Barry Sternlicht, Starwood Hotels and Resorts

Thanks to Barry Sternlicht, hotel kingpin J.W. Marriott Jr. has taken a keen interest in the threadcounts of cotton bed sheets. Sternlicht also explains why InterContinental Hotels tapped Back Lot Productions, the retail consultants behind the Hollywood Video stores, to design its New Age boutique brand, Indigo.

During his 10-year reign as chairman of Starwood Hotels & Resorts, Sternlicht transformed a real estate investment company worth less than $10 million into a $15 billion hotel empire. His two biggest innovations–the W boutique hotel chain and Westin Heavenly Bed–revived the hospitality industry by establishing the practice of branding amenities that were once considered mundane.

In stark contrast to major airlines, today’s hotels address consumer lifestyles and are no longer stuck padding margins with the cheapest mattress, furniture and food money can buy.

“When people go on the road, they want to be productive, they want a good night’s sleep and they want to eat well. There wasn’t any hotel product that was delivering that,” said Eric Sieb, president the Sieb Organization, a hospitality consulting firm based in Phoenix. “Barry has made being on the road bearable.”

To say nothing of profitable. Operating income from Starwood’s North American hotels jumped 49% to $664 million last year, with a 12.1% increase in revenue per available room among same-store units, versus the 7.8% industry average. If its forecast for 10-12% growth is correct, annual net income in 2005 will increase 39% to $484 million.

Sternlicht, 44, left the company in May to focus on running his real estate investment firm, Starwood Capital, and declined to be interviewed for this story (more on that later). His recognition as one of Brandweek’s Marketers of the Year, it should be noted, does not come from being first. Choice Hotels installed Serta Quality Sleepers four years before Westin Heavenly Bed’s 1999 debut, but failed to promote the product with distinct branding. Ian Schrager had been creating hotels around nightclubs for years with chic meeting places like Morgans in New York and Mondrian in Los Angeles.

Yet no other hotelier in recent memory has managed to create the same “wow” factor for new products and services. Far from cringing at the fake bathroom countertops or laughing at the immovable art above the bed, consumers are ordering W furniture from catalogs and purchasing the Heavenly Bed at Nordstrom.

Even industry rivals tip their hats to Sternlicht’s accomplishments.

“You really have to give Starwood their due with what they’ve done with Heavenly Bed,” said Mark Snyder, svp-brand management at Holiday Inn Hotels and Resorts. “Remembering when that was coming out, the category thought they were nuts. We thought they were nuts. But [they’ve taken] the basics of a hotel stay and done them very dramatically.”

Now, the industry is playing catch-up. Marriott’s new bed, part of a $190 million upgrade, won’t be completed until next year; the category leader also is contemplating a boutique brand. Radisson launched a recent ad blitz touting its new Sleep Number beds. Crowne Plaza rolled its Sleep Advantage program complete with hotel quiet zones, guaranteed wakeup calls, lavender spray and relaxation CD. Hilton Hotels is installing Hilton Suite Dreams bedding into its full family of brands. Mid-tier lodger Choice Hotels, meanwhile, entered the “lifestyle” boutique sector with Cambria Suites, and Hyatt intends to convert AmeriSuites into the stylish Hyatt Place.

that Sternlicht triggered a movement in hotel branding is especially impressive given that he is not a formally trained marketer. After earning his MB A at Harvard Business School (with a liberal arts degree from Brown University), he began closing real estate deals for JMB, Chicago. In 1991, he founded Starwood Capital Group, Greenwich, Conn., and in 1994, formed Starwood Hotels, White Plains, N.Y., after acquiring control of Hotel Investors Trust, a nearly bankrupt company. Three years later, he outbid Hilton to buy ITT Sheraton for $14.6 billion. Later in 1997, he acquired Westin Hotels for $1.8 billion.

Early on, Sternlicht discovered loopholes in the tax code that enabled Starwood to own and manage hotels and distribute shareholder dividends without paying taxes. That practice ended when competitors alerted the Clinton administration and Congress passed the IRS Restructuring Bill, which limited the benefits of a pair-shared real estate investment trust (REIT). Starwood Hotels converted to a corporate tax-paying C corporation in 1999.

Before buying a conversion property, hotel companies typically look at factors such as room sizes and available space for conferences. Sternlicht tossed those requirements aside and bought hotels, including the dumpy Doral Inn in midtown Manhattan, based on whether its Lexington Avenue location would make it profitable.

While young and gifted–he was chairman of one of the world’s top hotel companies at age 36–Sternlicht was also impetuous and lacked operating experience. Critics argued that he overpaid for Sheraton and Westin; analysts said he was in over his head. They appeared to be right when Starwood’s stock took a dive in 1999 while it wrestled with an $8 billion debt.

