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 Magazine, 2/1/2001

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).

"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."

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."

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.

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."