(WSJ) As China's slowing economy is spooking investors world-wide, Marriott International Inc. is doubling down on the country's growing middle class.
The Bethesda, Md.-based lodging giant has struck a deal with a Chinese firm, Eastern Crown Hotels Group, to open at least 100 hotels under Marriott's midtier Fairfield brand in various mainland Chinese cities over five years, according to Marriott officials.
The hotels will aim to appeal to young Chinese professionals who are starting to travel and looking for affordable accommodations, said Craig Smith, president of the Asia-Pacific region for Marriott.
"The middle class are traveling," Mr. Smith said. "You've got these young millennial travelers who are looking for a place to go."
In a statement, Cheng Xinhua, the chief executive of Eastern Crown, said the deal would combine "our knowledge of the Chinese consumer and Marriott's quality and expertise," and called it "the beginning of a fruitful collaboration."
Eastern Crown, which is based in Guangzhou, already has more than 700 hotels operating or in development in China and Malaysia.
Hotel rooms in China have been increasing about 10% a year for the last decade, according to Chad Beynon, an analyst at Macquarie Securities Group . Supply is expected to grow in coming years.
There are about 2.5 million hotel rooms in the country, and the industry's goal is to increase that to six million by 2020, Mr. Beynon said.
China's economic slowdown could result in a "slight delay" in the hotel development pipeline but hotel operations haven't been hit hard so far, especially in the largest markets such as Beijing and Shanghai, Mr. Beynon said.
Major chains have been starting joint ventures with local companies and selling franchises to wealthy individuals, he said. Those deals are continuing despite the slowdown. "Having hotels in portfolios certainly is something that's attractive to local millionaires," Mr. Beynon said.
Marriott already has hotels in China under other brands, including Ritz-Carlton, JW Marriott and Courtyard. But rooms in those hotels are generally larger and more expensive. The Fairfield rooms typically will be cheaper in China, as they are in the U.S.
The new Fairfield hotels will have 100 to 150 rooms and will carry the Fairfield logo. The deal calls for a total of 140 hotels to be built, 100 of which are expected to be open by 2021. A handful will be open by year-end, Mr. Smith said.
The hotels will be spread throughout China. Some will be in less central locations in Beijing and Shanghai, while others will be in major secondary cities such as Xian and Dalian, according to Mr. Smith. Eastern Crown already operates hotels in some of the cities where the Fairfield properties are planned, he said.
About 90% of the Fairfield customers are expected to be Chinese, compared with roughly half at an existing Marriott hotel in Beijing or Shanghai, Mr. Smith said.
Marriott designed the rooms at the new Fairfield hotels, but the hotels will be built by Eastern Crown, which will be able to do the work at a lower cost, Mr. Smith said.
Eastern Crown also will operate the hotels day-to-day as franchises, which will take advantage of the firm's expertise in how Chinese consumers prefer to book rooms and pay for lodging, he said.
The deal will allow Eastern Crown customers to use points they accumulate in the company's loyalty program to stay at Marriott properties outside China, according to Marriott.
Mr. Smith said that China's economy is "slowing somewhat," but he said business at Marriott's existing hotels in China nonetheless remained strong in January.
"We've done our homework" on the Chinese market, he said. "We're in China for the long term."
Source: Wall Street Journal by Liam Pleven and Peter Grant
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