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22470 mw ExecRep_jan08:22470_ExRep_J08_mw1 17/1/08 16:48 Page 8

Executive Report – Winter/Spring 2008

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Executive Report – Winter/Spring 2008

Hotel Fashionista

With high profile openings from Versace, Armani, Missoni and Moschino expected in 2008, are suddenly very much in vogue. We examine the reasons for this trend and consider the opportunities and risks for operators and luxury retailers as they venture out onto the catwalk together.

Fashion hotels are part of a rapid expansion guests can take the lifestyle back home with As luxury retailers move into unfamiliar in the market for luxury branded consumer them when they check out at the end of territory they run the risk of damaging the products. According to Verdict Research, their stay. A luxury retailer can sell a diamond world-class reputation of their . global expenditure on these has grown ring to a couple and send them away on To minimise this danger a number of fashion by 31% over the past five years to reach to one of its own hotels. are now courting the attentions of $263 billion in 2007. Verdict expects the established hotel chains with a proven track growth rate to accelerate over the next few principles record of expertise in the luxury sector. years to reach $450 billion by 2012, boosted A number of major fashion houses have by high demand from the emerging opted to follow in Versace’s footsteps, Joint venture economies. developing high-end, luxury hotels very with the hotel may much in their own image. These hotels seek take the form of a licensing agreement, Since the pioneering Palazzo Versace to replicate the successful design principles enabling the hotel chain to operate a opened its doors on Australia’s Coast of the luxury products themselves. number of properties under the fashion at the beginning of the current decade, the label, as is the case with Rezidor Hotels impetus for fashion hotels has come from For example, Hotels & are and Missoni. Collaboration may also take the retailers themselves. designed around values of contemporary the form of a full joint venture, such as the Italian refinement, with subtle product deal concluded between Marriott Way of life placement, semi-precious materials, International and Bulgari. As the market grows unobtrusive and attentive increasingly competitive, the major fashion . Armani Hotels & Resorts will In the latter arrangement both parties fund labels seek new ways to innovate and showcase the designer’s trademark minimal, the venture with their own capital, and reinforce their strength. In today’s clean aesthetic to create a feel of casual share decision making as regards site ‘’ luxury goods are elegance. Palazzo Versace and Philip Treacy’s selection and product design ranging across promoted as part of a broader aspirational ‘g Hotel’ adopt a more appropriately the architecture of the , the staff lifestyle, encompassing all aspects of flamboyant style, with opulent features, selection process and the services offered. and leisure. gaudy colours and a glitzy image. Bulgari retains a heavy creative input at all stages whilst Marriott assumes responsibility Luxury consumers are invited to buy not only Damage limitation for the day-to-day operations. the product, but the way of life associated However, whilst the major fashion with the product: they can aspire not only to companies are renowned for their Partnership value wear the brand, but to eat it, drink it, walk inspirational design skills, the mechanics of The future evolution of the fashion hotel it, talk it, feel it… and even sleep in it. and running a hotel remain very sector is likely to involve further such much a foreign country for most of them. approaches to the . For luxury goods retailers, fashion hotels But what is the value of these demonstrate that the luxury brand is strong The preferred business model emerging in for the major hotel brands themselves? enough to expand beyond its traditional this segment involves some form of space, and offer a new way of engendering collaboration between the fashion The obvious answer might be revenue, but loyalty to the ‘mother brand’. and the hospitality or real estate industries. this is not necessarily the chief selling-point Versace (Sunland Group) and Armani (Emaar for hotel groups. Although the pricing These hotels can open up new revenue Properties) have both forged partnerships structure of fashion hotels is typically at the streams, channels to market and opportunities with regional property developers to build top end of the luxury market, the relatively for cross-selling. Products are available for and operate hotels in Australia and the niche scale of these operations limits their purchase from the hotel catalogue so that . overall benefit to the bottom line.

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Executive Report – Winter/Spring 2008

traditional financial service-type backgrounds, Bulgari Hotel customers have a stronger female bias, tend to work in the arts, and fashion industries, and often for personal reasons.

Fashion hotels can benefit from the growing economic power of women as owners of wealth, and as career high-fliers. For example, a recent study from the Centre for Economic and Business Research found that women currently hold 48% of the UK’s personal wealth and estimated that this proportion will grow steadily to 60% by 2025.

Creating cachet Fashion hotels may remain distinct from traditional upscale hotel brands by targeting the status needs of the most affluent and fashion-conscious customer segments.