Nine senior executives left the company during 1999 and 2000, and the assimilation of former competitors Westin and Sheraton was looking like an operations nightmare. Sternlicht’s image didn’t fare any better. Stories questioned whether an executive preoccupied with paint schemes and carpet patterns was CEO material. In demoting former CEO and college pal Richard Nanula–whom journalists cast as Starwood’s guiding and stable leader–Sternlicht was dubbed petty.

“There was a lot of turnover, and Barry is always the grass-is-greener type of guy,” said David Van Kalspeek, vp-sales for MGM Grand, a Sheraton and Starwood vet. “There were a lot of times when he would throw an idea out there and not understand the impact it had on a company this size. He might be having cocktails with somebody and then on Monday morning, you get a note saying we should be doing [this or that]. Did he intend for a note to throw the whole organization into a tizzy? No. But those kinds of things from the chairman do. Some people liked it; some people dealt with it, and some didn’t.”

Managers knew where their ideas stood with Sternlicht because he was very direct, even gruff, said a former Starwood executive who wished to remain anonymous. While his detail-oriented style sometimes bordered on interference, the exec said, ultimately his intent was to arrive at the best possible answer.

Starwood is now being led by Coca-Cola veteran Steven Heyer, who declined to allow company executives to be interviewed for this story. Sternlicht had recruited Heyer to be CEO and, according to one former manager, there are “sensibilities” between the two.

That could mean feud. Sternlicht and Heyer squared off during a press conference in September 2004, vying to answer questions first and contradicting each other. On the surface, perhaps, Heyer, who last year was passed over for the top job at Coca-Cola, doesn’t want his predecessor’s accomplishments to overshadow his own vision.

Or possibly Sternlicht has learned to be a better CEO, said former Starwood CMO Keith Ferrazzi, founder of the Los Angeles based consultancy Ferrazzi Greenlight. “People have got to give Barry credit for growing as a leader of that company,” Ferrazzi said. “Maybe he’s being sensitive enough to Steve, saying, ‘Hey this is your ship, and I don’t want to steal the limelight.’ Barry would be thrilled that this story is being written, but [he wouldn’t want to] embrace it in a way that would subjugate Steve. Not doing so shows a lot of maturity in his leadership style.”

The stories of “Barry’s bravado”–which many say killed his bid to acquire Wyndham Hotels and rubbed subordinates the wrong way–are repeated more often than the accounts of Barry, the family man, Barry the diabetes fundraiser and Barry the practitioner of self-deprecating humor.

“Confidence in some cases can be mistaken for arrogance,” opined consultant Sieb, “because people are envious about what he had been able to do.”

in the mid ’90s, as consumers were stuffing their homes with Viking stoves and affordable luxuries from Bed, Bath & Beyond, Sternlicht saw a void in the hotel business: Travelers were sacrificing their sophisticated lifestyle upon stepping inside a hotel room. The glitzy Four Seasons, Ritz-Carlton and St. Regis were exceptions, but those brands were too stuffy for a younger generation of well-heeled travelers and too pricey for road warriors’ T&E reports.

Around the time of the Westin deal, Sternlicht was working with architect David Rockwell on the first W Hotel in New York. The project was racking up enormous costs, however, and Sternlicht decided that using a high-priced architect wasn’t the way to go.

Instead, he sought out Hilary Billings during a business trip to Los Angeles. Billings, then vp-product development at Pottery Barn, had built the retailer’s catalog business with contemporary and casual merchandise like coir rugs made of coconut husks and curtains with iron rods that dressed the home like a private retreat.

As a buyer, Billings had done her share of traveling, sleeping on 100% cotton sheets, down comforters and luxury bedding in European hotels. She was all too disappointed with the U.S lodging experience of a foam pillow, polyester sheets and a terrible mattress. Though initially she was not interested in jumping to the hotel category, her interest and Sternlicht’s vision came together during that first meeting.

“What he was looking for was very clear,” said Billings, Starwood’s svp-brand development and design until 1999, when she left for the dot-corn gift company RedEnvelope. (She’s now a part-time brand consultant.) “We had a different emphasis. His was a sort of hip experience for the hotel customer. Mine was more focused on the business traveler because I saw that was where the biggest gap was.”

At the time, boutique hotels delivered high design to leisure travelers but lacked the conference rooms, Internet access and quality business centers that road warriors found at the Westins, Sheratons, Hihons, Hyatts and Marriotts. Sternlicht wanted to bring back the Algonquin days of the hotel as a meeting place, and update it with hip restaurants and clubs so that locals, too, had a place to hang their hats.

Billings and her creative team of 15 employees worked in San Francisco, insulated from the corporate culture clash in White Plains between the risk takers of Starwood and the more conservative Sheraton and Westin hotel veterans. Some carried an asset management approach, but Sternlicht pushed marketing to the forefront of the organization and plucked product development from the operations domain to exist as a marketing function. He tore down geographic divisions of management and assigned responsibilities by brands. Ferrazzi arrived in 1999, and hired Scott Williams to lead the creative services unit that served as Starwood’s in-house marketing agency.

