New Look Of Timeshare
The style and business models of vacation ownership continue to evolve as the industry gears up for another year of double-digit growth.
By Mary Scoviak, Features Editor -- Hotels, 1/31/2005 11:00:00 PM
 Orlando remains the center of the U.S. timeshare business, but the offer is changing with the debut of properties such as Disney Vacation Club’s Saratoga Springs Resort & Spa, New York. Trends to watch: more mixed-use development, more segmentation on a single campus and more theming in architecture and design. |
More companies entering the timeshare business this year does not just mean more competition for sites. It means more competition for customers. Customer capture and retention is a hot-button issue in an industry in which sales and marketing costs average 40% for the big names and 50% or more for the field. Identifying new customers, selling to them cost effectively and keeping them loyal is job No. 1 in the timeshare world. “The value of timeshare for a brand lies in the relationship with its customers and the opportunity to optimize its spend over the long term. Not losing those customers to the competition will be the battle royale for 2005 and beyond,” says Rip Gellein, chairman and CEO, Starwood Vacation Ownership (SVO), Orlando.
The fight to keep existing customers in the brand fold and cost effectively attract new buyers is redefining every aspect of the timeshare business, from a revamping of the physical product to a rethinking of geographic targets and a fine-tuning in sales and marketing approaches.
The Cost Of Customer Reach
Innovation is transforming both online and offline sales and marketing strategies. Watch for more alliances. Independents such as Fairfield Resorts are looking to alliances with key partners such as Harrah’s Entertainment, Trump Hotels & Casinos and Outrigger Hotels & Resorts to get their names in front of mass customer markets. Even major non-gaming hotel brands are buying up blocks of the hottest tickets in gaming entertainment venues to use as an “invitation” to tour a timeshare property. “A timeshare seller can say, ‘I have a US$300 ticket for a sold-out show. I can sell you that ticket for US$25 if you take the tour.’ Twenty-five dollars to get a timeshare buyer is a phenomenal bargain, ” says one source.
| THE GIST |
| Expect double-digit growth to continue. Demand may be slackening by a percentage point, as it did in 2003, but forecasters see nothing that would interrupt the 14% growth that has fueled the sector for the last four years.Length of stay is getting shorter; units are getting bigger as more multi-household families travel together; and the design/technology package continues to move upmarket.Competition is heating up. Watch for more hotel brands, especially in the upscale market, to enter the field.As for consolidation, the headline deals are most likely done. Think tuck-in acquisitions.Price increases should match inflation except in areas where competition exerts downward pressure.Timeshare still has a stigma. Operators and developers would like to see European governments take a harder line on illicit holiday club operations.The specter of transient occupancy tax is a concern in the United States. ARDA is lobbying hard to prevent municipalities from taking that course. Many states have proactively reduced or revised timeshare laws. |
Like co-branding and cross-selling, alliances work at every level, in every segment. “We are proud of our independent status but, as timeshare companies like ours grow, they become a better fit for an affiliation with a boutique hotel company,” says T.L. Spencer, Escapes! Resorts’ president and CEO, Rogers, Arkansas. “We are not in the places the major brands are, so we can benefit from affiliating with a hotel group that offers equally unique products and locations. ”
Longer term, the marketing and sales story is about how to capitalize on the Internet. Seventy-three percent of prospective timeshare buyers say they are likely to visit a general travel Web site that compares prices; nearly six in 10 obtained online pricing and information by going to a Web site they had seen in an offline advertisement, according to Interval International’s Future Timeshare Buyers: Market Profile 2004 prepared by Yesawich, Pepperdine, Brown & Russell. “The Internet is the most significant educational tool we have. But it is not scalable yet,” says Edward Kinney, vice president, corporate affairs and brand awareness, Marriott Vacation Club International (MVCI), Orlando. What the Internet will do, Kinney says, is give major players national and international exposure (national advertising of timeshare is prohibited in the United States). At least for MVCI, it also will drive cost-effective sales as it already posts US$2 million to US$3 million in monthly sales from the Internet, 50% of which comes from existing buyers and buyers they recommend.
