This paper is a research on the factors that have influenced growth in the boutique hotel sector, demonstrating that boutique hotels have become a popular alternative to five star properties. The study methods included a review of the literature and surveys of boutique hotel guests.
Location, high quality, uniqueness, services provided and the personalized levels of service offered the top five attributes attracting guests to these hotels. The growth of the boutique hotel sector may be because of hotel clients looking for alternatives to standard and more traditional accommodation. This paper will investigate the growth of the boutique hotel sector and the factors that influence the consumers’ decision to purchase this type of accommodation.
Introduction. Origin of boutique hotels.
1980’s were the time of the construction boom in the hotel business. Thus, only during 1980-87, the number of hotel rooms in the USA increased by 40%. Economic globalization has not bypassed the hotel industry: nowadays, mergers and acquisitions no longer involve just individual hotels, but the entire hotel chains. Huge international hotel groups are created, such as “Bass Hotels & Resorts”, “Starwood Hotels & Resorts”, and “Carlson Hospitality Worldwide” (Keeps 2006).
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At the same time, hotels are becoming more and more comfortable, offering guests new services that previously simply did not exist or were accessible only to guests of 5-star hotels – spacious apartments, cable TV, high speed internet access, recreation complexes, and guaranteed security. But it turns out that the modern consumer is not enough satisfied with what traditional hotel give him; he needs now more than reliability and the program of “earning points” (Bender, 2009).
While the giants of the hospitality industry excelled themselves in the struggle for the customer, constructing mega-hotels – the most spacious, highest, most expensive, with a set of all conceivable service, they have lost the most perspective clientele: relatively young business travelers aged 25-45, rich and tending to everything unusual. Hotel giants are now challenged by small privately-owned hotels, each of which has its own unique style. By analogy with small shops, selling things from well-known designers, these hotels received the name of “boutique hotels” (Bender, 2009).
The first hotel of this format appeared only in the early 80-ies of the 20th century. It is believed that the first boutique hotels – sometimes referred to as design hotels (design hotels or lifestyle hotels) – opened their doors in 1981 on two continents simultaneously: “The Blakes Hotel” was opened in London, South Kensington, sponsored by a former actress, now a famous designer and hoteliers Anouska Hempel, and “Bedford” in San Francisco, located on Union Square. Subsequently, this hotel has become a part of a network of boutique-style hotels exclusively under the administration of one of the most famous players in the market – Kimpton Hotels & Restaurants (Boutique Hotels On The Rise).
In 1984, three years later, the first object named “Morgans” which officially gained the status of a boutique hotel was opened in New York by the famous hotelier, developer and designer Ian Schrager, who is now considered a trendsetter on the market of boutique hotels (Bell 2008).
Definition and Features of a Boutique Hotel
A boutique hotel is a type of accommodation which can be called the embodiment of a design idea of modernity. Taste, luxury and exclusivity are the basic ingredients for the success of a boutique hotel. Further, the paper covers the main components, making up the notion of a boutique hotel (Boutique Hotels Defined).
First of all, a boutique hotel is usually a small hotel, the number of rooms in which rarely exceeds one hundred. The average number of rooms usually reaches 20-30 apartments. According to some experts, the maximum number of rooms in a boutique hotel should not exceed 150, because only in this case, the service may be personalized. They believe that the main feature of a boutique hotel is its chamber character and some mental connection between the clients of the hotel and its staff (for example, in some hotels the staff should know all the guests staying at the hotel by name). Others, including the founder and CEO of “Ian Schrager Hotels” Ian Schrager, believe that the key to the boutique hotel is not a small number of rooms and personified service, but the opportunity to involve the guests into a special atmosphere, influencing all their senses through architecture, design, colors, light and music. For example, these are the main peculiarities of Schrager’s boutique hotels “Paramount Hotel” (597 rooms) and “Hudson Hotel” (1000 rooms) (Bell 2008).
The word “boutique” also determines the degree of comfort and uniqueness of the hotel service. A boutique hotel is primarily a unique interior design. A boutique hotel is not necessarily trendy, but is always stylish. The design of a boutique hotel is often strictly kept within one theme: English aristocratic gloss of the late 19th century or ultra-minimalism, for instance. Nowadays, certain interiors for boutique hotels are developed by the leading representatives of the world’s design art, from Philippe Starck to Christian Lacroix (Craig, 2010).
