Affordable luxury propels CitizenM’s growth

 SYDNEY—Michael Levie embraces CitizenM Hotels’ reputation as a trendy hotel brand. He’s not shy telling people it won back-to-back Trendiest Hotel in the World from TripAdvisor in 2010 and 2011 but believes the brand is moving into the next phase of its life.
 
Levie, CitizenM’s COO, said during last week’s HotelsWorld Australia New Zealand conference that being known as an affordable luxury brand has become its mantra.
 
“Affordable luxury is a state of mind,” Levie said during an onstage interview with Hotel News Now. “Luxury is defined as very personal. What works for one doesn’t work for another. It’s about under-promising and over-delivering.”

Levie said affordable luxury sits in the midscale market, but it has an aspiration to be upscale.

“What we do at a slightly more economical way still delivers a luxury property that creates living rooms and living environments where the human experience takes place,” he said. “We try to fit in with (guests’) everyday lifestyles as they travel through time.”
 
Amsterdam-based CitizenM’s first property opened seven years ago at the city’s Schiphol International Airport. Then came Glasgow, Scotland; London; Amsterdam again; Rotterdam, Netherlands; New York; and Paris. There are six properties under construction (three in London, two in Paris and one in New York). The average size of the properties is 220 guestrooms.
 
“So far we’ve been an owner-operator,” Levie said. “With the exception of Rotterdam, that we lease, we own and operate.”
 
The brand doesn’t shy away from high-profile locations. It has a New York property open in Manhattan at 50th and Broadway and one in the Bowery district is under construction. In London, it will open a new property on top of the Underground mass transit station in the tourist-heavy Tower Hill area.
 
“Those are locations that didn’t come with a box of Corn Flakes; you need to pay for that,” Levie said. “We’re able to operate at those locations, which means the returns are healthy.”
 
That owner-operator model will change shortly as plans are underway for the brand’s first hotel in Asia. Last year CitizenM formed a joint venture with Artyzen Hospitality Group, a subsidiary of Hong Kong-based Shun Tak Holdings, to develop hotels throughout the region.
 
Globally, target cities for expansion include gateway cities in the United States, Rome, Istanbul, Shanghai, Hong Kong and Singapore, among others, according to the executive.
 
“We look at opportunities to partner,” Levie said. “We talk luxury; we talk about the industry, but it is also a real estate game. Real estate is local, and the knowledge needs to be there.”
 
Small guestrooms are part of the plan
CitizenM’s design-driven affordable luxury philosophy admittedly sacrifices guestroom size. It instead focuses on high-quality finishes in the guestrooms and a communal living room concept—with a front desk conspicuously replaced by kiosks that are the only option for guests to check-in and check-out—as the primary public space.
 
“Our rooms are so small that you want to come down to the living space,” Levie said. “The living space is created for you to meet everybody.
 
“Obviously by being in the mid-market segment you need to make choices, and we made choices smartly so the end result, the room is small, but because of the quality and the technology we offer, it’s accepted,” Levie said. “The livings rooms are so cool that people gravitate to (them).”
 
Another panel during the conference featured Marc von Arnim, GM of the Park Hyatt Sydney, talking about that property’s 350-square-meter presidential suite overlooking Sydney Harbour that has helped bolster the hotel’s offerings. Levie pointed out that 24 CitizenM rooms could fit into the same space.
 
“Marc’s published rate is over $12,000 per night, and he said he does 50% (occupancy) and he doesn’t discount,” Levie said. “If I (put a CitizenM ) in Sydney and I do, let’s say, a $150 average rate, I would generate out of the same space about $3,600 a night, but I run in the high 90s (occupancy) with my properties.
 
“There’s a little difference between what he spent per square meter and what I spend per square meter,” Levie said.
 
The cost per room for a CitizenM property varies by location, but in most cases it can be done for €80,000 ($107,734) and €120,000 ($161,590) per key, including land, he said.
 
Levie said average rate is an important measurement for hoteliers, but he is also a proponent of return per square meter as a key metric.
 
“Then all of the sudden our affordable luxury does just fine,” Levie said. “Sometimes there’s a misconception about if you’re not in the absolute highest segment with incredible rates that you can do serious (gross operating profits). We operate our properties with stable hotels north of 55% GOPs, so that’s pretty healthy.”
 
The company builds its properties with modular construction, which forces efficiency, he added.
 
An instant-rewards mentality
CitizenM does not have a points-based guest-loyalty program, instead relying on its affordable luxury philosophy and reduced rates for its Citizens program members to drive repeat business.
 
“In general to create a brand there is a deep conviction that needs to go into it,” Levie said. “With the number of hotels we have and the aspirations, we realize it will take some time to get there. But brand loyalty is something different. People can find you today.”
 
The Internet has leveled the playing field for new brands and brands with higher aspirations because it greatly altered the distribution network, the COO said.
 
“If you work by channel and you know your distribution costs, then all of the sudden that starts to shift dramatically,” Levie said. “Every day you know that effective pricing and affordable luxury is more important than frequent stays. People can be loyal to a brand if that’s part of their lifestyle, so that’s how we try to match that up.”
 
Levie said the most important channel is a brand’s own website. To fully understand trends, a consumer behaviorist oversees CitizenM’s website, Levie said.
 
“It’s a consumer behaviorist who understands where I need to sell and what we need to do,” Levie said. “We have about 52% or 53% of reservations that come in through our website. That’s quite significant for a company that does not have a big brand name yet.”
 
The company receives 10% of its reservations through the global distribution system and 30% through OTAs—mostly booking.com. The remainder come from walk-ins and other sources.
 
“Where a lot of hoteliers hate OTAs, I’m here to say that I love them,” Levie said. “I look at the end at distribution costs per room. I work with OTAs proudly.
 
“We all need to realize the frequent stay programs loyalty to hotel chains are going to go to the OTAs because they’re starting their own loyalty programs, and guest what? (As a consumer) I can do anything, go anywhere I want (with those).”
 
That’s where the affordable luxury mantra and a social-driven atmosphere are beneficial, he said.
 
“In reality, there’s always space for the crystal chandelier and the white glove service; I’m not arguing that at all,” Levie said. “But today maybe luxury is opening up your laptop and having high-speed Wi-Fi for free, or when you come into your room there’s content for free, or when you pick up a phone there are Skype call rates.
 
“The richness of travel is not to stay in another hotel room,” he added. “The richness of travel is to meet the culture where you travel to.”
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