Starwood’s Hospitality Legacy After the Marriott Merger

When Starwood first appeared in the 1990s, it was unlike any other lodging company out there. It wasn’t a storied family brand like Hilton or Marriott. Instead, it was headed by a 31-year-old dealmaker named Barry Sternlicht, someone whom Bill Marriott once called “a kid with a backpack.”

Funny how, 18 years later, things have changed so much. Today, Marriott is spending roughly $12 billion to buy the company started by that kid with a backpack.

The CEO of Marriott, the former CEO of Starwood, and More Are Speaking at Skift Global Forum 2016. Join Us.

Starwood’s difference, its unique perspective as an upstart and outsider, if you will, has had a profound impact on the company’s history. Because it was new, because it was the startup of its day, it needed to prove itself. It needed to constantly innovate. It needed to take risks.

Some of those risks paid off handsomely: the creation of W hotels. The Heavenly Bed. The SPG loyalty program, for example. So many of the things that have become standards of hospitality today — from all-white beds and branded boutique hotels to immensely popular hotel loyalty programs — they all got their start at Starwood.

But sometimes those risks, didn’t pay off. Ultimately, what led to the demise of the company was the fact that, as innovative and forward-thinking as it was in so many ways, its board and shareholders argued it wasn’t paying close enough attention to its pipeline and to its short-term financial objectives. That led to the departure of CEO Frits van Paasschen in 2015, and for the board to hang up a “for sale” sign.

And although the company name may disappear now that Marriott has successfully bought Starwood, its legacy lives on in so many ways. Skift spoke with industry analysts and experts, as well as former and current Starwood employees, for their memories of Starwood, and what they hope Marriott will preserve of the company going forward.

A REIT Trendsetter

Starwood Hotels as we know it today was borne out of Starwood Capital Partners, a Chicago-based real estate company headed by Sternlicht in 1991. In 1995, it acquired Hotel Investors Trust and Hotel Investors Corporation, a “paired-share REIT” (real estate investment trust) that allowed Starwood to buy up a slew of properties: more than 60 by 1996. It eventually became Starwood Lodging in 1996 and in 1999, it changed from a REIT to a corporation.

“I think history will be very kind to Starwood. I’m a hotel person, so I may look at details no one else would care about, but the fact that it was launched using a paired-share REIT that came out of a racetrack loophole, was genius,” said Bjorn Hanson, clinical professor with the NYU Preston Robert Tisch Center for Hospitality and Tourism. “It was one of the most innovative acquisitions of an existing entity to be converted for different use. It allowed Starwood to acquire real estate. It gave it a base for its initial growth. It was a brilliant business transaction. Then, when that served its purpose, to give up the REIT status and become a lodging corporation was a second stroke of genius. Both of those transactions were criticized widely at that time, but they turned out to be brilliant. It launched Barry Sternlicht into the hotel industry. Him just being an outsider, doing things that weren’t understood, that turned out to be brilliant. He’s part of the legacy.”

On Sternlicht’s incredible business and creative acumen, former Starwood CEO Frits van Paasschen told Skift: “He had an ability to jump back and forth between finance and real estate and branding and creativity and art. His imprimatur is all over the brand.”

About Sternlicht’s forward-thinking strategy, Dan Lesser, president and CEO of LW Hospitality Advisors said, “For a finance guy and dealmaker, he has a tremendous sense of what travelers don’t even know that they want. Sort of like Steve Jobs. He convinced the world of what they needed when they didn’t even know that they needed it.”

Its Knack for Dramatic Mergers and Acquisitions

While some of us may still be recovering from the roller coaster ride that was the tumultuous bidding war between Marriott and a consortium led by Beijing’s Anbang Insurance Group in March, it might help to know that Starwood has had some experience with tenuous acquisition deals before, too.

In the fall of 1997, in just the span of two months, Starwood bought Westin for $1.8 billion and ITT Sheraton Corporation for $9.8 billion. Winning Sheraton was especially sweet for Starwood as it fended off a hostile bid from Hilton. Starwood’s growth as a global hotel company probably wouldn’t have been possible if not for these two key acquisitions. By 1998, its portfolio grew to 650 hotels in 70 countries around the world.

Ted Teng, president and CEO of Leading Hotels of the World, worked at ITT Sheraton and Westin Hotels both before and after the two companies were bought by Starwood. At Starwood, he was the president of the Asia-Pacific region. Recalling the challenges of merging these three entities together into a single company, Teng said it was both “difficult” but “exciting” and ultimately, “the scale gave us a lot of opportunities to create programs like SPG [Starwood Preferred Guest].”

As for what took place in March, that will probably go down in history as “the bidding war of the decade” that ultimately led to the creation of the world’s largest hotel company. As far was we’re concerned, it certainly was an exciting one to cover.