Special services offered today by boutique hotels form another quality that makes them special. Services provided by various boutique hotels are typically exclusive. For example, the boutique hotel “Benjamin” in New York takes care of guests’ domestic animals; “Manor at Ngorongoro” at the foot of the volcano Ngorongoro in Tanzania offers an exciting excursion to Maasai tribe’s encampment. Classic services of VIP-tourism and boutique hotels also include helicopter transfer or jacuzzi with champagne. The main task of a boutique hotel lies in bringing individuality, sometimes at the maximum level. The style, intimacy familiar to the guests, and palpable contrast to other hotels – these are the characteristic features of a boutique hotel, which is an ideal place for customers looking for a hotel where they can relax and all their wishes will be fulfilled quickly and accurately (Craig 2010).
That is why sometimes boutique hotels are based on old castles or old hotels, i.e. places which have their own history and heritage, providing special individuality of boutique hotels. For the same reason, boutique hotels can often be located in places not originally intended for tourists. Today, they are opened on the territory of former factories, abandoned farmsteads and even aircraft hangars. At the same time, while creating a hotel, designers often try to preserve the atmosphere of the previous premises in order to make the guest feel special. Thus, the customer of a boutique hotel can feel like a character of a fairy-tail, adventure novels, detective or love story (McIntosh & Siggs, 2005).
All the boutique hotels in the world can be divided into 2 groups: urban and resort hotels. Having much in common, these groups still have significant differences. For example, in urban boutique hotels, one of the key factors for success is the location. The hotel must be located in a “landmark” city and preferably in the most popular part of it. The location is determined not only by the concept of convenience, but also by the presence of stylish and trendy neighbors. That is why lots of boutique hotels are located in cities like New York, Miami, London, Paris, and Los Angeles, although recently there emerges a trend of opening boutique hotels in smaller cities with the great potential for future development (Hachisu 2008).
Another situation concerns resort boutique hotels. The hotel’s location is also important here, but fashion placements are often hidden from prying eyes and seek to create a chic and exceptional comfort far away from the civilization, e.g. on remote islands or in wild jungle. Moreover, the more difficult is the road to the hotel, the more stylish and fashionable it is considered. While urban boutique hotels are often full of technical gadgets, from banal DVD-players to exotic electronically controlled beds, resort boutique hotels tend to provide recreation in isolation from technologies; and the lack of phones or TV-sets in the room is not some sad omission, but the deliberate technical asceticism. And this is not a complete list of differences (Lim & Endean 2009).
Another feature of a boutique hotel is that its main target audience is represented by people aged 20-50 with average or high income. The cost of living in a boutique hotel due to its uniqueness is often really quite high. Typically, each room of a boutique hotel is unique and each one has its own price. Today the lowest level of prices per room in a boutique hotel is about 200 Euros per day. This price level is valid for the boutique hotels of Europe, particularly Paris, Barcelona, Florence, Moscow, Istanbul or Rome, as well as for hotels in New York, Mexico City and Buenos Aires (Aiemens 2008).
Thus, by analogy with the trading format, a boutique hotel should be small, should offer high quality services, and provide individual service. Therefore, it should be classified as a five-star or luxury hotel. In addition, such hotels, obviously, should be unique and have impressive interiors. At the same time, there are no single international standards managing the procedure of designation of an object to the class of boutique hotels, so each operator interprets the word in its own way. Today, one can find five-star (ecological “Vida Sol e Mar” in Brazil) and three-star (“Rockhouse” villas in Jamaica) hotels, as well as hostels (“Rooms Deluxe” in Valencia, Spain) among the “boutique” hotels (Parker, 2006).
However, there still exist some characteristics allowing hotel owners to refer to the status of “designer” or “boutique” hotel. For example, when selecting objects for the “Mgallery” network, the hotel chain “Accor” outlines the following conditions: 1) the building and (or) the hotel should have its own history, 2) it should have an outstanding location, known for its unique concept, 3) it should be exclusive in its interior design and (or) the exterior (architecture), 4) it should prove personalized services (The Complete Guide To: European boutique hotel).