In hindsight, it seems incredible that W was launched with little market analysis or brand position research. Rather, W was simply put in front of the consumer so they could respond to it. Some Starwood honchos labeled the project as a “crazy Barry idea,” but there was no mistaking their boss’ passion for it.

“Barry said to me, 75% of the time a guest spends in the hotel room is on the bed,” recalled Billings. “[I figured] if we can make that experience great, just think about what it would do for the hotel. Rather than thinking about the cost, he was thinking about the experience.”

Still, the new brand had to compete on cost with Westin and Sheraton. Billings’ team removed the armoire and invested in a luxury bed, a longer mahogany desk with a sleek TV, chaise lounges and shelving for the closet. In her biggest stroke of genius, she recommended replacing the seemingly bulletproof, floral-colored bed spread with a linen-colored duvet, cotton sheets and down pillows.

Operations staff fought against bedding that had to be cleaned frequently, but Sternlicht loved the idea. He increased the number and load capacity of hotel laundry machines so the W bed could be rolled out to all hotels. Billings started retrofitting Westin beds the following year, and the all-white Heavenly Bed quickly became the symbol of the brand.

Sternlicht’s wife, Mimi, came up with the enigmatic name W, which was meant to signify witty, warm and wonderful. Billings said she loved W because it had a built-in logo. The first W opened to oohs and aahs in New York in December 1998.

Far from fading, the 19 W Hotels continue to be seen as sophisticated and relevant. The power of minimalist furnishings and a hot nightclub can last only so long, but W is enduring thanks to promotional events such as W Happenings, which inject the brand into the local scene with art previews, celebrity book readings, film screenings, DJ classes and concerts by Moby and the Wallflowers. Signature products such as “Whatever, Whenever”–the 24-hour room, laundry and concierge service–are perfect for guests who want style without sacrificing service. Partnering with Bliss has made its spa services top-notch.

“It turned out to be a great product for him, not only for W itself but it also had spillover effect onto the luster of Starwood,” said Van Kalspeek.

The buzz spread with minimal traditional marketing. Print ads by DDB Chicago focused on amenities, followed by a campaign from Gwhiz Entertainment, New York, to position W as an experience with the mantra, “There are hotels you stay in. And one that stays in you.” A guerrilla stunt featured models in a mock boxers-versus-briefs boxing match atop a W in Chicago to promote specially designed Joe Boxer underwear for W guests. (RDA, New York, is W’s current agency. Deutsch, New York, handles Westin and Sheraton.)

As its guest satisfaction ratings soared, W soon migrated to the rest of the portfolio. Thousands of beds and signature sheets and pillows were sold to consumers. Westin had a little fun with its “Who’s the best in bed?” print campaign, yet the newly minted brand pushed its way to the upscale/luxury tier above the Pritzker family-owned Hyatt, which had invested little in modernization until last year.

In 2001, Westin introduced the Heavenly Shower, featuring dual showerheads, curved rod, oversized cotton towels and kimono terry robes. Sternlicht and Westin svp Sue Brash fixed cramped hotel exercise rooms by partnering with Reebok to create spacious fitness centers with state-of-the-art-equipment, specially designed workouts, and fitness and wellness classes.

The once-drab Sheraton also received a lift with a $750 million, three-year renovation that included sleigh beds, branded the Sheraton Sweet Sleeper and the Sheraton Service Promise, offering instant discounts, loyalty club points or money-back satisfaction guarantees. Lounging pillows and fluffy duvets also have made their way into the midscale Four Points by Sheraton brand with the Four Points Bed.

“Starwood may not be the first hotel with a great bed, a spa or even with an experience, but it is the first to articulate it to a growing travel market,” said Tom Thomas, founder of Tom Thomas & Co., a branding consultancy in New York. “Sternlicht may not have the imprimatur of a great hotelier, but he is great at being certain that the discipline and the seamlessness of his vision are executed.”

Sternlicht’s investment firm recently acquired Le Meridien’s assets, to be managed by Starwood Hotels & Resorts. Heyer’s team will spin some of the new properties into lifestyle brands using dynamics such as branded entertainment that made Coke ubiquitous. Heyer brought in Javier Benito from Coke to be CMO; Nike and Starbucks vet Scott Bcdbury is a brand advisor and Hollywood talent agency Creative Artists Agency is on his roster.

Starwood Hotels is said to be in talks to sell half its 140-owned properties (it manages a total of 752 hotels), ostensibly to raise money while real estate values are peaking. Already, more W Hotels and condominiums are in the pipeline for Las Vegas and the Maldives, and a mid-tier version, currently dubbed Project XYZ, will launch during 2007.

“They’ve made a big push in becoming managers of their properties,” said Matt Quinn, travel analyst at Zacks Investment Research, Chicago. “[Hotel owners] say, ‘This company does a great job with their brands, and we want to be a part of that.”

Photograph by Adam Nadel/AP Photo