The First Branded Boutique Hotel Chain

Today, boutique lifestyle hotels are so ubiquitous and those descriptors so over used, it’s hard to tell what’s really boutique or not anymore. But when Starwood launched the first W, the W Hotel New York, in 1998, it heralded the era of the branded boutique hotel, back when boutique still meant something.

“Barry’s wife created W and it was intended to be a Westin Light,” Teng said. “I know, years later, all kinds of stories came up as to how and why it was created. It was really a team headed up by Barry to try to figure out, what do we do with this real estate that doesn’t fit Westin?”

Anthony Ingham, global brand leader for W Hotels, who will continue on in a new, as yet-unnamed role with Marriott, said W was transformative for Starwood.

“Starwood’s legacy is really heavily shaped by W,” he said. “It took a real disruptive, startup mentality. It used to be a separate business from the rest of the company, so it could flourish with its own culture and push the boundaries of hospitality. The fact that Starwood did that, it really was the only big hospitality company that could create a brand like that and scale it globally with such success.”

Ingham said that because of W, brands like Aloft, a select-service brand, were made possible, and because of Starwood’s drive for innovation, W flourished. “W, under most of our big competitor companies. would never have been able to flourish in the way it has.”

Hanson recalled his initial thoughts about W Hotels, saying, “Could there be such a thing as a hotel boutique brand? In creating W, it was almost like, ‘We’re not going to have the same people in the same place doing the same things. These will be new hotels. Even if they’re conversions, we’re just going to start all over with something, you know, new and different.'”

He said W’s legacy will also last in attracting a new “caliber of hospitality employees.” “These weren’t just regular hotel jobs, this was in something really new, different and exciting.”

For Gray Shealy, executive director of the Master’s of Hospitality Management Program at Georgetown University, stepping into the W Times Square was a transformative moment — and one that convinced him that he needed to work for Starwood, which he did as a design director and consultant for Starwood’s Le Meridien and W Hotels brands, from 2006 to 2013.

“I still remember the first time I went to a W hotel, the one in Times Square in the early 2000s,” Shealy said. “It’s like a portal where you go through the craziness and frenetic energy of Times Square and then you come into the W’s lower level lobby, and it is literally a glass cube completely filled with water. It gives you this absolute decompression and reversal sensation, almost as if it washed you away. It transforms you into a different world — the world of the hotel. I remember walking into this space and thinking, ‘This is exactly what I think hotels should be doing: transforming visitors who have traveled a long way and are trying to get a perspective on where they are.’ I thought, ‘Wow, this is the type of place I would like to work for where it’s really thinking about the guest experience.'”

Brands for Every Lifestyle, By Design

Nearly everyone Skift spoke to for this story mentioned Starwood’s strength as a true lifestyle brand builder, and its ability to create distinct brands with unique voices and characteristics. The company, they noted, excelled at creating or transforming lifestyle brands like W, Aloft, Element, Le Meridien, and Westin.

However, it wasn’t always as successful in transforming a legacy brand like Sheraton, which former interim CEO Adam Aron admitted was in desperate need of a revamp in 2015. But when it came to true lifestyle branding, Starwood had found a niche.

Ingham said, “I think Starwood gave birth to the global branded lifestyle brands. I think that’s what it will be recognized for long after this. Certainly W. It’s true of Westin, it’s true of Aloft, of the repositioning of Le Meridien. Starwood gave, to truly defined consumers, all of these focused lifestyle brands that are all over the world.”

Starwood was so successful with its creation of the W brand, for example, that the competition was willing to steal for it. In 2010, Starwood won its lawsuit against Hilton for stealing trade secrets from its W chain to try to develop Hilton’s own lifestyle brand, Denizen Hotels, which never took off.

What gave Starwood an edge in brand development? Its reliance on thinking outside the usual boundaries of hospitality, design, architecture, and guest experience. Starwood was one of the first big hotel companies to realize that in order to deliver a better experience for its guests, it needed to pay attention to the things others might have taken for granted: the bed. The design. The lifestyle connection.

Julie Frank, an architect by trade and global director of design for Starwood’s Le Meridien brand, said, “For me, when I moved to Starwood from an architecture firm, I was concerned I would lose creativity moving in-house to what I perceived as a corporate job, but it was the exact opposite. What quickly became apparent is that one of the definite reasons for the high level of innovation at Starwood is the practice of cross disciplinary ideation and the development of ideas and programs that result in richer solutions as a bi-product of the variety of practices and areas of expertise.”