It seems that the absence of strict standards, allowing the inclusion of an object to the “boutique” format, opens up great opportunities for operators. Each hotel with small number rooms and apartments should strive to become a boutique hotel, which would sound nice and expensive. In addition, the “individuality”, which is perhaps the only more or less general criterion for this format, can hide the mismatch with the classical standards of hotels in relation to the amount of apartments and range of services (The Complete Guide To: European boutique hotel).
But for some reasons, the hoteliers do not hurry to declare their objects as “designer” or “boutique” hotels. In fact, the status of a boutique produces too many obligations, and it is sometimes easier to position the hotel as a mini-hotel and get free of special obligations to guests. In general, it is rather expensive to build a boutique hotel and it is rather difficult to create a special atmosphere. Thus, boutique is a complex of feelings the hotel wants to give to its guest. The service and staff form the desire to always return to this hotel. At the same time, every privilege entails responsibility (Parker 2006).
Difference between Boutique Hotels and Hotels
That is true, that the majority of population has already got used to the term of “hospitality industry”, and the contemporary hotel business is really a powerful industry. But the question is if the contemporary “industrial” approach compatible to the very notion of “hospitality”, the warmth which is so necessary for the guest exhausted by the current stressful life and willing to feel the same comfort and convenience far from home. And though the competitors accuse “boutiques” in the aggressive behavior on the market and even give them the nickname “boutique terrorists” (the term belongs to John Jarvis, the Head of “Jarvis Hotels”), the secret of their success is rather in their capacity to revive the forgotten “art of hospitality” (Keeps, 2006).
A little more than a decade passed since the time when the American hotelier Ian Schrager first formulated the concept of the “boutique” hotels, and now “boutique” hotels can be found in major business centers in the world – New York, London, Paris, Sydney, Los Angeles. In the vast metropolis, where life is humming 24 hours a day, they are the oasis of peace and comfort (McGinnis 2004).
Generally, boutique hotel differ from the dull monotony of branded hotels with their creativity and imagination both in interior design and style of service. But returning to the previously given distinctive features of the boutique hotels, it is worth noting that sometimes everything regarding them is mistakenly reduces only to the design, but boutique hotels are not only design. Surely, exclusive design primarily determines the individuality of the hotel, but it is designed to help sell the hotel once or twice; later the guests will need something more. And this “something more” is individuality, distinguishing these hotels from just branded ones (Lea).
Saying “boutique hotel”, one always involves the notion of individuality in everything: not only and not so much in service and personification of the customer, but rather in architecture, staff, and atmosphere. According to Ian Schrager, boutique hotels are “subversive. The idea is to do something contrary, something that violates the status quo, and as long as it is well executed it works. If it’s not well executed, then it’s just trendy” (Boutique Hotel Resort Trends).
Compared with other hotels, boutique hotels have one more difference, but rather an advantage in terms of economy. Sometimes, boutique hotels may not spent money on the creation and maintenance of such expensive components, as a restaurant or conference hall. Despite the fact that the boutique hotel may successfully exist without them, the establishment of such services can bring significant additional income to the hotel. So the hotels sometimes rent such premises themselves or provide rent to some other organization (Yanos, 2008).
Besides, the statistics of visits of boutique hotels shows that they have a considerably higher percentage of customers’ return, compared with industry averages. This allows them to better survive in the hard times of economic crises and recessions. Nevertheless, boutique hotels have to constantly monitor the changing market, consumer tastes, fashion trends in the field of hospitality, in order to maintain their competitive advantage and continue to be in the forefront of the market (O’Neill & Mattila, 2010).
Reasons for growing popularity of Boutique Hotels
Experts believe that one reason for the stunning success of boutique hotels are the changes in the customer base of hotels: with the rising living standards the number of rich young clients who travel a lot has increased; they get bored of the monotony proposed by standard hotels and are looking for hotels, which would give them a sense of not only physical but also spiritual comfort (Boutique Hotels Magazine, 2009).
Of course, all of the above does not mean at all that the era of large branded hotel is coming to an end. This is evidenced by the success of giant companies like, for example, “Hilton London Metropole”, which focuses on the congress market, having 1,073 rooms and 39 halls, 2 of which can accommodate 1900 people each, and another – 1300. Its competitor for the title of Europe’s largest hotel is Berlin “Estrel Residence & Congress Hotel”. These hotels, built in the late 1990’s, in no way resemble a “conveyor for sleeping”. Elegantly eclectic, they are different in functional comfort and technological perfection. And the results are explicit – their load rarely falls below 90% (Bender 2009).
