Slices of Leisure
Industry consolidation made its imprint on vacation ownership in 2000, making the foreseeable future for the segment extremely brand-focused.
By Tony Dela Cruz, Managing Editor -- Hotels, 1/31/2001 11:00:00 PM
Although the mid-1990s resurgence of the timeshare industry was endorsed early on by reputable players such as Marriott International, Disney, and Hilton, it might be argued that 2000 was the true capstone year for the global branding of vacation ownership.
Many of the recent, major transactions within the timeshare industry indicate that the most successful developers are being absorbed into the lodging mainstream. In October 1999, Starwood Hotels and Resorts Worldwide, White Plains, New York, closed on its purchase of Orlando timeshare developer Vistana, now known as Starwood Vacation Ownership. And in November 2000, Fairfield Communities, the largest vacation ownership company in the United States, agreed to be purchased by hospitality franchise giant Cendant Corp., Parsippany, New Jersey, which already owns the world's largest timeshare exchange company, Resort Condominiums International (RCI).
| The Gist |
| Industry consolidation has reached an apex, but some major hotel players have yet to enter vacation ownership. Timeshare is now considered part of the overall marketing mix used by global brands to win over hotel guests. The international market has been slow to develop; one-third of the timeshare projects worldwide are in the U.S., but 40% of the world's owners are American. Luxury timeshare has developed faster than other types of segmented product, such as moderately priced vacation ownership. |
"It will be increasingly difficult," says Fairfield Communities President/CEO Jim Berk, "for a one-off, small player, not attached to a large company, to compete in this market." In addition, Berk believes there is more consolidation to come. There are major European players such as Bass and Sol Melia who are not in the timeshare business but who are looking to get in," Berk says. "It's just a matter of when and how."
Jeff Adler, co-CEO, Starwood Vacation Ownership, attributes the consolidation to the same issues that drive mergers and acquisitions in the larger hotel industry. "Everyone wants to play more and play bigger," he says. "So, it's a matter of having enough talent to execute the biggest business plans."
Adler notes there is only one major timeshare company left that is publicly traded--Redmond, Washington-based TrendWest Resorts, which has more than 80% of its stock owned by company insiders. There are some private developers left, "but not many," Adler says, so the major acquisition phase in the industry may have come and gone. What is left to ponder is why timeshare remains so vibrant, where its near-term growth will come from and what are the competitive marketing issues.
Hottest Segment The answer to why vacation ownership remains hot, for both consumers and brand owners, is simple: the product fits a growing number of travelers who are increasingly aware of its benefits. "We have learned recently, and this is a positive note for us, that 87% of income eligible households (incomes of US$30,000 or more) are aware of timeshare," says Peter Giamalva, chief marketing officer of RCI. "We have spent years educating people on the product, and now they come to us with a more knowledgeable perspective." Giamalva estimates, as do most experts, that the timeshare industry will continue to grow at an annual rate of 12% to 15% for the next several years.
Ed Kinney, senior director of brand advertising and communications for Marriott Vacation Club International (MVCI), Orlando, says product consistency and brand loyalty also reinforce the industry's momentum. "Vacation ownership has always been fairly consistent since we got involved in 1984," he says. "In simplest terms, it is a great product extension." He explains MVCI has leveraged off of and been aided by Marriott's well-established brand loyalty. "It has created a very brand-loyal customer; once they become a Marriott customer, they tend to use our brand."
And the one thing that might be pointed to as a source of brand erosion, the opportunity to trade one timeshare outside of its originating system for another via exchange companies such as RCI and Interval International, is seen instead as reinforcing. "When our owners exercise that option, the majority of times they are exchanging back into the system," Kinney says. "When they go outside, that is a complement to our system and reinforces our product. We've never had an issue with that."
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| The Four Seasons resort in Scottsdale, Arizona, is an example of timeshare built and marketed in concert with a 5-star resort hotel. |
Branded Credibility
Beyond the strength of brand ownership in timeshares, experts say the industry is growing because consumers are finding more usage for the vacation ownership product. "The interest level from consumers has increased due to branded credibility, but also because they view timesharing as an alternative to a second home," says John Burlingame, president of Hyatt Vacation Ownership, Chicago. "In general, people who have good, strong demographic profiles are more willing and interested in this product."
At the 5-star level, relatively new players such as Four Seasons Hotels and Resorts, Toronto, are approaching vacation ownership as a customer-driven phenomenon, and allowing the lines to be blurred between Four Seasons hotel guests who want to cross over into timeshare and those who simply want a wholly-owned vacation home managed by Four Seasons. Duffy Keyes, senior vice president of vacation ownership, Four Seasons, says both the timeshare and residential home activity for the company are now categorized under an umbrella entitled Four Seasons Residential Properties.
