After months of wrangling, SBE Entertainment Group closed on the purchase of Morgans Hotel Group in December. Chairman and CEO Sam Nazarian met with Hotel News Now to talk about what’s ahead for the company.
LOS ANGELES—SBE Entertainment Group had a busy 2016 with the acquisition of Morgans Hotel Group, and this year is shaping up to be just as busy as the company moves to leverage its new, combined strength.
The purchase, SBE’s chairman and CEO Sam Nazarian said, should highlight for owners how compelling SBE’s brands are from a business standpoint. Much of the task ahead, he said, will be to work with owners to show just that.
“Our opportunity going forward is really segmenting these brands in a clear and transparent way to the market,” Nazarian told Hotel News Now in an interview at the 2017 Americas Lodging Investment Summit.
SBE’s purchase of Morgans was first announced in May as a $794-million deal structured largely around the assumption of Morgans debt. That structure of the deal shifted significantly over the coming months, particularly when an unidentified bidder emerged to compete for the company.
Ultimately, the deal closed in December with a price tag of $805 million and the stipulation that Morgans’ preferred shares would be converted into SBE equity.
Nazarian said he’s feeling optimistic about the company’s ability to grow through Morgans’ brands, including Mondrian, Delano and Hudson. He said he has a great deal of respect for the groundwork laid by Morgans founder, Ian Schrager.
He said the next step will be figuring out where the Morgans brands fit with each other and with SBE’s SLS Hotels, which he said will soon have five open properties and has a robust pipeline.
“Resetting the brands and, more importantly, finding the personalities for each one of them will be in a more literal sense giving them the sort of brand standards it needs to grow,” Nazarian said. “For us, it’s about resetting these in a manner that is clear to owners also is at the level of expectations of our customers. So they’ll know coming to a Hudson hotel is different than going to Delano South Beach.”
Growth in loyalty
Nazarian said one of his company’s focuses going forward will be growth in loyalty, but for his brands he doesn’t see that playing out as a traditional points-based system.
“We’re not a discount house, and we don’t want our derivative of a discount,” he said. “We’re an aspirational house. We’d like our loyalty program to be just like that.”
Nazarian said that thinking is the basis behind “The Code,” the company’s loyalty system, which they’re currently integrating with the Morgans guest database.
He said the ability to “cultivate” millennial guests “as they mature” has been key to growing that loyalty program through partnerships with other companies.
“What we find is there’s a lot of like-minded companies, whether they’re our global partners like BMW or Apple or Pepsi, that really want this millennial generation that we kind of came up really harnessing,” he said.
He said working with those companies to provide added value to guests is how they get “through all the noise” in the loyalty space.
“Our consumers aren’t driven to ‘Oh, if I get two nights, I get a third night free’ or, ‘If I get so many points, I get an upgrade,’” he said. “It’s a content-based loyalty system.”
He said SBE’s loyalty focus is built around “customizing the experience.”
Nazarian said his company is also uniquely positioned in terms of loyalty because of its restaurants and nightlife venues.
“In markets like (Los Angeles), we have three hotels and 60 F&B outlets,” he said.
He said there’s also value in making a big loyalty play in the lifestyle space because so many other companies in the arena aren’t willing to.
“It’s not cool, almost,” he said. “But we think it is.”