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Radically Reinventing The Luxury Hotel To Compete With Airbnb

Chatbots, plentiful amenities, and hardly any furniture: Hotelier Ian Schrager’s newest venture aims for luxury on the cheap.

“I might fall asleep!” Ian Schrager exclaims as he sinks into a plush, mossy green velvet sofa in Public, the 70-year-old hotelier’s latest venture: a $300-million bet on the luxury hotel of the future.

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Schrager is, of course, speaking in hyperbole about how comfortable the seating is in Diego, one of the three bars located in Public. He’s not stretching the truth that much, though. The swanky space is furnished with tufted armchairs upholstered in rich fabrics. There’s a fireplace in the corner and a slick stainless-steel bar in front of windows overlooking a grove of trees. It feels positively exalting to sit in the room, just like it does to meander through the rest of the hotel.

Located on Manhattan’s Lower East Side, the 370-room hotel is Schrager’s experiment in creating a five-star experience for people on a two-star budget. The starting price for rooms at Public? About $200.

“Luxury for me is a state of mind,” Schrager says. “It’s how it makes you feel. It’s a really modern thing to be able to have a less expensive product that’s not dumbed down and not stripped down but is edited and focused on the things that people like and care about, and gets rid of those notions of luxury that my parents liked and I used to like.”

To create a high-end hospitality experience on a budget, Schrager rethought nearly every element of the hotel–from check-in and in-room furniture to room service and staffing–to make the balance sheet add up. He also co-opted best practices from a broad range of companies, from Apple and Starbucks to Studio 54–which Schrager cofounded–to develop an entirely new business model. Here’s how.

[Photo: courtesy Public]

Pritzker-Level Architecture–With A Pauper’s Purse Strings

Public is a ground-up project designed by the Pritzker Prize-winning firm Herzog & de Meuron. Schrager selected the Swiss architects because they’re “developer friendly,” meaning that they know how to design a building that’s sensitive to the hurdles of construction in New York City, like navigating through the zoning and planning process.

The primary materials in the building are raw concrete and Douglas fir plywood, which are robust yet affordable. The architects molded the concrete using wood to create an organic textured effect and the plywood is stained a rich amber to shed any Home Depot bargain-bin sensibilities. Elsewhere, the architects used black-stained wood, which takes on the look of more labor-intensive charred cedar.

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“The finishes are more modest in the Public, but not so much because of cost but because of ethos and signal,” Schrager says. “You need to have modest finishes because of the neighborhood and what we’re trying to say to people.”

The hotel’s social spaces–the lobby bar, rooftop bar, and restaurant with a food program by celebrity chef Jean-Georges–are outfitted with modern, high-end pieces that you’d expect to see in N.Y.C. hotels that charge $1,000 a night. The idea is to make them lively, bustling must-visit attractions–a vision modeled on the heyday of Studio 54–that draw people who live in New York City to them, a fairly standard approach for boutique hotels.

“Visually this place is sophisticated as any very, very expensive hotel,” Schrager says. “So you’re not sacrificing anything to stay here. You have to get the great visuals so you’re not walking into a stripped-down box.”

Because the project was totally new, Schrager was able to standardize every guestroom–which are a compact but not claustrophobic 190-square-feet–to take advantage of economies of scale. Aside from a round, marble-topped table and stool, there’s no freestanding furniture in the rooms. Schrager’s team designed a wood bed platform–which has built-in reading lights, a nook for a 50-inch television, and hidden outlets–and a space-saving built-in sink-and closet unit. Hiding everything away reduces visual clutter to help the room feel more spacious. There’s also a floor-to-ceiling window that makes the room feel larger.

“It’s like a stateroom on a transatlantic ocean liner,” Schrager says. “It gives a feeling of intimacy and it’s very luxurious.”

The average cost of a room at Public is $350,000 to develop. Schrager says the typical luxury hotel room can cost close to $1 million. “$350,000 per room is something you might wind up paying to get out of bankruptcy,” Schrager says. “It’s very cheap.”

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Lastly, Schrager opted to build 11 condos on the hotel’s upper floors–all but one have sold–to provide another way for the development to generate revenue.

Reducing Staff To Reap Rewards

Limiting the amount of staff Public employs was one of the biggest impacts on the bottom line. There are only about 50 people who work at the hotel. Schrager outsourced almost everything, like cleaning services and telephone operators (who are actually based in Las Vegas where wages are lower than New York). Additionally, Schrager got rid of concierges and bellmen. There’s no front desk clerk to check people in. Instead, there’s a station of iPads manned by “Public Advisors”–a position modeled after Apple’s retail associates.

Like Apple’s staff, Public’s employees are trained to be knowledgeable about everything guests could need or ask for. Similarly, they’re dressed fairly casually in T-shirts–a move to make them more approachable.