"Vacation ownership is a confining term as it relates to our broader potential, which is branded residential involving both whole and shared ownership," Keyes says. "We are also transitioning from the pure interval business to a fractional business model, which will bring down the number of owners per home." He says few of the Four Seasons vacation ownership customers fit into the traditional timeshare model of upwards of 50 owners per unit. "The reality is people buy more than a single week; it's an oxymoron, vacation ownership," he says. "You don't own a vacation, you take one."
Keyes stresses the wholly owned concept is not new for Four Seasons, just under-publicized. "We have been doing it for years and never gave credit, in Boston, Houston, New York (the Pierre is a co-op first and a hotel second) and also in Atlanta, Chicago, Singapore and Jakarta," he says. "They are all called something different; we have just taken the time this year to consolidate our own thinking." Hence, within the Residential Properties umbrella, products will be appropriately labeled Private Residences, Residence Club (the traditional timeshare approach) and Private Estates, which are communities of branded, whole-ownership based products. Although wholly owned residences managed by lodging companies are not counted as vacation ownership products, Keyes says the product services "the exact same people with a different point of view."
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| Sketch of the Starwood timeshare project at Atlantis, Paradise Island. |
Varied Growth
It is not to say traditional timeshare is out of new places to grow or segments to create. The broad segmentation which started with lower-priced products such as MVCI's Horizons and continued this year with the announcement that Fairfield, New Jersey-based limited-service brand AmeriSuites was introducing its first timeshare property. And the international market outside of North America appears ready to sprout and, in some cases, resume previous growth patterns.
"Because we have a global product, various parts of the world will show more rapid growth during different economic cycles," explains Craig Nash, chairman and CEO, Interval International, Orlando. "Two years ago, Latin America was booming, seven years ago, it was Europe, but for the past five years, it has been the United States." He points out the U.S. accounts for about 33% of the world's timeshare products but has 40% of the timeshare owners. Europe accounts for roughly 12% of the owners, followed by South America with less than 10%.
Nash sees new growth coming out of Asia because of the ongoing economic recovery there. "For the prior two years, new development and sales in Asia were basically at zero," he says. "But before that, they were having significant growth in the region."
Nash specifically believes that timeshare in Asia is keyed on the successful development of the gold coast of Australia. "Two companies, Accor Asia Pacific and TrendWest Resorts, have gotten involved in timeshare in Australia for the first time in decades," he says. In contrast, Nash has little enthusiasm for South America because it has been traditionally difficult to finance timeshare projects for development there.
"When credit gets tight, everything becomes difficult," he says. "Five years ago, Venezuela was a booming timeshare market; Argentina goes up and down; Brazil has never embraced it in the same way." In the past two years, timeshare sales in South America "have pretty much dried up," he says. Europe, following cycles of good growth and over-saturation, looks promising today, especially with the presence of Marriott, Nash says.
Undefined Markets
Still, for a large number of branded hotel companies, the international markets beyond Mexico and the Caribbean remain somewhat undefined. Starwood Vacation Ownership's Adler, despite his several years of tenure at the predecessor company Vistana, considers 2000 year one for timeshare at Starwood. "Today, we are in the Virgin Islands, St. John, the Bahamas, we have people looking at Europe and Mexico, then west to Fiji and points beyond," Adler says. "Internationally, it's more complicated, but no question, there is an international market for the product. For us, it's not a matter of if, but when, but in the first year, the responsibility is to remain focused."
RCI's Giamalva sees two untapped segments and markets as opportunities for growth. He sees consumers rediscovering city centers, so an urban timeshare market is being built on that behavior. And he also sees non-primary resort areas in North American locations such as the gulf coast of Florida and San Diego as being attractive to developers.
At MVCI, which boasts two Spain timeshare properties in Marbella and Mallorca, international development has been less brand-driven than one might assume, given the recognizable Marriott name. "Our time and capability were good in Marbella, where Marriott International did not even have a hotel," Kinney says. "But customers recognized it, they put two and two together and decided, 'If Marriott is doing it, we have a good comfort zone.'"
Kinney considers the development of the international market about five to 10 years behind the curve set by North America. Some of MVCI's current projects have been opportunistic, such as a joint venture in the pipeline in Phuket, Thailand, but others, such as several conceptual projects for the Middle East, stem from Marriott's pre-established presence. "We have an audience already in existence and have sales operations throughout the Middle East," Kinney says. "It was natural to consider looking at properties in their region, and we probably will be announcing something fairly soon."
