Starwood Hotels And Resorts Worldwide Inc Marketing Essay

Starwood Hotels And Resorts Worldwide Inc Marketing Essay Starwood Hotels and Resorts Worldwide Inc is one of the most well recognized corporations in the hospitality industry. Founded in 1991 as a real estate company first under the name of Starwood Capital Partners it developed to be a top hotel owning, operating and hospitality management company. What really distinguishes Starwood from other hospitality companies is its philosophy towards hotel customers, employees and guest services (Starwood Hotels Resorts Worldwide, Inc., 2010). Providing unparalleled guest experience, high quality services products, creating team spirit among employees and by using an innovate customer approach it managed to be one of the leading companies in the hospitality industry (ibid.). Performing in the hospitality market since 1993, it developed to a global enterprise with the acquirement of Westin Hotels only 4 years after it first operated. In 1998 Starwood purchased the ITT Group, owner of the Sheraton and Four Points by Sheraton brands (ibid.). Today the company owns 992 properties all over the world (appendix 1). The majority of these properties are located in North America, where Starwood has presence with 533 hotels and 298.500 rooms in total. The company has also presence in Europe, Africa, Middle East, Asia and Latin America (Starwood Hotels Resorts Worldwide, Inc., 2010). Most of the properties are franchised or operated in joint venture with individual hotel owners. Only 63 of the hotels are privately owned. At this moment 145.000 employees work worldwide for hotels managed and operated by Starwood. The Group is consisted by nine hotel brands and one residential and vacation Ownership Company (appendix 2), (ibid.). St. Regis: St. Regis hotels and Resorts are properties which provide high-end service to satisfy the most distinguished and demanding guests, both business and leisure travelers (Starwood Hotels Resorts Worldwide, Inc., 2010). The Luxury Collection: This brand operates unique and exceptional hotels and resorts, usually classic buildings or palaces. The aim of Luxury Collection is to provide extraordinary services and experiences concentrating in the destination (Starwood Hotels Resorts Worldwide, Inc., 2010). W: W Hotels and Resorts is a new brand of ultra modern, fashion and trendy hotels that is now developing throughout the world. W offers services and experiences never offered by any company in the past. Some examples are the WhateverWhenever service and the unique design and internal environment (Starwood Hotels Resorts Worldwide, Inc., 2010). Westin, Le Meridien and Sheraton brands are the three historical and largest brands of Starwood. All of them operate in the upper scale of hospitality industry. Le Meridien is the most classic of them and provides a distinctive French style in all of its properties. Sheraton is the largest brand of Starwood and operates business city hotels and leisure resorts, whereas Westin hotels are distinctive for their gracious style and are ideal for those, who seek a superior guest experience (Starwood Hotels Resorts Worldwide, Inc., 2010). Four Points is a brand operating medium scale comfort hotels (Starwood Hotels Resorts Worldwide, Inc., 2010). Aloft, opened in 2008, is a collection of hip hotels with modern rooms. Aloft is similar in concept with the W brand but with cheaper rates (Starwood Hotels Resorts Worldwide, Inc., 2010). Element Hotels and Resorts, also opened in 2008, is a brand inspired by Westin and consists of environmental and nature friendly hotels (Starwood Hotels Resorts Worldwide, Inc., 2010). One of Starwoods key to success is based on its approach towards enterprises development, which generates from the idea of continuously growth, targeting top markets. Therefore there is no surprise that among the corporations future goals is the expansion in China market; a strong financial country with a huge market and many business potentials (Starwood Hotels Resorts Worldwide, Inc., 2010). 2.Financial Assessment Evaluating the financial assessment of a company is possible either by comparing one company to another one of the same industry or by comparing data of different financial years. In Starwoods case, in order to perform companys assessment the second method will be used; comparison of different years. Hence, from year 2008 to 2009 there was a significant decrease in return of equity, falling from 20.3% to 3.8% indicating that Starwood was not able to generate return for shareholders (figure 1). Caused partly by the fall of return of assets from 5.20% in 2007 to 1.80% in 2008 reaching -1.30% in 2009, showing that Starwood didnt use efficiently its assets to generate profit. Referring to return of capital one of its downside is that it doesnt represent something specific about where the return is being generating. Therefore its not a precise choice of financial evaluation (About.com, 2010). Figure 1: Ratio Analysis for 2007-2009 3 Year Annual Ratios (Year End) Fiscal Period 2007 2008 2009 Return on Equity (%) 26,10 20,30 3,80 Return on Assets (%) 5,20 1,80 -1.3 Profit Margin (%) 9.00 6.00 2.00 Gross Margin (%) 28,10 26,40 21,80 Net Margin (%) 8,80 5,60 1,50 Asset Turnover (%) 0.64 0.61 0.54 