Sofitel's Luxury Makeover Returns a Profit
Singapore’s old Ogilvy Centre, a 1920s landmark built in neoclassical style and boasting large, decorative, iconic columns and recessed balconies with cast-iron balustrades, will reopen as a high-end Sofitel hotel in 2013. The $100 million project will be among several Sofitel launches since its parent company Accor (AC:FP) began repositioning the French-inspired lodging chain as a luxury international hotel brand in 2007. Moving upscale meant slashing the portfolio to 120 hotels in 2011, from 201 in 2006. Big name designers and architects were hired to craft new properties and renovate existing ones. All staff received training on providing top-notch service. The result, says Chief Executive Robert Gaymer-Jones: The once money-losing hotel brand is now profitable.
While Accor does not release financial data by brand, Sofitel—which manages but does not own most of its properties—has been profitable since late 2010, according to a 2011 company fact sheet (PDF). Sales volume showed double-digit growth that year and average prices were up by about 20 percent. The hotelier is targeting high-end travelers, with starting rates in mid July at about $570 for a night at Sofitel Paris Le Faubourg. The starting nightly rate in New York, where a housekeeper claimed in 2011 that she had been assaulted by then-IMF head Dominique Strauss-Kahn (criminal charges were later dropped, though civil charges are proceeding)—is $361. “The incident has not impacted business at the hotel,” says Gaymer-Jones.
Sofitel’s RevPAR, a hotel industry metric of revenue per available room, increased by 43 percent, from first quarter 2009 to fourth quarter 2011, through increased occupancy and higher room rates. “A 43 percent RevPAR increase is very large,” Robert Mandelbaum, director of research information services at PKF Hospitality Research, says in an e-mail.
To enter a segment dominated by players such as Ritz-Carlton and Park Hyatt, it was critical to differentiate the Sofitel brand, so the company pitched an image of luxury around the company’s “French identity.” What, exactly, does that mean? “It’s elegance. It’s understanding fashion and design,” says Gaymer-Jones.
Luckily “French” sells. Sofitel now attracts more leisure travelers and more female travelers. Style plays a big role. Such fashion designers as Christian Lacroix and Kenzo Takada, architects including Jean Nouvel, and interior designers like Didier Gomez were hired for the makeover. The designers also helped convert historic properties that included palaces in such cities as Amsterdam, Hanoi, and Fes, Morocco, for Sofitel’s Legend sub-line hotels.
Since luxury entails more than decor and plush sheets, employees around the world received training about “French elegance,” down to details such as what size earring is appropriate and how pants should fit, Gaymer-Jones says. They also went to luxury fashion boutiques such as Chanel to study how employees work and how products are displayed. “For a luxury consumer, nothing is more important than consistently excellent service,” says Gaymer-Jones.
The company continues to advertise in travel publications but changed the look and feel of the ad campaign to focus on the hotels, rather than the mere concept of fashion and luxury. The hotels embody “art in their own right,” says Gaymer-Jones. “Our message is really a visual one—from the recent debut of hotels in some of the most exciting cities in the world to the high-concept design of our properties.”
Sofitel’s performance is also due in part to the general growth of the luxury hotel sector. Mandelbaum says that in the U.S., for example, the growth of corporate profits in 2010—and to a lesser extent in 2011 and 2012—“helps support corporate travel budgets, and business travelers are an important demand segment for luxury hotels.” He adds that employment levels and personal income growth for high-income individuals surpassed other demographic categories, sustaining business from leisure travelers.
Sofitel plans to have 151 hotels by 2015. The plan was to move to 250 hotels to reach profitability, but the strategy is already paying off at smaller numbers. Says Gaymer-Jones: “If we don’t grow above 150 hotels, I don’t mind so much.”