Quite often, the framework of the branded company seeking to embrace vacation ownership defines its timeshare opportunities. Carlson Vacation Ownership (CVO), a two-year old division of multi-brand franchisor Carlson Hospitality Worldwide, Minneapolis, pursues timeshare opportunities only as a pure-play franchisor. "We just want to do three to five projects a year," says Amy Isom, under the Radisson Vacation Villa, Country Vacation Villa and Club Regent brand names.
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| Divi Little Bay Beach & Racket Club, St. Maarten, is affiliated with RCI. |
Franchised Timeshares
CVO's one international property, a Country Vacation Villa in Panama, arrived via a previous relationship Carlson had in Central America. "We hadn't been focusing on Panama, but the master franchisee for the Carlson restaurant group there wanted to develop the hotel and timeshare," Isom says. "That is how these kinds of things tend to happen, someone else has a deep and strategic relationship with Carlson and wants to broaden it."
As a franchisor, CVO sees a lot more timeshare proposals than it is willing to green light for licensing. And even though some of the fastest growing companies in the history of the lodging industry have gotten big through franchising, Isom says the company is sticking to its original development goals. "Three to five a year is not slow growth, it's probably manageable growth," she says. "If I didn't care about profitable growth, I could license 10 a year, but we always keep an eye on how well this will be perceived in the marketplace."
The Club Regent timeshares, for example, are being pursued in conjunction with full-service Regent Hotels in places such as Boston, San Francisco and New York. "Our focus is on high-end resort destinations with timeshare projects that will compete as second homes," she says. "Each destination will have a leisure amenity associated with them, such as the wine country or the Florida coast." Representing CVO's largest segment, the Radisson properties are slated to develop in traditional vacation ownership hotbeds such as Orlando and Las Vegas and regional markets such as Branson, Missouri.
MVCI remains the lead explorer of segmented timeshare, having branched out in two directions in terms of expanding price-point. Kinney refers to the affordable Horizons brand as MVCI's "experiential tier," allowing it to penetrate markets that it couldn't reach before with the core Marriott Vacation Club brand. And then the Ritz-Carlton Residences, not unlike Four Seasons, are seen as a brand extension for a successful 5-star brand. "When you can offer any audience of people everything they want, then that elevates the quality and integrity of the brand as a whole," Kinney says.
Going forward, vacation ownership is evolving from being a quirky adjunct to the hotel business, to an integral, fast-growing segment to being an elemental part of the overall marketing mix of global hotel brands. This latter role is defined by the way timeshare projects are being interwoven with guest recognition programs.
Tied Into Frequency Points
Starwood Vacation Ownership's Adler says the chief marketing imperative for is company is figuring out how to tie timeshare into Starwood Hotels & Resorts Worldwide's guest frequency programs. "My belief is at the end of the day, people identify with different brands that speak to their lifestyles," he says. "There is plenty of business for the branded timeshare products, but it will be at the expense of the private developers, it won't be brands stealing from brands."
From the perspective of exchange companies, Giamalva says the burning issue is to be able to provide the most complete business services portfolio for affiliated partners. "Our competitive advantage is enabling developers to become profitable faster," he says. The development of points-based systems for exchange companies is seen as a major improvement in "increasing closing ratio and the velocity of sales," he says.
At MVCI, which is plugged into the massive Marriott Rewards frequency program, Kinney sees the ability to trade a timeshare interval for guest recognition points as comparatively unique. "This is something that a lot of branded companies cannot offer, it is the largest recognition program that exists in hospitality today."
Still, some are entering the timeshare segment specifically to be able to leverage the new product against existing products. Terry O'Leary, senior vice-president of franchise sales and development for Prime Hospitality, the parent company of AmeriSuites, sees its entry into timeshare as a co-operative effort. "This made sense for us, because our timeshare owners will be able to use our hotels if they wish and our frequency club member can use loyalty points to sample the timeshare." O'Leary says despite the consolidation within the timeshare industry, AmeriSuites is content to stake out its narrow niche against the Marriott Vacation Clubs of the world. "It may be that we only do 10 timeshare projects over the next two or three years," he says.
And for a seasoned timeshare player such as Hyatt Vacation Ownership, the name of the game remains distribution, which Burlingame sees as being more important than tenure in the vacation ownership segment. "We started the business in 1994, with one project," he says. "As that one went well, and we were more confident with that project, we started to plant seeds for future distribution. Those seeds now are to the point where we will have a quantum leap."
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