Brands Become Hoteliers to Connect With Customers in a New Way

Do customers love the West Elm, RH (Restoration Hardware) or Shinola brands enough to spend the night with them?

Those companies, and a growing number of other brands, are betting they do.

Hotels increasingly are being positioned as the ultimate in experiential branding, an opportunity to let consumers live surrounded by their essence for a few days.

While luxury fashion brands such as Bulgari, Versace and Armani have been lending their names and design cachet to hotel projects for close to two decades, more mainstream mall brands are now looking at hotels as a way to reach customers.

Taco Bell turned an existing resort in Palm Springs, California, into a temporary Bell Hotel for four days in August, mostly for publicity and social media exposure, but retail brands both large and small have plans to open full-service, permanent hotels.

West Elm, the millennial-focused furniture chain owned by Williams-Sonoma, created a hotel division, and in 2016 said it had picked five locations for the first West Elm hotels.

Upscale fitness chain Equinox opened a 212-room hotel this summer on top of one of its fitness centers at the new Hudson Yards development in Manhattan. Equinox hotels are under development in Seattle, Houston, Chicago, Los Angeles, and Santa Clara, California.

RH, the luxury furniture chain formerly known as Restoration Hardware, plans to open its first branded hotel, RH Guesthouse, next year in New York City’s Meatpacking District, near its successful flagship store and rooftop restaurant.

Luxury watch, leather goods and bicycle manufacturer Shinola in January opened a boutique 129-room hotel in its founding city, Detroit, near its factory and flagship store. Direct-to-consumer bedding brand Parachute has a one-room hotel over its store in Venice, California.

Hotels can be a good way for brands to connect with customers in a digital age and help customers imagine how the merchandise would look in their homes, branding experts say.

And via hotels, “There’s no better way to extend the [brand] relationship with a consumer than to be their guide as they travel and experience new things,” JoAnne Borselli, a group brand director specializing in travel, lifestyle and luxury brands at Connelly Partners, a Boston-based media and advertising agency, told CO—.

“It takes the consumer relationship out of the storefront and into their everyday life in a very personal way. And it shows the consumer how that brand fits into who they are in a way that’s much bigger than buying a piece of furniture,” Borselli said.

Tapping a growing hospitality industry, navigating its challenges

The U.S. hotel industry has been growing for close to a decade, with revenues rising at a compound annual growth rate of 6% between 2009 and 2017, according to Deloitte’s 2019 U.S. Travel and Hospitality Outlook.

Hotel gross bookings grew by 60% during that period, to $185 billion, but Deloitte warns that the industry may be coming to the end of a growth cycle.

The journey from a consumer brand or retailer to a hotel isn’t easy. And brands that want to become hoteliers must overcome sizable hurdles, Jan Freitag, senior vice president at STR, a data research company that tracks benchmarks in the global hotel industry, told CO—.

“In the hotel space, you have three very distinct players: the owner, the management company and the brand. And those are often not the same players,” he said. Consumer brands opening hotels have to find third parties to make this work, Freitag said, “and getting an owner to commit is very, very hard.”

Getting financing for an untested concept can be difficult because the bank or lender can’t assess how the hotel will perform, he said.

“If you were to underwrite a Courtyard hotel, we can give you 20 years of history. We can tell you exactly how this Courtyard is going to perform,” Freitag said. “But if you’re telling me here’s an Apple hotel, here’s a Nike hotel, here’s a West Elm hotel, being able to know how it will do is very, very hard and therefore very risky. It means a higher interest rate, more equity and less debt and it makes the deal structure hard,” Freitag said.

Stretching brand equity

Brands give different reasons for entering the hotel market.

Fitness chain Equinox, when it opened its first hotel in New York City in July, said it decided to create branded hotels when it noticed its members seeking out hotels near Equinox gyms when they travel.

The hotel will reflect Equinox’s brand theme that “health is the new wealth,” from sleep-friendly rooms with soundproofing and blackout windows, to spa services and in-room, on-demand, IV vitamin drips.

Shinola executives had narrower objective when opening a hotel in Detroit this year. The brand said it saw an opportunity to both fill the need for a boutique hotel in the city and complement its brand and presence in the Detroit market.

While retailers typically see hotels as a place to showcase their products, RH is taking a different approach. The RH Guesthouse is not about selling furniture, but instead designed to fortify the home brand as an arbiter of taste, as it expands into the hospitality sector via restaurants and now hotels.

Businesses like Apple and Disney have stretched their brand equity to create “beautifully integrated ... ecosystems,” said RH’s Gary Friedman, chairman and CEO, during the company’s second quarter conference call in September. “Once consumers bought into that brand in that ecosystem, they had you on so many levels,” he said. “And we believe [RH] can be one of the great ecosystems of all time.”

Brand partnerships can be good for hotel operators as well as the retailers, Chekitan Dev, professor of marketing and branding at Cornell University’s School of Hotel Administration, and the author of Hospitality Branding by Cornell University Press, told CO—.

“Hotels that are in crowded and brutally competitive markets co-brand with lifestyle brands to give them that extra oomph to stand out from the crowd,” Dev said.

“Brands such as Bulgari, Armani, Versace, Cerruti, all have opened hotels, with mixed success. What luxury lifestyle brands have begun to realize is that running a hotel well is not easy and a bad hotel could easily damage their brand,” Dev said. “So, I see this trend continuing, but I also see a lot of casualties along the way.”

- Barbara Thau contributed to this story.

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