Fixed Asset Turnover (%) 1.6 1.64 1.41 Inventory Turnover (%) 7.81 6.09 3.74 Debt to Equity (%) 173 216 160 Current Ratio (%) 0.87 0.81 0.74 Acid Test (%) 0.53 0.44 0.35 Coverage Ratio (%) 8.28 4.55 1.48 Note: Euromonitor International, (2010) Our own Calculations Furthermore, a major drop from 8.80% to 1.50% in net margin occurred during the years 2007 and 2009 revealing that not all of its income is converted into profits. Regarding profit margin in 2007 for each dollar of sales Starwood generated $0.09 of profits, when in 2009 for each dollar of sales Starwood generated $0.02. Also, gross margin indicates that the company will retain $0.28 in 2007 for its dollar of revenue, to be able to pay additional costs and expenses, whereas in 2009 retained $0.21 for the same purpose. Concerning net margin there was a gradual fall from 8.80% in 2007, to 5.60% in 2008 and finally to 1.50% in 2009 meaning that finally for every dollar earned by Starwood, the profit is $0.015 (Investopedia ULC, 2010). Additionally, asset turnover remained almost the same. In 2007 asset turnover was 0.64, in 2008 0.61 and in 2008 it dropped to 0.54 showing that a smaller percentage of sales was able to be generated from the companys assets. Therefore fixed assets turnover had also a small decline from 1.6 in 2007 to 1.41 in 2009. Moreover there was also a substantial decline in inventory turnover from 7.81 in 2007 it fell to 6.09 in 2008, whereas we only had 3.74 in 2009 suggesting that the companys inventories are not marketable as they used to (Investopedia ULC, 2010). As far as debt to equity is concerned there was a significant rise in 2008 from 173% in 2007 to 216, but after a year it fell again to 160%. Also, current ratio had a slight decline from 0.87 in 2007 to 0.74 in 2009. Regarding acid test in 2007 it was 0.53 decreased to 0.44 in 2008 and in 2009 reached 0.35, indicating to investors and to Starwood how quickly the assets can be converted to cash in order to pay their current liabilit ies. Finally, coverage ratio from 8.28% in 2007, dropped to 4.55% in 2008, reaching 1.48% in 2009 (appendix 4.2). Hence, the company will be in danger in the future if the coverage ratio remains around 1.0% or falls below 1.0%, because at this case that will mean that it is not able to meet its obligations (Palepu, Healy, Bernard, Peek, 2007). 3.Financial Performance, Forecast Evaluation In order to perform a financial evaluation of Starwood Hotels Resorts Worldwide Inc. it is necessary to collect information regarding the balance sheet (appendix 7), income statement (appendix 8) and cash flow statement (appendix 9) of the company. Using these financial statements we were able to calculate the financial ratios, that were presented previously and to produce the forecast models (appendix 10 11 12 ). Also, as presented in Figure 2, Starwoods greatest Dividends per Share rate were in 2006. From that year the dividends per share followed a downward flow to 0.90 in 2007 and 2008 to reach the amount of 0.20 in 2010, the lowest for the past 10 years. This could have happened due to new equity issue. Figure 2: Per Share Data for years 2000-2009 Annual Per Share Data (Year End) Fiscal Period 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Revenue per Share ($) 22,43 20,06 23,36 22,89 25,72 27,26 28,20 30,90 32,27 25,20 Free Cash flow per Share 1,60 1,44 2,04 2,29 1,17 1,37 0,61 2,57 0,93 2,01 Earnings Per Share ($) 2,08 0,73 1,78 1,53 1,89 1,92 4,92 2,72 1,80 0,38 Dividends Per Share 0,69 0,80 0,84 0,84 0,84 0,84 13,90 0,90 0,90 0,20 Book Value Per Share 20,48 19,21 20,29 21,54 22,94 23,77 14,19 10,42 8,86 9,87 Note: (Euromonitor International, 2010) Moreover, Starwoods greatest Dividends per Share rate was 13.90 in 2006. From that year the dividends per share followed a downward flow to 0.90 in 2007 and 2008 to reach the amount of 0.20 in 2010, the lowest for the past 10 years. This could have happened due to new equity issue or the decrease of net income from the year 2006 to 2009. Earnings per Share(figure 3) is also a rate that is affected from the relegation of net income from $1 billion in 2006 to $71 millions in 2009. Operational Income is also a factor that indicated that Starwoods financial condition is not in a good position. Figure 3 Note: Our own Diagram Figure 4 Note: Our own Calculation Regarding the forecast models, firstly the moving average model is calculated as well as the weighted moving average model. However these forecasting models are providing predictions only for one future period, in this case for the year 2010. The same situation applies for the exponential smoothing model. After making two assumptions for the value alpha (0.6 and 0.05) it is proved that this model is also not appropriate, because it provides forecasts for one future period. The most accurate forecasting method for Starwood is the linear regression model. After calculating a and b, which are necessary for the formula y=a+ bx (appendix 10.2, 11.2 12.2) the yearly (seasonal) ratio is estimated (Higgins, 2009). After these calculations the estimation of the sales (appendix 10.3), profits (appendix 11.3) and cost forecast (appendix 12.3) was completed. 