The success of such hotels suggests that the needs of the people are changing, and those who want to succeed in the hospitality business of the 21st century, must take into account that the marketing approach to identification of potential customers by demographic characteristics (age, sex, nationality, socio-economic status) is out-of-date now, since these characteristics do not determine the person’s inner world, his desires and needs (McKinney, 2008).
Psychography, which studies the values a certain person is committed to, the feelings that he experiences, his vital interests, and all the things that truly characterize a person, must now form the basis of marketing strategy.
According to Chip Conley, the president the chain of 16 boutique hotels “Joie de Vivre Hospitaliry”, hotel owners should realize that their task is not just to provide people a place to sleep, but to help them implement their dreams. Three days stay in our hotel makes a customer feel a bit more refined, artistic, and intelligent; it even changes one’s manner of speaking. And we win the competition, because we give our guests a unique opportunity to experience their personal uniqueness (Bell, 2008).
The growth of supply always, including the hospitality market, leads to increased competition. The ruined hotels have been acquired by more successful competitors; some of them have themselves asked for that. Surely, in sharp competition for independent hotels it has been more difficult to survive. Life has pushed hoteliers to “chain reaction” (Bender 2009).
Today, fans of the world’s most famous chains can find their favorite hotel in any corner of the world and be at the same time sure that the facilities and furnishings, a set of services, the food, and even the staff uniforms are almost identical in all the hotels of the chain – whether in New York or London, Mexico City or Paris, Moscow or Singapore (Bender 2009).
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The unification surely gives the brands significant advantages in the fight for the customer compared to independent hotels, which keep their individuality. Many people are afraid of the unknown. Using the services of a hotel with a famous name, the client having lived in the hotel of the chain is quite aware of what awaits him, and as a consequence, the choice of the hotel is based on the previous positive experience (Bell, 2008).
Originating as small independent companies, managed by private entrepreneurs or small companies, boutique hotels have changed over time and are now represented among the major hotel operators. First separate chains appeared consisting solely of boutique hotels (for example, “Bvlgari Hotels and Resorts”, created with the participation of Luxury Group, a division of Marriott International Company that also managers hotels “Ritz-Carlton”; networks of “SLS Hotels” and “Joie De Vivre” hotels), and then the majors of hospitality market, seeing the success of these hotels and noting the faster growth of income, including rate RevPAR, as compared to conventional network hotels, decided to enter the market of boutique hotels and recapture market share themselves. Among the most striking examples of the recent period are “W Hotels” managed by the well-known international operator “Starwood Hotels and Resorts” (McIntosh & Siggs 2005).
Design Hotel, originally conceived as an alternative to the standard objects of classical hotel chains, today themselves unite in networks: “Boutique Hotels & Resorts International”, “Small Luxury Hotels of the World”, “Select Hotels & Resorts International”, “Relais & Chateaux” are just some of them (Lea).
Investors and Boutique Hotels
Researches carried out by audit firms show that the niche of boutique hotels is very promising from a commercial point of view. Thus, for 6 years, from January 1995 to November 2000, the demand for the rooms in boutiques has increased by 14%, whereas in the traditional branded hotel deluxe it grew by only 4%. The average load in boutiques in 2000 was 74%, which though slightly, only by 1-2% but exceeded the load of luxe hotels. The average room prices (ADR) in the boutiques by the end of 2000 was $ 210 compared with $ 150 in luxe hotels. And RevPAR (Revenue per average room) in the boutique in this case was $ 160 versus $ 118 in luxe hotels (Craig, 2010).
Hotels, owned by Ian Schrager and Bill Kimpton, a chain of hotels “Joie de Vivre” (“Joy of Life” – a meaningful name), and finally the hotels W, created by Starwood Hotels & Resorts, are rapidly filling America, going beyond its borders – recently, the first “W” boutique appeared in Sydney. Interestingly, the hotel was rebuilt from the former wool storing warehouse. Today, the “W” chain includes 16 hotels, 5 of which are in New York. Hotels of the chain are characterized by rather small size for America, unique architectural and design solutions, and exquisite service, which allows them to attract a variety of important clients including the stars of show business (Boutique Hotels On The Rise).