Franz Hanning, Fairfield Resorts’ president and CEO, sees a longer transition for most timeshare companies. “Is the Internet the greatest opportunity for selling timeshare? I am not so sure that is the case. It is a rapidly growing channel for timeshare research and rentals. That may not change until timeshare becomes a sought-after good rather than a sold good, ” Hanning says.
The impact of the Internet’s reach is gaining importance for European timeshare developers and operators, albeit for different reasons. “In Europe, the customer base is experiencing a sea change. Gone are the days of total dominance by package tour operators. Today’s vacation ownership family is savvier and more informed about their options,” says Bryan D. Coy, director of investor relations, Sunterra Corp., Las Vegas.
That means greater flexibility for timeshare operators and buyers. “Promoting ourselves on the Internet means we have no middlemen. So, we get better yields for our rooms and can package them directly with the guest,” says Graham Lünow, project director, Royal Savoy Resort, Madeira, Portugal. Tour operators still may be a fact of life for Europe’s timeshare operators, but they are not the only business generator. “We no longer have to depend on tour operators. We can cooperate with them to the financial benefit of both sectors,” Lünow adds.
Give Customers Choice
If there is a one-word theme for the trends in the timeshare product, it is “choice.” Increasingly affluent baby boomers, still timeshare’s core market, will see more developers offering larger two- to three-bedroom units; more lock-off units and villas that balance the need for “togethering” with the luxury of privacy; upgraded technology, entertainment and appliance packages on par with the upscale equipment they have at home; and condo-like design features to reflect the new preference for multi-household vacationing. But no one is willing to give up the growing young singles market. Even high-end resorts are making room for one-bedroom units to appeal to customers with lifelong move-up potential.
Buyers also will see more choices at each destination. Mixed-use development that pairs hotels with timeshare and/or fractionals is clearly the front-running business model. “The more dimensions you offer, the greater the appeal of the project,” says Mark Earle, managing director, HVS Resort Development Services, Orlando. “Do you have to have a spa? ‘Have to’ is debatable. But, if you are in a ski location or a golf location, and you do have a spa, you have more reason why a family with some non-skiers or non-golfers will want to buy your product. ”
Segmentation, often on the same campus, further expands reach. It may mean complementing a core timeshare property for young couples with grand villas for their older siblings traveling with children or other friends. It may also mean a mix of upscale timeshare and even higher-end fractionals. The unifying factor will be a new emphasis on experience, predicts Jim Lewis, senior vice president and general manager, Disney Vacation Club, Orlando. “We are going to see more emphasis on programming. People want an experience. They want timeshare design to tell a story. ”
 Arizona’s largest timeshare resort, Marriott Vacation Club Canyon Villas at Desert Ridge, Phoenix, showcases the expanded living space and fully equipped kitchens that appeal directly to the increasing number of “multi-household” vacationers and U.S. travelers who are taking shorter, more frequent vacations. |
Boutique chic will be reserved for private residence clubs and edgier brands. Overall, experiential design will range from intensive theming, as in Disney Vacation Club’s new Victorian-inspired Saratoga Springs project in New York, to sense of place design, as in the sleek urban chic of Hilton Grand Vacation Club’s year-old property in Las Vegas.
Where Customers Want To Go
“Exchange companies are clamoring for new product in non-traditional destinations because that is what their constituents want,” says Scott Berman, principal, PricewaterhouseCoopers (PwC), Miami. Demand for the new and different destinations does not mean a slowdown for traditional timeshare markets such as Orlando and southern Florida, Arizona, southern California, Las Vegas, Colorado and Spain, from the Costa del Sol to the Balearics and the Canary Islands. It simply expands development opportunities.