4. SWOT Analysis Strengths à ¢Ã¢â€š ¬Ã‚ ¢ Massive investment on Sheraton brand hotels. Starwood spent billions of dollars on renovations and new hotel openings in order to strengthen Sheraton globally and renew its corporate image (appendix 13), (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ Hotel ownership: Starwood is selling its properties in return to long year management contracts of the same properties. This tactic is generally called Sale and lease back and is used in order that the company decreases its expenditures for maintaining the buildings. Starwood sold many of the leased, owned or operated by joint venture properties (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ Starwood Preferred Guest loyalty program. The loyalty program of Starwood is well known in the tourism and hospitality industry and attracts new customers due to the benefits, innovative services and promotions in partnership with other companies offered to them (Euromonitor International, 2010). Also, to offer more benefits to their customers Starwood has cooperated with American Express to create a Starwood credit card (appendix 14). Weaknesses à ¢Ã¢â€š ¬Ã‚ ¢ Luxury Brand Hotels. Starwoods collection contains only luxury, up-scale and mid-scale brands. There are no economy hotels for business or leisure travelers that dont afford luxury brands. Starwoods competitors are present in budget hotels with brands for example Ibis, owned by Accor and Holiday Inn Express owned by IHG (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ U.S. market oriented. Starwood has a large presence in the United States and that makes the company extremely dependant on the economy situation of the country. The U.S. economy upturns and downturns have direct effects on Starwood (Euromonitor International, 2010). Opportunities à ¢Ã¢â€š ¬Ã‚ ¢ Aloft brand. This new Starwood brand gives the opportunity to travelers that cant afford the other luxury brands to have access to modern hotels with high-tech design and facilities (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ Growth in Asia. Asia and especially China are the emerging markets for Starwood in the fore coming years. China is the second largest market right now and Starwood plans to double its presence there by 2012 (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ Attraction of wider range of travelers via the social media networking sites. By developing mini-sites in every social media site, Starwood could attract new target groups of customers that never before have used its services or sometimes havent even heard about Starwood brand name (Euromonitor International, 2010) . Threats à ¢Ã¢â€š ¬Ã‚ ¢ Consumer behavior. Starwood, having only a collection of luxury and upscale hotels is reliant to any changes in travelers behavior. Spending for luxury goods and services is usually the first thing that gets deleted or decreased from every business or family budget (Euromonitor International, 2010). à ¢Ã¢â€š ¬Ã‚ ¢ Travel industry downturns. Travel and tourism industry have experienced in the past a lot of uncertain and unexpected recessions due to facts like terrorism, enlarging fuel prices, political instability economic conditions or extreme weather conditions that caused major catastrophes. These effects could still happen anytime in the future. à ¢Ã¢â€š ¬Ã‚ ¢ The above point about industry downturns leads most of the times to less credit availability to the companies. This means that there will be fewer investments in tourism either in forms of renovations or new build hotel openings (Euromonitor International, 2010). 5. Competitive Challenges In general 2008 for the hospitality industry was a good year. More specifically a 5% growth occurred at that time, followed however by a significant fall of 11% during the year 2009 due to the economic crisis. Starwood enterprise was affected by this crisis by a 12% fall in that year. Therefore, one solution to avoid the catastrophe was to lower room rates and cut costs. But what Starwood did was to try and gain customer loyalty. One way to do that was by making him feel like home. Another way to offer 1000 reward points for every night the customer stayed at their hotel (Starwood Hotels Resorts Worldwide, Inc., 2010). Starwoods policy was by no means lower the price of the room rates significantly as some of their competitive did. Since it would be very difficult for them to recover after the crisis and the customers would become adapted to the discount room rates. Thus, it would be very difficult for Starwood to raise the room rate prices again. Eventually they would manage to do so, but it would take too much time (ibid.). For 2010 Starwood plans to launch its campaign of rediscover Sheraton, which cost US$ 6 billion in order to renovate and built new rooms, lobbies etc of Sheratons properties. A step, that will give Sheraton and Starwood a leading advantage (Starwood Hotels Resorts Worldwide, Inc., 2010). 