“At Starwood, we had a design team, not just an architecture construction team, which is what most hotels have these days,” Shealy said. “It’s the shell and all the mechanical things, but also the interiors and the design piece of it, for which we had a special team focused just on that. One of the things Starwood did first was think about the holistic idea of the experience coming together — how all those different disciplines come together to formulate an experience.”

The company was also credited for launching the careers of famed designers like Yabu Pushelberg and David Rockwell. “The head designer of W [Theresa Fatino], early on, came from Pottery Barn,” Shealy noted. “They brought that person onboard to think about that idea of bringing a residence into the hotel world.”

He added, “On the human capital side of it — it was about bringing people from the outside world in, into the leadership, too. Hospitality is a great intersection of a lot of different disciplines, all coming together to make hospitality even greater than what it already is.”

That SPG Life

Starwood’s Starwood Preferred Guest (SPG) loyalty program may not have the most members (that distinction currently goes to InterContinental Hotels Group). And it wasn’t the first one (Holiday Inn and Marriott were the first to do so in 1983), but it arguably has some of the most fanatic, passionate members of the lot when compared to the other big hotel loyalty programs.

When SPG launched in 1999 it was revolutionary because there were no blackout dates and no capacity controls, something none of its competitors had ever offered.

“Loyalty programs had been around for a while by then,” said Hanson. “Marriott’s kind of the big loyalty program player, but Starwood launched one that really became the driver for why Marriott had to keep enhancing its loyalty program. It was kind of like a loyalty program war going on between Starwood and Marriott. Where we are today in loyalty programs really came about as Starwood found ways to launch its program around those things that were valued most by guests.”

In 2014, Starwood also became the first hotel company to create a loyalty program for meeting planners and travel professionals, called SPG Pro, helping the company develop better relationships with the corporate travel planner, travel agents, and meeting and event planners that bring business to its hotels.

So, when the Marriott-Starwood combination was announced in November 2015, one of the first things people thought was, “What will happen to SPG?”

“Starwood turned SPG into a loyalty program that stood out form the crowd,” Shealy said. “It gave you access to a lot of these hotels that clearly stood out, but they also brought in these perks and set into motion this wave of new innovations in the loyalty space. It’s been one of the most contentious issues with the merger. People believe so strongly in the value of the SPG loyalty program, compared to others.”

One of SPG’s biggest legacies will be giving its members access to one-of-a-kind experiences they wouldn’t otherwise ever have been able to have, an idea now copied by Hilton HHonors, Wyndham Rewards, and Marriott Rewards.

“SPG created relationships with our guests that were way beyond just earning loyalty program points for a free stay,” said Ingham. “I personally experienced that regularly.”

He recalled a work trip that had him travel to Ibiza, Spain, for a special W hotels event in 2011 whereby SPG members had a chance to take part in a weeklong DJ boot camp with world-famous DJs and music producers. During the trip, Ingham recalled meeting a couple in their 50s who had traveled all the way from Ohio to Spain to participate, even though they’d been teased by their children for going to a DJ lab in, of all places, a party destination like Ibiza.

“I got an email from that couple just three or four months ago,” he said, in July. “It said, ‘Just remembering our trip in Ibiza,’ and they talked about how much they loved it and that they’re still staying in W hotels today. It never ceases to amaze me how powerful these experiences can be for our guests.”

How Heavenly

The all-white beds at W were an industry first and they gave Sternlicht the idea to do something similar with the beds at Westin. This idea, in turn, led to the creation of the Westin Heavenly Bed in 1999, which later spawned the Westin Heavenly Crib, the Westin Heavenly Dog Bed, and also, the Sheraton Sweet Sleeper. Today, a number of other hotel companies, including Four Seasons Hotels & Resorts, now market and sell their beds as offering a superior sleep experience.

“Isn’t it a shame that it took an outsider to decide that beds are important in hotels?,” asked Hanson. “The launch of the Heavenly Bed was incredible, as was the launch of the Heavenly Crib. The state of cribs in the hotel industry when Westin launched the Heavenly Crib was such that you probably wouldn’t put your kid in the cribs that were available in most hotels. Really, this idea about bedding was transformational.”

“No one had ever given any thought to the quality of the mattress until Starwood came out with the Heavenly Bed,” said Lesser. “They’ve always been at the cutting edge of focusing on details of a guest’s experience, if you will.”

Charting New Territory

Being a pioneer in new regions is something that Starwood has done throughout its history, especially under the leadership of former CEO Frits van Paasschen from 2007 to 2015. Even before Sheraton was purchased by Starwood, it was the first international hotel brand to operate in China in 1985.

Despite the aftermath of the 2008 recession, in 2010, van Paasschen made it a goal to have 1,000 Starwood hotels around the world by 2010, focusing heavily on openings in China, which would become Starwood’s second-biggest and fastest-growing market. By 2012, the company would have 100 hotels in China with another 100 in the pipeline.