Top picks from the experts include:
PwC’s Berman: New ski destinations in Idaho, Wyoming and Montana in the U.S. West; Vermont, New Hampshire and Maine; “very upscale” development in Bermuda, Anguilla, Turks & Caicos, and the outer islands of Hawaii. “The development community is gaining confidence in the Caribbean. ”
HVS’s Earle: Florida’s west coast (“an area where astronomical land cost increases have befuddled developers”), Mexico, Central America and South America. “Timeshare has little awareness in Latin America, but there are a lot of U.S. travelers interested in areas south of the border. They are close; they are in the same time zones; and they are a lot more affordable than Europe given the dollar’s buying power. ”
Craig Nash, chairman and CEO, Interval International, Miami: Mexico and the Caribbean; resurgence in the Mediterranean; China as the major focus in Asia, with some interest in Thailand and Indonesia. “Dubai is the focus in the Middle East. For the concept to really take off, you may have to add something complementary in a destination such as Cairo. ”
 Beach/ski/golf destinations remain timeshare developers’ priorities. But the pockets of opportunity are opening up for projects such as Hyatt Vacation Club’s Wild Oak, San Antonio, Texas, in smaller markets with diversified appeal. |
A survey of RCI’s regional offices worldwide: In the U.S., Branson, Missouri; various locations in Massachusetts; Lake Arrowhead and Mammoth Lake, California; Austin, Texas; Florida’s hurricane-damaged coastlines (some owners will not rebuild); and the Gulf coast. In Europe, Greece, Turkey, Cyprus, Poland and the Czech Republic. Nothing is as hot as the Middle East as Ragatz Associates predicts the region could generate US$2 billion from the emerging timeshare industry.
Paul K. Dean, UK-based Dean & Associates: Portugal, Croatia, Turkey, Cyprus, Egypt and Dubai. “Growth will come from southern Europe, driven in part by the accessibility to these markets now available through low-cost airlines. ”
Add to that list different market sectors such as gaming. Hanning predicts Atlantic City will be one of the next hot timeshare markets. “It is close to major population centers from New York City to Philadelphia, and it is underserved with timeshare properties. No, it is not a place people would go for a week. That is why it fits well into a points-based environment,” Hanning says. He also likes boutique markets such as New Orleans, with strong, regional, drive-to appeal.
New builds, especially mixed use, are likely to dominate, but the conversion market is opening up some urban markets. Lewis warns that too much competition in well-penetrated markets such as Orlando may exert downward pressure on the pricing. On average, the consensus is that prices are trending upward. “Prices will go up with inflation, but no more,” says John Burlingame, executive vice president, Hyatt Vacation Ownership, Chicago. Creeping interest rates are unlikely to stall out buyer interest. “I have been in the business for 25 years. With the exception of a blip after 9/11, timeshare has continued steady growth whether prime was at three or in double digits,” Gellein says.
Expect More Competition
Customer leverage will increase as competition heats up. Despite the hurdles of the United States’ Do Not Call legislation, the lingering stigma of unsavory, unethical travel clubs in every part of the world and high development costs, timeshare is generating a new wave of interest among hotel brands, especially in the upper tiers, and among developers. Nearly 600 companies interested in the vacation ownership market swelled last October’s Timeshare & Resort Investment Conference in Orlando. Ragatz’s mid-November Fractional Symposium in Windsor, England, was oversubscribed. “In 2005, we are going to see more national and international brands in the timeshare business, ” predicts Dean.
 The Royal Savoy, Madeira, soon will see more competition as timeshare companies turn their focus to Portugal. Also on developers’ wish lists: more destinations in the eastern Mediterranean as well as Dubai. |
Even Wall Street is taking notice. Analysts invited American Resort Development Association (ARDA) executives to New York City late last autumn to tell timeshare’s US$67 billion-plus economic impact story to the financial community. “Timeshare’s double-digit growth over the last 17 years (excepting 2002) means its head is out of the foxhole,” says Howard Nusbaum, president and CEO of Washington, D.C.-based ARDA. “The industry is at the very beginning of its transition from a sold product to a sought product.” This steady performance—combined with projected growth of roughly 14% annually and market penetration of less than 5.5%—positions timeshare as an attractive, predictable counterweight to the cyclicality of the hotel business.