“The whole staff are concierges, all of them,” Schrager says. “They’ve gone through rigorous training programs, they all know what’s going on. They’re like the equals of the people who are staying here. It’s outsourcing all of the brawn needed to run a hotel and in-sourcing all of the management skills needed to manage the brawn. The labor factor is substantially, substantially reduced.”

The smaller room size and standardized arrangement also has ripple effects for staffing the hotel. Maids can clean 26 of the rooms per shift whereas in a typical hotel they can only clean 14. Additionally, Schrager believes there will be less confusion for guests when it comes to booking a room: There’s no need for hotel staff to spend time on the phone explaining what the different room types are.

“We don’t want people calling up and booking rooms on the phone,” Schrager says. “We want them to do it online. It reduces cost. With all those costs that you save, you pass onto the customers.”

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To reduce the number of staff needed at Public, Schrager is gambling on technology taking their place.

Everything At Your Fingertips–Thanks To Tech

“When I first got started, I was inspired by the entertainment business or the fashion business, not the hotel business,” Schrager says. “Now I’m mostly inspired by the technology business.”

Indeed, Public is reliant on technology to afford the type of luxury experience Schrager thinks his guests want. Ease, convenience, and efficiency are high up on the list.

Public developed an app that lets guests check in remotely, and they can receive a mobile key that allows them to use their smartphones to unlock their rooms if they don’t want to check in on the hotel’s iPads. (There’s also a more traditional key card available.)

There’s no room service at Public, a decision Schrager made to help reduce operating costs–i.e., for staffing. Instead, Public offers a grab-and-go service. Using a custom chatbot, guests can order food and beverages from the hotel’s restaurant and within a few minutes, it’s boxed up and waiting for them on a shelf in the hotel’s lobby.

“At Sweetgreen and Starbucks, you can order your coffee and your salad or whatever you want on your iPhone, and they put it on a shelf and you pick it up,” Schrager says. “You don’t have to wait in line it’s just very efficient. It increases convenience of shopping, which is a big thing. It’s not only value [that’s important], it’s convenience.”

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Schrager’s rule of thumb for integrating technology into the hotels was restraint. “The only reason to have technology in a room is to improve the experience or it makes it less expensive,” he says. “If it doesn’t do one of those, there’s no reason.”

For example, he calls out the hospitality industry’s propensity to try and insert unnecessary–and expensive–tech into rooms with only marginal benefits for guests. Years ago, it was fax machines and printers, television screens in bathroom mirrors, and even the dreaded toilet-adjacent phone. Now, many hotels are putting iPads into rooms to control shades and lighting. (Schrager didn’t even want to put phones in the room, but had to for safety reasons.) When he was developing the project, Amazon and Google both approached him to integrate their voice assistants into the rooms, but he declined–since he didn’t think the technology was mature enough to be beneficial for his guests.

Schrager hopes that his new definition of a luxury hotel experience–eye-catching design, convenience, efficiency, and a lively social scene–at an affordable rate will help him stay competitive. He plans to expand the Public brand of hotels to “24-hour international gateway cities” and is eyeing London, Las Vegas, and Los Angeles next.

“I’m trying to reinvent myself with coming up with a new kind of hotel and disrupting things and upsetting the status quo,” he says.

But will this be enough to compete with the larger sea changes in the hospitality industry, like Airbnb? Large hotel chains are all competing to attract young consumers that Airbnb has usurped from the hospitality market. Instead of stuffy hotels, they’re opting for the local experience that staying in someone’s home can offer–plus the (typically) lower price.

Schrager argues that his value proposition will be enough, especially when it relates to the quality of experience he’s offering. Public is located in a convenient area for tourists and business travelers. It offers a peaceful garden out front; an upscale grocery market; a retail boutique stocked with lifestyle magazines, fresh flowers, housewares, and apparel. There are three bars and restaurants in the hotel and free Wi-Fi throughout. Aside from the rooms, it’s all open to the public to use. As much as possible, Schrager is trying to embed the hotel into the neighborhood–albeit a gentrified version of the Lower East Side–and get the neighborhood to embed itself in the hotel.

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With the hotel, Schrager is attempting to appeal to travelers who perceive themselves to be sophisticated, and think they’re getting a bang for their buck. “It’s not merely for bargain hunters,” he says. While the $200-per- night-cost might be more than an Airbnb–and when I perused the room rates the average was closer to $250 a night since they fluctuate–all of the extra perks might be enough to justify the price.

“I think the best way to compete with a strong idea like Airbnb is with another strong idea,” Schrager says. “One of the pillars of Airbnb’s strategy is to manifest a place. You stay in an Airbnb and you get local flavor and the culture of that location. We can beat them at that game, and we can beat them at the things they can’t do. They can’t provide this beehive of activity, this social and communal space. They can’t do it.”

About the author

Diana Budds is a New York–based writer covering design and the built environment.

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