6. Future Prospects The unpredictable and unstable economic situation in U.S and Europe resulted to the decrease of Starwoods revenue by 18% comparing the years 2008 and 2009. The weakening economic environment and the general reduction of business traveling led Starwood to offer an innovative promotion through the loyalty program called Preferred Guest. Starwood offered a 50% discount for guests staying from November until January 2010 (Euromonitor International, 2010). The future prospects for Starwood in order to adapt to the always evolving hospitality environment is first to franchise some brands to other hotel operators and owners (Starwood Hotels Resorts Worldwide, Inc., 2010). This means that Starwood could give permission to a 3rd organization to operate and be the master franchisor of its brands in a country or market that Starwood doesnt have prior experience. Second prospect intention is to increase sales booked directly from the companys website. That will lead to higher customer satisfaction and revenue increase. Another intention is to increase the number of guests joining the loyalty program and thereby increase the occupancy rates (ibid.). One final overall intention is to make the most out of what technology has to offer to hospitality and therefore boost the operating efficiency. Even though the information needed for Starwood Hotels Resorts Worldwide Inc evaluation was sufficient, there were some important statistics missing regarding Starwoods individual hotel brands and internal data for every country that Starwood is operating. Having these records we could have made a more informed report containing future prospects for each particular brand. Furthermore, if we had more information and data regarding taxes, distressed costs, market signaling, companys flexibility and management incentives we could make more efficient financial decisions (Starwood Hotels Resorts Worldwide, Inc., 2010),. 7. Recommendations Geographic expansion Starwood has already a large presence in North America and Europe covering a wide range of properties, from historical palaces to ultra modern and hi-tech hotels. Starwood is now starting to expand in China, India and other Asian countries. Additionally the company should expand its business to Africa and Middle East but certainly should focus on China as it is the rising economy of our days (Starwood Hotels Resorts Worldwide, Inc., 2010). The Chinese, in a few years, are expected to be the largest number of travelers worldwide both for regional and international tourism. It is rational for any company to have strong presence in this country in order to create loyal guests of the future (appendix 15). Affordable Luxury Starwood created new concepts in hospitality a few years ago when introducing the brands aloft and Element. In that way these two new ideas were offered to new target groups of travelers that in the past would have never chosen to stay in a Starwood managed hotel. Element is the eco-friendly brand of the group while aloft is the first hotel company of the group doesnt concentrate on business travelers but focuses on young travelers that dont want to spend large amounts of money but still enjoy staying in a modern, comfortable and hi-tech environment (Starwood Hotels Resorts Worldwide, Inc., 2010). Cost controlling Due to the global unstable economic situation companies and organizations like Starwood should deliberate to reducing their operational costs. This means that hotels should maximize the use of their existing resources and increase their efficiency. To give an example of that (Euromonitor International, 2010). New target groups In the near future Starwood should invest in new hospitality industry segments and new target group of both business and leisure travelers. Generation Y in a few years will have the ability to afford staying in a Starwood hotel. This is the reason why Starwood through the two new brands, element and aloft, should focus on developing them to attract the new generation (Euromonitor International, 2010). Customer experience The key point of success for the existing well-known brands of Starwood is to increase customer satisfaction and make each moment he spends using the services unique. This objective can be achieved from considering customers feedback and trying to adapt to their needs (Starwood Hotels Resorts Worldwide, Inc., 2010). Budget hotel brands A new trend that has been developed the last few years is for hotel chains to adapt low budget hotels. This doesnt mean under any circumstances that the quality standards will be lowered. Only that these specifically brand will provide more affordable services to future hotel guests. Other hospitality chains have recognized the market need for more inexpensive hotels and have already launched their budget hotels (Starwood Hotels Resorts Worldwide, Inc., 2010). 8. References About.com. (2010). Interest Coverage Ratio. Retrieved September 13, 2010, from beginnersinvest.about.com: http://beginnersinvest.about.com/od/incomestatementanalysis/a/interest-coverage-ratio.htm Ashpfoundation. (2009). SWOT Analysis. Retrieved September 21, 2010, from www.ashpfoundation.org: http://www.google.ch/imgres?imgurl=http://www.ashpfoundation.org/leadershiptoolkit/swot-analysis-sm.jpgimgrefurl=http://proiecte4.parvezbd.com/swot-de-starbucks.htmlusg=__6eEJug33fGnGxWj8RZmFQl5hfjg=h=371w=368sz=79hl=destart=0zoom=1tbnid=ui8SJD5s Credit Card Offers IQ. (2008). New Changes To The Starwood Amex Card. Retrieved September 21, 2010, from creditcardoffersiq.com: http://creditcardoffersiq.com/credit-card-news/new-changes-to-the-starwood-amex-card/ Euromonitor International. (2010). 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