Reflections: Barry Sternlicht

By Staff -- HOTELS Magazine, 8/1/2006

Barry Sternlicht, chairman and CEO, Starwood Capital Group

It is quite flattering to be asked to write about the evolution of the hotel industry over the last 40 years. In all honesty, I am now 45, and I didn’t pay much attention to the hotel world for maybe the first 20 years of my life. I couldn’t afford nice hotels and remember sleeping in youth hostels in Europe and thinking they were really a lot of fun.

In 1991, I started my own private investment firm, Starwood Capital Group (which is where I reside again today). By 1995, I had already proven, much to my surprise, that I was an accomplished deal maker, and I had already met many of my financial goals. But I really wanted to exercise the left side of my brain, to try to be more creative and to get involved with people, design and architecture, so I dove head-first into the hotel industry. Hotels provided the outlet for my creative energy. At that time, I thought there was a gap in the market. There were a few boutique operators, such as Ian Schrager, but often one had to sacrifice service for design and fun. I also thought hotels had evolved to simply compete on price. The big chains had sliced and diced their product lines so that you had a US$49, $69, $89 and $149 hotel pretty much adopting the same general aesthetic. My idea was to differentiate by design and let the rate evolve to the loyalty of the demographic we could attract.

When I started, my one goal was to build a hip, national branded boutique, and so W Hotels was born. It was born without consultants or endless consumer research. I wasn’t appealing to everyone—I was appealing to myself. I wanted a great bed, a terrific shower, a TV large enough that I could see and in front of the bed, amenities I would want to take home, towels I wanted to steal, quiet, comfort, good lighting, a great gym,

food I would like to eat and a bar scene that would take me away from my worries. W was an instant hit with customers. Great invention is born of necessity.

I also noted that the hotel industry had spent the last decade stripping every cost out of the hotels’ construction and margin. Leading hotel firms had evolved to foam mattresses and pillows that I later learned cost US$6 each. I wondered why developers would spend US$175,000 per key to deliver a hotel with construction that would withstand hurricanes but not spend an extra US$14 for the pillow, about as close as any company can get to its customer. And so was born the Heavenly line of products for Westin.

I am very proud of my career in the hotel industry. It was a fun decade that also had its challenging moments, such as September 11. I am grateful to the people at Starwood who taught me much and brought to life my personal dream and our corporate ambition. We built a company with a good soul, a company that cared for the communities in which it operated, and was full of compassion and good will. I loved the creative energy and the joy that came from winning and from doing the right thing. Our team built a firm that became known as the most innovative in its class and just as importantly, we did so with the right balance between the needs of our associates, our investment partners and owners, and most importantly our shareholders, who paid our salaries. We always measured the returns we expected from our exotic endeavors against share repurchases and more often than not, discarded good ideas that we did not feel could materially move the financial bar. Nonetheless, I am proud of W, Westin, the metamorphosis we began with Sheraton, and of taking the one New York St. Regis and creating a brand out of it. We moved from commoditization to differentiation.

I am not done in the hotel industry. I enjoy it too much, and I know there is more to be done in this industry. I think technology is the key to the future and often misunderstood by those who focus only on visible marketing. In the upscale market, your target audience is actually such a small fraction of a population base that I learned that mass media was a shotgun approach that made me feel good, but was incredibly inefficient and a suboptimal method to reach our audience. What happens when the guest arrives is more important than any advertising or architecture. I hope I had a small impact on the long, great history of this industry. Being an innkeeper seems to have settled in my blood, and now I understand how others choose this career for life.

Congratulations to HOTELS magazine on its 40th anniversary.