The services proposed to the guest deserve a special mention. Apart from conventional high-quality hotel services like round the clock room service, guest parking, strong rooms for storing valuables, health center and meeting rooms, they offer a service which is not found anywhere else, except “W” hotels – the so-called “Whatever/Whenever” service, which implements literally any desire from a ticket to a fashion show to champagne bath (McKinney 2008).
Life has confirmed the correctness of the chosen strategy of Starwood – in 2000, 12 “W” hotels gave 15% of all incomes of the giant group, and it was not due to gaining over the clients from Westin and Sheraton, also included in the Starwood Group. The nearest plans of Starwood include bringing the number of “W Hotels” to 50-70, going beyond North America (McKinney 2008).
Boutique hotels have become a very fashionable trend in the hospitality industry. Investors want to build them, travelers want to stay there, travel news commentators praise their advantages. But how popular are they among owners? How profitable are boutique hotels compared to other hotels of the class? To answer this question, the company PKF Hospitality Research (PKF-HR) conducted an analysis of revenues, expenses and profitability of boutique hotels that provided their annual reports to the annual study of trends in the hospitality industry. The sample involved only hotels that provided data for all years from 2000 to 2006 (Lea).
For the analysis the boutique hotels of famous brands and independent hotels were selected. In 2006, selected boutique hotels had an average of 166 rooms with occupancy 77.3% and the average price $ 223.23. For comparison, independent hotels were taken by an average of 244 rooms with occupancy 71.8% and the average price $ 140.84 (Yanos, 2008).
From 2000 to 2006, boutique hotels showed a steady growth of the following indicators: occupancy, average daily rate (ADR) and revenue per average room (RevPAR). For seven years, boutique hotels achieved the increase in RevPAR by 162.6%. This was the result of occupancy increasing by 106.1% and ADR by 154.4%. In 2006, income from hotels’ restaurant service was 23.5% of the total income. This is lower than the average number for the industry – 26,7%. Nevertheless, the total revenue of boutique hotels was by the record 56.1% higher than the average for the United States. It should be noted that some of the boutique hotels rent restaurants to other companies, which reduces their share in total income. But the expenses of boutique hotels are also higher. From 2000 to 2006, the expenses of boutique hotels were about 55% higher than the average in the U.S. (Yanos 2008).
Despite the high rates in the period from 2000 to 2006, the profitability of this segment varies widely from year to year. In good times boutique hotels reach record levels, but the decline in the industry in 2001-2003 affected them more seriously (Yanos, 2008).
From 2000 to 2003 the average U.S. hotel revenues decreased by 15,1% and return by 36,2%. Boutique hotels had the same indicators decreased by 25% and 52.9% respectively. On the contrary, from 2004 to 2006, boutique hotels recover from the recession quicker than the rest of the industry. Their income increased by 36,6% and operating profit by 75,5%. Restoration of most ordinary hotels was more gradual: 26,7% and 45,8% respectively. Unstable rates of boutique hotels may be partly related to their predominantly urban location. Largest cities suffered most from the recession, but recovered quicker. Boutique hotels have to pay for their high performance by its instability (Yanos 2008).
The first generation of boutique hotels had many similar characteristics. They were often housed in historical buildings a few blocks from downtown. Thanks to tax rebates for the restoration of historic buildings they could keep costs at a manageable level and redirect most of the money to the interior design. Moderation in construction costs, along with outstanding market performance creates opportunities for return of investment (Hachisu, 2008).
But in recent years, boutique hotels have mainly been built anew without the charm of antiquity, which is associated with boutique hotels. On the contrary, they thrive because of their modernity, fashionableness, style and technological equipment. As a result, construction costs increase, but get balanced by traditionally high rates in this sector (McGinnis, 2004).
The new wave of boutique hotels makes emphasis on the modern surrounding, high-tech electronics, thought-out selection of works of art and fashion individual features, such as living-rooms in the network of “W Hotels”. An example of a new generation of hotels may be the “W Hotel” under construction for the 225 rooms in Hoboken, New Jersey, located on the bank of the Hudson River opposite to Manhattan (McGinnis, 2004).
