Accor Tightens Its Grip on Luxury Hotel Market With Faena Deal

(Bloomberg) -- Anyone still pining for the glory days of Starwood before Marriott may have new reason to be hopeful about post-pandemic travel.

Yes, Starwood’s brands still exist—and thrive, even—under Marriott’s watchful eye. But many passionate fans still mourn the user-friendly loyalty program, the cutting-edge technology, and startup-like innovation that existed before it all got absorbed into the largest hotel company in the world.

Enter the French hotel conglomerate Accor, which is on track to fill the void of personality-packed, luxury lifestyle hotels left behind by Marriott’s $13 billion Starwood acquisition in 2016.

Despite its relatively low profile among consumers, Accor is the largest hospitality company in Europe and, with nearly 5,000 hotels, the sixth-largest worldwide. In 2016, it made waves by buying Raffles, Fairmont, and Swissotel—a nearly $3 billion move intended to bolster its position with a high-end clientele. (Rooms at Le Royal Monceau in Paris, one of Raffles's most famous hotels, run upward of $1,600 per night.) In the intervening years, the company has built a formidable portfolio of 12 luxury lifestyle brands with locations from Durham, N.C., to Doha—almost from scratch.

That momentum has been fast and furious in recent months. Last November, Accor announced a merger with Ennismore, a company whose brands include hip, trendy Hoxton and the ritzy Gleneagles in Scotland. (The closing is expected in the first half of 2021.) The same month, it took full ownership of SBE, Sam Nazarian’s mini-empire of nightlife-centric hotel brands, including SLS, Delano, and Mondrian, and opened the first location of its new lifestyle brand, Tribe, whose pipeline includes 50 locations from Paris to Amsterdam and Warsaw.

Now Accor has secured the crown jewel in this burgeoning portfolio: Faena.

Made official on Tuesday, the namesake brand of exuberant, fantastical hotels dreamed up by Argentine entrepreneur Alan Faena—currently with properties in Miami and Buenos Aires—will join Accor in a strategic partnership intended to scale the brand from two blockbuster resorts to more than a dozen.

“The goal is to create 20 embassies in cities around the world where people can have a Faena experience,” says Alan Faena by telephone from Dubai, where his next project, the first to be co-financed with Accor, is expected to open in 2023.

By “embassies,” Faena means cultural hubs. Not one to think small, his two previous projects have cost more than $1 billion, encompassing as many as six city blocks and transforming abandoned precincts into centers of artistic innovation. His fame and fortune come from many walks of life, including successful stints as real estate developer, though previous hotel projects have been financed with the help of billionaire investor Len Blavatnik. 

The two existing Faenas include theaters, retail outlets, gallery space, restaurants, and residences—not to mention the anchoring hotels done up with an over-the-top, delightfully gaudy aesthetic that marries large-scale art installations with gilded columns and lots and lots of red velvet.

“I’ve never seen anything like it,” says Sébastien Bazin, chief executive officer of Accor, about Faena’s Miami Beach hotel. “Alan Faena seduced me the first time I met him, and he’s doing the same trick with everyone else—with heads of tourism, heads of state, mayors in all the capital cities [where we’re exploring new projects].”

The New W?

When Barry Sternlicht teamed up with Gerber Group in 1998 to create the first lifestyle hotel brand, W Hotels, he was seen by many as a visionary. The opening of the brand’s first location, on Lexington Avenue in New York, was covered in the Style pages of the New York Times, rather than the travel section; it was fashionable, a nightlife scene, and immediately successful, transforming Starwood from a clutch of hotel brands into a cultural trailblazer.

Now it’s Faena’s turn to do the same for Accor. “Starwood became Starwood not because of W,” Bazin says, “but because they had the audacity and the innovation to launch W. That’s exactly what I’m looking for.”

If W reenvisioned how people interact with hotel brands, Faena has transformed the way hotels interact with the neighborhoods around them. For both its Puerto Madero project in Buenos Aires and the Faena Hotel Miami Beach, which anchors the namesake, six-block Faena District, the goal has been as much to reinvent abandoned and overlooked neighborhoods as to raise the bar for a city’s top accommodations. Those contributions have been duly recognized by a large range of outsiders, with awards from virtually every magazine and arts organization.

“We are very good at filling a void,” Faena says. “I have always envisioned this possibility [of scaling the brand].”

But with so many more brands in the marketplace than existed in 1998, filling voids is not as easy as it used to be. “It’s so much harder to deliver true innovation now,” cautions Bjorn Hanson, a preeminent lodging industry researcher and consultant. “A really good bed was innovative at the time that W launched.”

Now the bar is higher and the competition stiffer. “Starwood’s ability to [break out] was really a once-in-a-lifetime move, and that was a different time—Hilton was not what it is today, and Marriott wasn’t either. The field to get unaided [consumer] recall now is a lot harder.” In other words, earning household name status is no small feat.

Bazin admits his company’s name recognition could be better. “Accor is running at a deficit in showing the strength of our portfolio of our brands and making them credible,” he says. “We’re French, listed on the French market, and there isn’t as much visibility on CNN, MSNBC.”

Indie Spirit, Corporate Balance Sheets

As a former fashion designer, Faena prefers to see Accor less like Starwood and more like another company he admires: LVMH. “You have these very strong brands benefiting from economies of scale, working together to each absorb part of the market,” he explains. Indeed, expenses for everything from food and linens procurement to legal and development services go way down amid the shared buying power of almost 5,000 hotels. 

Hanson adds a further reason that independents are flocking to Accor.

“Accor is a friendly partner, more open to negotiation [than Marriott or Hilton],” he says. Based on his experience in talking to executives and consulting with nearly every major hotel company, Hanson surmises that Accor offers a high level of both transparency and flexibility that its competitors famously avoid. “That’s a big part of the appeal.”

These deals have little to do with the pandemic. Although the hotel industry experienced its most devastating year on record in 2020 according to recent data from the American Hotel and Lodging Association—the impact of Covid-19 on the travel industry so far has been nine times that of 9/11—deals such as that with Faena are usually years in the making.

Looking Forward

The question will become how effectively Accor can scale its cool, new brands amid difficult circumstances—and how well it can leverage the appeal of having them all under one roof. A big part of Starwood’s success came via its loyalty program, Starwood Preferred Group; that may explain why Bazin began an overhaul of Accor’s own offering in 2019, renaming it Accor Live Limitless (ALL) and setting out initial point-earning guidelines that would allow consumers to reach high tiers of status not just through overnights at Accor hotels but with simple everyday purchases on its new co-branded Visa card. He adds that Accor’s new relationships with U.S.-centric brands will help, too—even if it may take a few months for the hotel business to start rebounding in a meaningful way.

Faena himself isn’t worried. He’s currently building the brand’s largest and most ambitious project in Dubai—on which he is still tight-lipped. “I don’t want to get tempted, but yes, this one is even bigger than Miami,” he explains.

Scaling Faena will be a slow and steady race. Its third location will take roughly two years to finish, and a fourth is in development though not yet confirmed. “It can’t be driven by volume,” says Bazin. “Otherwise, you’ll kill the soul of the brand.”

No matter, says Hanson. When a brand is special, he explains, “It only takes a small number [of properties] for consumers to know about it—maybe as few as three.”

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