At the same time, consolidation will play a major role this year. “The timeshare industry is in a consolidation phase,” says Sunterra Corp.’s Coy, who contends that smaller companies will find it increasingly difficult to compete with larger networks and branded players. “There will always be independents, but their influence and growth is declining.” The reason, Burlingame says, comes down to lead generation. “The big guys have the advantage. Do Not Call legislation meant anyone who used cold calling had to retrench and find another approach such as direct mail. ”
That does not mean a death knell for independents, Kinney says. “In general, the big brands have sought their own level. Are they going to gobble up the independents? I do not see that happening. Some independents, some boutique timeshare operators, some local developers have found their niche and are doing well. Overall, finding locations will be hard for independents, and the cost to create a marketing program will be virtually prohibitive,” Kinney says. Acquisitions are more likely to be “tuck-in” plays that add strategic regional distribution.
Fast Facts: TheMarket
Who are the buyers:
In the United States, the majority are white (71%), married (61%), between 25 and 57 (70%), with an annual household income of US$50,000 or more, according to Interval International’s Future Timeshare Buyers: 2004 Market Profile Report prepared from YPB&R/ Yankelovich Partners’ data. Howard Nusbaum, ARDA, defines the core buyer as 49, with a household income of US$80,000. In Europe, developers say the average age is closer to “60-plus,” with the majority of buyers still concentrated in the UK and Scandinavian countries.
The next generation: In the United States, new markets to tap include African-Americans (increasing from 14% in 2003 to 15% in 2004, while the percentage of white buyers decreased from 76% to 71%) and other ethnic groups; the 24-year-old and younger “echo” boomers (up from 14% to 20%) and 25- to 38-year-olds (up from 34% to 36%), according to Interval International’s profile. European developers such as Portugal’s Royal Savoy Resort are seeing more baby boomers. Mid- to long-term, Paul Dean, Dean & Associates, sees Europe’s biggest opportunities in the upmarket segment, particularly for fractionals “with real flexibility of use.” Dean says the European demographic has a significant, affluent, independent traveler segment drawn from well-traveled baby boomers, some of whom have increasing leisure time and/or have taken early retirement. The Asian market is still in its nascent stages.
Where they want to go: No surprises here. California, Florida, Hawaii, New York City, Nevada and Colorado dominate the list of the most desired U.S. destinations ranked in Interval International ’s profile.
Internationally, the profile cites pent-up demand for Europe. Nearly two-thirds of the leisure travelers surveyed ranked Europe as their most desired destination. Australia (26%) came in a distant second followed closely by the Caribbean (20%). The Far East (13%), Mexico (12%) and Canada (12%) were in the next tier.
Companies To Watch
No one argues that the big chains and big established names will dominate. But, there is room for up-and-comers. Among the names to know:
RCI’s list of fast-track companies includes: Bluegreen Corp. and Burroughs & Chapin in the United States; Pestana Hotels & Resorts, Porto Bay Group, Sol Meliá, Hilton International and Ramada in Europe; Mahindra Holidays & Resorts India and Royal Resorts (Australia) in Asia; Sun International in South Africa and Mayan Resorts in Mexico.
Interval International’s growth list includes: Gold Key Resorts and Westgate Resorts in the United States; DeVere Hotels & Resorts (UK) and Royal Savoy Resort (Portugal) in Europe; and Villa Group in Mexico. Watch for further development in the Middle East by companies such as Caryatid Properties, developer for the Royal Club at The Palm. Beijing’s Xiang Luxiang Development Corp.’s private residence clubs could be the non-branded play on the mainland near term.
Paul Dean’s list of companies other than the international hotel brands to watch in Europe includes: Grecotel, DeVere Hotels & Resorts; Sunterra Europe; Club La Costa, RMI and HCF. Watch out for Sol Meliá and the Hilton Group. “We will see some new players launching fractional offers, especially with resort hotel properties. Several new brands will come into the market in 2005, ” he predicts.
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