Luxury goods, once the preserve of the wealthy, have become increasingly accessible to mainstream consumer markets in recent years through premiumisation and counterfeiting. By creating hotels at the very For many hotel operators the real value of Is the longevity of the hotel brand assured top end of the luxury sector, fashion houses partnership with iconic fashion brands lies in or are the fortunes of the brand wholly are able to reassert a sense of cachet and their strategic importance far more than in dependant on the current generation of exclusivity. For example Palazzo Versace is their economic contribution. individuals who control many of these famously billed as ‘the most expensive hotel family-run businesses? in Australia.’ Strategic halo According to Marriott’s head of global brand Whilst this remains a risk in some cases, a Merrill Lynch’s World Wealth Report Mike Jannini, the acquisition of Ritz-Carlton growing number of luxury fashion retailers estimates that the number of High Net in the late 1990s created a ‘strategic halo’ are reportedly contemplating stock market Worth Individuals1 increased globally by around the group, demonstrating its ability flotation, following a path already trodden 8.3% in 2006 to reach 9.5 million people. to execute brand strategy successfully across by Bulgari. This would represent a major As luxury products become more a wide spectrum. cultural change for many family dynasties, mainstream, these wealthiest consumers, but would give them access to funds for and those who aspire to join their ranks, Jannini believes that the Bulgari partnership expansion into new markets and a more increasingly seek to assert their status by “has enhanced this strategic halo even managerial business style enabling them to collecting ‘luxury experiences’ such as travel further, taking it to even more specialised, compete with global luxury groups. rather than by traditional material more refined levels of execution.” acquisition. Another key risk for the hospitality industry For Marriott the value of the deal also lies in is the threat of ‘cannibalisation’: the danger Location, location, location its contribution to the organisational that high profile fashion brands may siphon To summarise, the rise of fashion hotels is competency of the group. The experience off customers from other luxury brands in likely to continue due to a confluence of gained from partnership with Bulgari has the hotel group’s portfolio. trends: increasing competition and the need directly enriched the group’s new for in the luxury goods industry; relationship with boutique designer Ian Distinct market global patterns of wealth and the changing Schrager, with whom Marriott plans to The key to avoid this danger is to ensure nature of luxury consumption; and the hotel create a new brand of up to 100 lifestyle that the fashion hotel brand appeals to a sector’s evolution into a sophisticated brand hotels. distinct and clearly identifiable market able to execute segment. Bulgari Hotels targets the core successfully across the widest possible Question marks Bulgari demographic of independently spectrum. Nevertheless, for the industry the wealthy travellers, as does its Marriot stable development of fashion hotels offers risks as mate Ritz-Carlton. So where are the fashionistas of the future well as opportunities. A question mark likely to be checking in? Existing hotels and hangs over the long-term sustainability of However, whilst Ritz-Carlton guests have current pipelines focus on , the partnership with the fashion houses. more of a male bias, typically from relatively heartland of the luxury goods industry,

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Executive Report – Winter/Spring 2008

Where are the fashionistas?

Fashion designer Current hotel portfolio Future expectations

Palazzo Versace (Sunland Group) One hotel: Gold Coast (nr. Brisbane), Australia (2008); up to 15 planned worldwide

Armani Hotels (Emaar Properties) Dubai (2008); at least seven hotels & three resorts planned including Milan, and New York

Bulgari Hotels (with Marriott) Two hotels: Milan, Italy & Bali At least 12 planned worldwide

Missoni (with Rezidor) Kuwait & Edinburgh (2008); up to 30 hotels planned worldwide

Moschino Milan (2008)

Philip Treacy (g Hotel) One hotel: Galway, Ireland London (2010)

John Rocha (Beacon Hotel) One hotel: Dublin, Ireland

Christian Lacroix (Hotel du Petit Moulin) One hotel: , Up to five hotels planned

Miss Sixty (Sixty Hotel) One hotel: Riccione, Italy Intentions to develop worldwide with Rome, Dubai, Barcelona, & Berlin suggested

Ferragamo (Lungarno Hotels) Seven hotels: Florence, Rome, Italy

Camper (Casa Camper Hotel) One hotel: Barcelona,

Krizia (K Club) One hotel: Barbuda, Caribbean

Ron Arad (Hotel Duomo) One hotel: Rimini, Italy

Roger Saul at Mulberry One hotel: Somerset, UK

Vera Wang (Vera Wang honeymoon ) One hotel: Hawaii

Byblos (Art Hotel Villa Amista) One hotel: Verona, Italy

Diesel (Pelican Hotel) One hotel: Miami, US

Karl Lagerfield at Chanel (Schlosshotel) One hotel: Berlin,

Source: Company and press Dec 2007

gateway such as London, Paris and also suggests potential for diversification different backgrounds, offering new New York, and one of the world’s fastest into the hotel arena. challenges and requiring new skill sets. growing luxury destinations, Dubai. From Siena to Shanghai, the development of Well-known luxury brands have very high the fashion hotel sector offers opportunities, Future development will follow along these status value for wealthy consumers in risks and above all an important new learning lines, concentrating on prestigious shopping emerging markets as they seek to ground for the hospitality industry.x• locations where fashion houses already have differentiate themselves from less well off successful outlets, offering a ready-made groups. Fashion hotels in gateway Asian Alex Kyriakidis target audience. Europe, the US and the cities are likely to emerge as a means of Global Managing Partner Persian Gulf continue to offer ripe building brand loyalty amongst these newly , Hospitality and Leisure opportunities, whilst Asia Pacific is likely to prosperous consumers. Deloitte Tel: +44 20 7007 0865 take a growing slice of this niche market. Email: [email protected] Learning ground goes bling As the hotel sector increasingly adopts a We would like to thank Mike Jannini Verdict Research forecasts that the Asia culture of brand management, many of for his Pacific region will account for 36% of operators are looking beyond the traditional contribution to this article. global spending on luxury branded products boundaries of their industry to meet the

by 2012, equalling the share of the currently challenge of continual product innovation. 1. Individuals with net assets of at least US$1 million, excluding dominant region Europe. China is expected their primary residence and consumables to be in the vanguard of this growth. In the future, hotel groups will find themselves ’s share is diminishing, however the in collaboration with very different kinds of saturated Japanese luxury goods market consumer brands and partners from very

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