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Lawsuit blasts Marriott’s new sales strategy

A lawsuit filed Tuesday by a longtime Marriott hotel owner seeks $20 million in damages, claiming Marriott’s newly revamped sales structure has cost it business.

In the suit, the owner of a 3-year-old, $52 million Residence Inn in Alexandria, Va., says that the hotel’s sales have been “abysmal” despite its convenient location in suburban Washington D.C., new amenities and guest rooms, and ample meeting space.

The suit alleges that Marriott is to blame, because it recently revamped its sales force and outsourced the function to regional sales offices.

The lawsuit was filed by MG-Carlyle Hotel, LLC, an affiliate of Miller Global Properties, which is a Denver-based real estate company that has owned various Marriott hotels over the last 30 years. It says cites other hotel operators have also seen negative consequences from the sales revamp.

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It’s possible that the suit may serve as a “wake-up call” for owners of other Marriott-brand hotels that may be seeing similar results, says lawyer William Brewer of Bickel Brewer, the firm that’s representing Miller Global in this suit.

In addition to $20 million in damages, the suit also seeks an order requiring Marriott to pay back millions of dollars of management fees and other money that Marriott was paid while allegedly violating its management agreement with the owner.

The lawsuit sheds light on Marriott’s new sales structure – dubbed “Sales Force One” – and questions how well it is working for hotel owners. Sales Force One was the name of Marriott’s sweeping sales reorganization that it began phasing in nationally in December 2007 through this past summer.

The lawsuit alleges:

“That single program has decimated most of the sales efforts undertaken by the hotels themselves. It has ceded responsibility for generating group, meeting, and transient business to employees whose loyalties lie not with individual hotels, but with Marriott itself.”

Marriott: We’ll ‘vigorously’ fight lawsuit

In a comment about the lawsuit to Hotel Check-In, Marriott disputes the suit’s allegations.

Here is Marriott’s full statement:

“The facts belie the claims of plaintiff and plaintiff’s counsel, which are without merit and which we’ll contest vigorously. Our new field sales structure is reaching more customers and aggressively pursuing market share from the competition and generating more business for all of our hotel owners.”

On Marriott’s most recent earnings call (transcript link), Marriott’s top executives told Wall Street analysts that they’re encouraged by the results they’re seeing so far.

Sales no longer in-house function at many hotels

The revamp changed the way that most Marriott-brand hotels deal with meeting planners who book hotels for meetings, banquets and other group events.

Today, instead of having sales representatives dedicated to individual hotels, most Marriott-managed hotels – except for the largest properties – now sell rooms to meeting planners and others through reps in regional sales offices. The regional reps sell all of Marriott’s branded hotels, including luxury Ritz-Carlton hotels and mid-priced Courtyard by Marriott hotels.

In the lawsuit, Miller Global charges that this system puts their hotel at a disadvantage, especially since it is new and never had a chance to build up a customer base before the sales revamp.

Other owners have complained

This isn’t the first time that a hotel operator has noted problems with the new system, the suit says.

In May 2010, a group of seven companies that represents 350 hotels – including Miller Global, Thayer Lodging, Ashford Hospitality and Apple REIT – sent a letter to Marriott, asking the giant to suspend further adoption of Sales Force One until “flaws and inefficiencies can be corrected,” according to the letter obtained by Hotel Check-In.

The letter also told Marriott problems that the operators were seeing at their Marriott-brand hotels such as loss of market share and financial impact believed “to be in the millions of dollars.”

This specific lawsuit charges that Marriott’s in violation of its 30-year management agreement with the hotel owner by phasing in Sales Force One and eliminating on-site sales staff.

Among the suit’s allegations:

  • The new sales structure essentially prevents the owner’s Residence Inn from gaining greater market share of Marriott-brand hotel business by limiting competition among Marriott-brand hotels.
  • The owner charges Marriott with fraud by encouraging the owner to sign a management agreement in 2006 that includes an on-site position of “director of sales,” despite Marriott’s intention to revamp its sales structure.

The lawsuit says that Miller Global would not have signed on with Marriott for the Residence Inn property in question had it known about the sales revamp.

High-profile change for Marriott

There’s no disputing that the sales reorganization has been a high-profile change for Marriott.

During third-quarter earnings calls last month, for instance, CEOs and other top executives of several large hotel ownership companies either brought up Marriott’s sales force reorganization or responded to Wall Street analysts’ questions about its impact on their own companies’ sales.

Marriott president and chief operating officer Arne Sorenson addressed it last month in response to an analyst’s comment that he’s still hearing “mixed feedback and specifically some concerns.”

Sorenson said the sales revamp “is a big enough change that we continue to talk to our owners about it, and we do make some adjustments as we go forward, but we’re feeling reasonably good about the progress of that program,” he said.

Marriott, he added, will “do $150 million to $200 million this year easily in business that is pitched from one sales office to a very different market across the country” because of the new sales system.

During Marriott’s first-quarter earnings conference call, however, he noted that “over the past few years, we have seen some start-up issues, to be expected from such a change.”

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