The project appeared back in 2001 when brothers Michael and David Barry from Applied Development proposed to build a hotel and residential building of the “W” in Hoboken, which was then just beginning to develop. And now the construction of 26-storey building is at full swing. In December, when the hotel opens, visitors will see the beautiful panorama with views of Manhattan, a bar with fireplaces and room for parties for 500 people. Occupancy perspectives now seem more serious than before – five Manhattan “W” hotels are often overcrowded. Hoboken is only the beginning. It is planned to open “W Hotel” in Oak Brook, Illinois, in La Jolla and Huntington Beach in California and in the Coconut Grove in Miami (O’Neill & Mattila 2010).
The largest independent network of boutique hotels Kimpton, which appeared in 1981, has recently opened “Palomar Hotel” in Arlington; it’s their third hotel in northern Virginia, in the suburbs of Washington, where they own seven hotels. The plans of Kimpton include the further development of the network in the province, for example, in Chantilly, Virginia, 25 miles from the city. Nine of the forty-two existing hotels Kimpton are located in the suburbs (O’Neill & Mattila 2010).
Recently new hotels have been opened by the brand “Hotel Indigo” owned by InterContinental in Newton, Massachusetts (near Boston) and in Fishers, Indiana (near Indianapolis). Half of the 17 existing and half of the 62 planned hotels “Hotel Indigo” are suburban, mostly near the prestigious shopping, business and residential centers. The main reasons for locating design hotels in province are as follows:
Tourists are tired of traditional hotels. Business people and young people are especially demanding. For markets where luxury “W” is not required, Starwood formed a network of mid-market hotel segment “Aloft”. The first one will open this year in Lexington, Massachusetts, 10 miles from Boston.
Suburbs are developing. Local business is developing, and large retail chains such as Ikea, Pottery Barn and Target are helping to clear the way for democratization of design.
The cost of land in major cities is growing. It is more profitable to open hotels in the suburbs, where land and construction are cheaper. In addition, there is less competition (Yanos, 2008).
So far, these hotels are mainly being opened in the suburbs of the 25 largest U.S. cities, where one can raise the price higher. And most of these hotels belong to the networks with limited services and no restaurants, such as the “Holiday Inn Express”, “Fairfield Inn”, “Hampton Inn’ and “La Quinta” (O’Neill & Mattila 2010).
In promoting and advertising boutique hotels, it is necessary to remember that these hotels are visited not because they are convenient or comfortable, but, primarily because they are fashionable and prestigious. Therefore, promoting a boutique hotel, like in the case of many other products on the market, where it is not the product but an image which is sold, should be done appropriately. The main task is, as marketing expert say, sending a message. This message in the case of boutique hotels is more important than ever. No matter what it would be: the formation of a special aura of the hotel connected with its location or atmosphere, or a beautifully presented history of the hotel; the main thing is to create a smart and unique product that is then necessary to properly convey to the audience, using various channels: direct marketing, media and public relations, profile travel agencies (O’Neill & Mattila 2010).
Conclusion
Thus, small exclusive boutique hotels have become more popular among affluent travelers, than the major hotel brands. In contrast to the well-known and comfortable hotels, peculiar with their uniformity, boutique hotels can offer an individual approach to the customer’s interests. In addition, nowadays there is a growing demand for luxury and extra comfort among the tourists, while each boutique hotel is the only one of its kind, allowing guests to feel their uniqueness and belonging to the higher strata of society (Parker, 2006).
The owners of hotel chains do not disregard such a promising market. Furthermore, according to findings by researchers from the hotel school at Cornell University, independent hotels have practically no chance to compete with hotel chains. Nowadays, realizing the dominant advantage of boutique hotels, the hoteliers have started creating chains of boutique hotels, which are supposed to have promising future (Aiemens, 2008).
PKF Hospitality Research predicts a relatively stable situation for the next few years. No significant jumps up or down in the hotel industry as a whole, occupancy rates and tariffs is not expected. Given the mobility of economic indicators of boutique hotels, it will be interesting to see how they will show themselves in a stable situation. According to PKF-HR, boutique hotels will continue to demonstrate high levels, but without previously observed strong deviations (Parets 2004).
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