In 2011, he famously brought the company’s executive leadership team to Starwood to Shanghai for an entire month, to immerse them in the market and demonstrate China’s importance to the company’s global growth. He did the same, again, in 2013, when he brought the team to Dubai.

And even in the midst of Starwood’s merger madness in March, it managed to become the first U.S. hotel company to sign deals to manage hotels in Cuba in nearly 60 years, even beating its soon-to-be owners, Marriott — no small feat.

Although van Paasschen was asked to leave the company in 2015 for not focusing enough on growing Starwood’s pipeline as much as the board and investors had hoped, and for not meeting the company’s financial objectives, his own legacy as a Starwood CEO will be that of transforming the company into a truly global player.

He told Skift, “Having been at Nike and Disney I came with an orientation toward global brands. I saw a huge opportunity for the brands to grow and expand globally. If you look at where St. Regis and W were when I arrived they were largely U.S. based. They’ve since become a global high-end hospitality brands.”

Shealy agreed with that assessment. “Frits came from Nike and brought along a whole group of leadership that had these innovative values,” he said. “He kind of helped to bring order to that mindset and helped make it much more global. Frits really cared about the brand, experience and soft points that made Starwood stand out. In the end, he put that first and put development second, which kind of led to the end of the company.”

“Nevertheless,” Shealy added, “I think he brought Starwood, in some ways, to some of its best years as a global company. Once Frits took the helm, Starwood became that global leader of innovation and was recognized everywhere.”

Tech Forward

Starwood has also been the birthplace of so many innovations in hospitality technology, and even the Marriott deal hasn’t stopped the company from continuing to innovate on the technology front.

Some of the highlights include: the 2008 launch of the Link at Sheraton, a partnership with Microsoft that transformed public spaces into a precursor of today’s co-working spaces; the debut of the SPG App in 2012; an SPG for Google Glass app in 2014; and being one of the first companies to have an Apple Watch app in 2014. The same year, 2014, was when Starwood debuted keyless entry and mobile check-in for guests, and it became the first company to launch a WhatsApp messaging channel with its guests.

And although Starwood invested heavily in technology and in social media (it was also one of the first hotel brands to appear on Instagram and Snapchat, and to start using user-generated content in its marketing), the company didn’t just advance technology for tech’s sake.

“While Starwood led the way in evolving technological offerings, particularly in mobile and digital, it was never at the expense of the personal and inviting stays of the actual properties,” Frank noted. “So, we simultaneously pushed boundaries forward on many fronts, yet never at the expense of guest experience and comforts that are at the core of the hotel experience.”

What Marriott Can Learn from Starwood

Given Starwood’s track record of innovation, what can Marriott do to make sure that innovation continues with the new combined company?

“I think Marriott clearly values and aspires to keep and almost amplify Starwood’s approach to loyalty and to brands,” Ingham said. “Marriott paid a very large amount of money to buy Starwood, because of its ability to create highly differentiated consumer brand and experiences that people become incredibly loyal to and will pay a higher premium for them. That’s what Starwood does very well. Combined with Marriott’s operational expertise, and its excellence in distribution and financial performance, I think the combined organization has massive opportunity.”

Ingham added, “We need to amplify the experiences of all those 30 brands from one to the other.”

Van Paasschen echoed Ingham’s sentiments, implying there is certainly room for all 30 brands to coexist. “There is still plenty of space for hotel brands to be relevant and compelling,” he said. “The challenge is making sure each brand stays true to its personality. With the exception of Sheraton, Starwood’s other brands are still sub-scale. With the proper investment, they have plenty of room to grow.”

Shealy also had a few suggestions for how Marriott can best integrate Starwood.

“There are two types of companies: the company that sort of leads the innovations and one that follows up and executes well,” he said. “Marriott hasn’t been the great innovator, but it has been the great executor; they do things really well and they do it across the globe, flawlessly. Marriott has a great opportunity here: they have acquired the innovator and they are the executor. The best companies are those that do both of those things well.”

His vision for the now largest hotel company in the world? “I hope they support the innovative, entrepreneurial, risk- taking startup spirit that Starwood had. That balance of innovation and execution would really help Marriott grow into the next phase of that company’s growth and existence.”

And he added, he hopes Marriott will continue to support the company’s culture, and its people.

“What do I miss most about Starwood? Honestly, the culture,” Shealy said. “The people that the company attracted were really second to none. Really global and innovative. People who worked really hard and were passionate about caring for other people. They were excited about doing new ideas. That hashtag, #StarwoodProud, there’s something really to be said about it. The innovation and energy of the company was infectious, and it was something to be proud of.”

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