiors and quirky decor gained in popularity among travelers. This time, the demand for affordable, fashionable lodging was fueled by a global recession that left many people unable or unwilling to spend as much on vacations.

"You mix the luxury elements into the lower-priced product and it's fair to presume that what's more value-driven is faring much better during the downturn and beyond," said David Katz, an analyst at Oppenheimer & Co. in New York.

The top four U.S. hotel companies reported revenue declines of 16 percent to 22 percent for the first nine months after rising unemployment dented consumer spending. Room rates will probably fall in 2010 for the second straight year as hotel owners offer discounts to lure customers, according to Pricewaterhouse Coopers.

Hotel operators are also battling a drop in business travel as companies try to save money. There has been a backlash against lavish spending by banks, insurers and carmakers that were given government financial assistance, discouraging them from using expensive hotels for conferences and conventions.

The chains are designed for travelers who want a unique hotel experience without spending $500 a night.

Starwood's W Hotels, a boutique chain started in the late 1990s, are equipped with 400-thread count organic cotton Percale duvet covers by Swedish designer Anki Spets. The beds also have feather pillow-topped mattresses and leather headboards. Some lobbies are furnished with Philippe Starck pieces, such as Louis XV-style chairs that sell for $410 at the hotel's store.

At Starwood's Aloft chain, the company's limited-service boutique brand, things are more Spartan.

In Rancho Cucamonga, Calif., the Aloft is contemporary without the designer labels. Bedding is 200-thread count and only a handful of managers maintain the property. A dozen or more service W locations, according to Kimberly Ervin, director of sales.

Instead of being stocked with expensive wines and spirits, the small refrigerators in each Aloft room are empty. The showers have shampoo and shower gel dispensers attached to the wall. Headboards are made of cork while a cowhide print, rather than the actual hide, graces the wall.

The public spaces exude cool. Modern alternative pop echoes through the 3,500-square-foot lobby. The music can even be heard underwater in the outdoor pool.

The Aloft in Rancho Cucamonga offered rooms as low as $99 a night last week, according to the chain's website.

The Aloft chain includes a hotel at 900 Washington Av. S. in Minneapolis.

"The demand for alternatives to the sameness of chain hotels has been growing and will continue to grow," said Marc Gordon, president of Morgans Hotel Group Co. "Limited-service boutiques speak to an increasing part of the population that prefer alternative hotels to large chain hotels."

Those people may prefer to stay in stylish, quirky hotels without paying top prices, Gordon said.

Morgans' namesake boutique hotel on Madison Avenue boasts an elegant lobby with armchairs and tables by 1930s designer Jean-Michel Frank. The lobby at its Mondrian hotel on Sunset Boulevard in West Hollywood features a swing. A standard room there for a midweek stay was advertised at $275 a night, according to the Mondrian's website.

Average daily room rates at boutique hotels dropped 22 percent in January through September compared with a 9.1 percent decline across all U.S. hotel segments, according to Hendersonville, Tenn.-based Smith Travel Research.

"Many of us have gotten used to staying at something more socially oriented, with a hip atmosphere and hip food and drink places," said Oppenheimer's Katz. "But what we are in the midst of is a repricing of hotel product."

A lack of financing forced Starwood to cut its original goal of starting 500 Aloft hotels by 2012. The White Plains, N.Y.-based company still expects to open 40 outlets by the end of this year plus 11 next year, including three in India, according to Brian McGuinness, senior vice president of specialty select brands.

"We've seen a democratization of design with Ikea, Pottery Barn, and Crate & Barrel," McGuinness said. "Gen Y is the big story. Design is something they have been introduced to early on at relatively lower price points."