Do Shinola hotels have room to grow?

The new Shinola Hotel is scheduled to open in downtown Detroit in January 2019. It will join a growing number of retail brands that have expanded their offerings into the hospitality category. The 129-room hotel, located at 1400 Woodward Avenue, will occupy space formerly used by the T.B. Rayl & Co. department store and a former…

Do Shinola hotels have room to grow?

The new Shinola Hotel is scheduled to open in downtown Detroit in January 2019. It will join agrowing number of retail brands that have expanded their offerings into the hospitality category.

The 129-room hotel, located at 1400 Woodward Avenue, will occupy space formerly used by the T.B. Rayl & Co. department store and a former Singer sewing-machine store. Combined with a trio of newly constructed annexes, the hotel plans to offer approximately 16,000 square feet of retail, food and beverage space aimed at attracting both locals and tourists.

The property will be a partnership between Shinola, the Detroit-based watch and lifestyle brand, and Detroit-based real estate firm Bedrock, which already operates over 330 office and retail tenants in the city. It will be managed by New York-basedMac&Lo, whose clients include New York City’s hipper-than-hip Ace Hotel, and the food and beverage program will be run by New York City-based chef Andrew Carmellini of NoHo Hospitality Group, whose restaurants include Bar Primi and Little Park.

The space will merge high-end, high-tech amenities such as Frette linens and RFID-powered room keys with Shinola-branded merchandise peppered throughout the rooms, and Detroit-centric art in the public spaces. Architectural and interior design will come via Detroit-basedKraemer Design Group, known for its architectural renovations of Detroit spaces such as the Broderick Tower, and New York City-basedGachot Studios, which has designed Shinola boutiques in Los Angeles and Brooklyn, and was also responsible for the design of chef Carmellini’s Little Branch restaurant.

If nothing else, Shinola is pulling out all the stops for its first hospitality venture, and with good reason. West Elm isopening its own Detroit-based boutique hotelon the same street as Shinola, albeit a 20 minute walk up the road. The West Elm property, set to open next door to the Bonstelle Theatre in 2020, will be managed by Detroit-basedRoxbury Group, which is also responsible for the high-profileElement Detroithotel, located right across the street from Shinola’s hotel.

Banking on Detroit

Jan Freitag, senior vice president with STR, a global hotel research, data and benchmark company based in Hendersonville, Tennessee, said the three biggest macro trends for hotels these days are mobile (as in phone-controlled services); social (as in, providing Instagrammable moments and compelling public spaces), and local (as in, being the area expert). For Shinola, the local edge will likely be what matters most, both to the brand and to its potential guests.

“Shinola is a brand that was built by the city and people of Detroit, and that’s what sets us apart from other brands opening hotels in the city,” explained Shinola CEO Tom Lewand in an email to Retail Dive. “Detroit is our home, and we are aiming to be Detroit’s ‘living room,’ so to speak. Every aspect of the hotel was pieced together with our hometown in mind.” He explained that he also hoped the hotel would “act as a Detroit guide” for guests.

Local-to-Michigan companies including ceramic manufacturer Pewabic, Booms Stone Company, and Great Lakes Stainless will provide many of the hotel’s finishes, and guest room mini-bars will be stocked with snacks and beverages from companies including Great Lakes Chips, Vernors Ginger Ale, plus local craft beers.

Greg Portell, lead partner in the global consumer and retail practice of A.T. Kearney, a strategy and management consulting firm, said the Detroit connection will help set the hotel apart. “[Shinola] has pride in Detroit, and they’re tied to the community,” he said. “Building a gathering place in the area is a unique position for them, and a hotel is a better place than a bar or a restaurant.”

Not without challenges

Yet Portell cautioned that even with a local edge, Shinola faces some challenges. For one thing, the branding opportunities in a Shinola hotel are limited. “A lot of it comes back to where Shinola envisions the brand going,” he said, “If they really are trying to create a lifestyle brand, then hospitality is a good fit. But there are very few brands that successfully extend themselves to multiple categories.” Portell also said that it will be difficult to keep the brand fresh, because ‘hip and trendy and current’ is a moving target. “Look at W Hotels,” he said. “A lot of those places look tired now, and are being refreshed.”

In addition, there’s a potential crash looming for the hotel industry, which makes this an interesting time to be opening one. “Speaking about the U.S. hotel industry in general, we continue to have a good run,” said Freitag. “In August 2018, the U.S. hotel industry had 102 months of consecutive revenue per available room (RevPAR), which is a metric the hotel industry uses to judge itself. Then in September 2018, it declined 0.3 percent, which is worth noting because it’s not positive.” While the drop is slight, Freitag said it might be indicative of a coming downturn. “The prior up cycle lasted 111 months, and so we’re getting a little long in the tooth, and the likelihood of this cycle continuing is skewed towards ‘not,'” he said. “So is this a good time open a hotel? Developers will argue yes, absolutely. But bankers have to be more conservative, and they have not been lending as much.”

Then too, Shinola will need to establish immediately and firmly its own brand identity, because the Detroit hotel pool is getting crowded. “It’s not surprising that [Shinola would] be in the same neighborhood [as West Elm],” said Portell. “But West Elm is a different value proposition for the consumer. West Elm is trying to immerse you in their catalog, and they have that ability to create that experience in multiple locales. Shinola is trying to create a specific Detroit experience.” Portell said that while Shinola has hinted thatthere may be more hotels coming, it may be difficult to expand on its location-based branding. “You’re not going to go to Atlanta to get a Detroit-style experience,” he said. “So it’s a nice trial for them to get their feet wet and extend their lifestyle brand. But making this hotel into a universally relevant national chain? I don’t know.”

Experience versus product

As Shinola moves further into the A-Class mall category, playing alongside brands such as J. Crew and Coach, the company’s experiential elements may become more important than its tangibles. “More than their mass market peers, luxury brands are built on the intangible credentials of their brand image rather than tangible product benefits or characteristics,” wrote John Mercer, Senior Analyst, Coresight Research, a global retail think tank, in an email to Retail Dive. “So, generally, luxury brands stand for a lifestyle rather than any palpable unique selling proposition. This means owners of high-end brands are, in general, better positioned to extend those brands from goods to services, providing they stick to some truisms that apply not just to the luxury market, [such as] know your customer and be authentic.”

Lewand wrote that he considered delivering an experiential retail environment part of Shinola’s core brand ethos. From that experiential perspective, then, he explained that the move to a hotel made sense. “Expanding into the hospitality industry feels like a natural extension for us,” he wrote. “We want to provide tourists, business travelers, and locals with the kind of world-class experience that we take pride in providing our retail customers.”

To some extent, Portell agreed. “Shinola can give consumers the experience of the zest of the brand,” he said. “But that will require a strong execution, and it’s hard to do. With West Elm, the product will carry forward the brand promise. For Shinola, it will be the people. The waiters and desk people and the staff.”

Yet in the end, the hotel won’t just be an experiment, but a real-world business risk, that pits the business case for the investment in a hotel against the experiential points the brand gets from saying it owns a hotel. “There’s pride in being the anchor hotel in a city they love,” Portell said. “The mistake would be to look at the hotel industry and say this is a place that’s easy to make money in. Whether Shinola survives this depends on how they operate a hotel, and not how they operate their lifestyle brand.”

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