Timeshare Oasis
Hotel companies are eager to develop time-share properties around the globe. It is a winning proposition, for timeshare continues to sell during difficult times and brings ancillary revenues to adjacent hotel properties, boosting brand awareness all the while.
By Joan Marsan, Managing Editor -- HOTELS Magazine, 2/1/2002
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While the hotel industry suffered in 2001, the timeshare segment managed to expand. “Vacation ownership has certainly outperformed the hotel side, because hotels are measured by occupancy and RevPAR, and timeshare is measured by sales,” says Neal Rubin, regional vice president, development and operations, Carlson Vacation Ownership, Minneapolis. “And sales are up, and it’s double-digit growth.” Although the American Resort Development Association (ARDA) estimates growth of vacation ownership in 2001 will have measured 6%-8%, over the last decade vacation ownership has grown by 15% annually.
Certainly, like the hotel side, timeshare suffered in the wake of the September 11 attacks on the United States. “Sales were off after 9/11 by about 15%-20% from the last quarter last year, but owners are still using the product and there are not the system-wide layoffs that occurred on the hotel side,” Rubin says. “When looked at from that perspective, you see it’s not completely resistant. But it’s certainly much less affected.”
After all, members still signed on and operators continued to add new locations. However, the continued response to a tough economy and tight financing will present challenges in 2002. An absence of development funds has compelled companies to look to modes other than construction in order to add locations, so consolidation as a means to supply more product has been rife. White Plains, New York-based Starwood Hotels and Resorts Worldwide bought Orlando, Florida-based timeshare developer Vistana, and Parsippany, New Jersey-based Cendant Corp. bought Orlando-based Fairfield Communities, North America’s largest vacation ownership company, in an era of consolidation that continued in 2001 with Cendant’s US$100 million acquisition of Equivest Finance, Greenwich, Connecticut, which markets and sells timeshare vacation services and vacation ownership interests.
None of this is to say, though, that building has halted. The international marketplace leaves room for expansion. High-end, luxury products sold as fractional interests still pique developers’ interest. Increased segmentation suggests there are more niches to fill. And by all accounts, those hotel companies that have forayed into timeshare have discovered it boosts hotel business, bringing vital revenues and added retail opportunities to adjacent properties during seasons when other business drops off.
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The Global Timeshare Network
U.S.-based customers
account for about 40% of timeshare owners, but overseas markets promise
untold potential. In Brazil, says São
Paulo-based Blue Tree Hotels CEO Chieko Aoki, “I believe that
there is a big market for growth.” But, Aoki adds, “No
international or recognized hotel brand has developed
timeshare business in Brazil yet because there are good
hotel and resort opportunities in the country. For a sustained development
of timeshare business in Brazil/South America, it is
important to have international chains with upscale brands investing
in this development to create credibility and recognition of a shared
vacation system by a market that is not familiar with this system.”
Such is the case around the globe. Limited credibility and a legislative environment unfriendly to timeshare have slowed the industry’s infiltration of markets in Europe, Asia, Latin America and the Caribbean. “Legislation creates a foundation for either success or disaster,” says Craig Nash, chair and CEO, Interval International, Miami. And the legislative environment varies across the globe, as does the enforcement of that legislation. “Timesharing in Europe has been flat in terms of sales because legislation has been too restrictive. The European Union enacted legislation that member states were to implement, and some countries implemented in a manner detrimental to sales,” Nash says.
In Germany, a prohibition against direct marketing requires a change in sales tactics. The prohibition across Europe against collecting deposits further alters the sales environment. And strong competition from tour operators, who are essentially the brands of the industry, makes timeshare a tough sell on the continent. But increasingly, international companies are leaping past the hurdles. In Spain, for instance, where Orlando-based Marriott Vacation Club International has opened two timeshare resorts, the company was compelled to establish a trust in order to accommodate the sale of 50- to 60-year “right to use” contracts, says Stephen Weisz, president, Marriott Vacation Club International, Orlando.
Additionally, translating the timeshare concept culturally has been a challenge. “It’s not good enough to take everything you’ve done in the United States and take it to Malaysia, for instance,” Nash says. “You need to translate for customs.” Asia, in particular, has been slow to latch on to the timeshare concept, but with an introduction of luxury, club-type products, growth in acceptance of timeshare throughout the region may accelerate. Ripplewood Holdings has hinted its Phoenix/Seagaia resort on Japan’s Kyushu Island, rebranded the Sheraton Grande Ocean Resort and Sheraton Phoenix Golf Resort, might provide timeshare opportunities, and Marriott hopes to spur Asian timeshare sales with the completion of its Phuket Beach Club, scheduled to open in 2002 adjacent to the JW Marriott Phuket Resort & Spa.
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Reveling In Luxury
Worldwide, it is the high-end,
luxury, club-style segment that has been the most intriguing to developers. “Overseas
markets are still somewhat behind where the U.S. market is in that
it’s
still really just reaching the middle classes,” Rubin says. “We’re
seeing a lot of interest in the luxury segment, the fractional,
high-end, private residence club type of product. That
segment is also more resistant to downturns in the economy, whereas
the mid-tier might cut out the family vacation as things get tight.”
Indeed, The 2001 National Leisure Travel Monitor co-authored by Yesawich, Pepperdine & Brown and Yankelovich partners revealed that while less than 5% of adults own vacation time, more than 15% of families with annual incomes of more than US$100,000 are interested in purchasing timeshare in the next two years. And it’s not just consumers who find the luxury segment appealing.
“From an investor point of view, they like the residence clubs business,” says Duffy Keyes, senior vice president, Four Seasons Residential Properties, Toronto. “It makes the cost basis of owning a hotel much more palatable. The returns on that investment are measurably different with the Residence Club rather than without. And they like the impact of the Four Seasons brand on residential.”
Inarguably, an internationally recognized brand adds credence to the timeshare proposition. But it’s not just the branded hotels that are getting into luxury, fractional timeshare sales. “Independents will always prevail,” says Ken May, CEO, Resort Condominiums LLC (RCI), Parsippany, New Jersey. “An independent has the advantage of only being involved in the leisure business and can create its own identity and brand. But they have to be more innovative.” Most companies generate leads from within their brands. And their business model is based on how many hotels and rooms are in the chain, a number that is constantly increasing. “If you only have five hotels or fifty rooms, you might not have a business proposition that can keep up,” May says. Still, there are properties that are making it work.
The Phillips Club, New York, launched its fractional timeshare sales in late 1999 and has sold about 25% of its shares. “We don’t use the word ‘timeshare,’” says Ed Schnatterly, membership director, club ownership program. “We sell memberships. And most of our business comes from referrals. Our clients bring in their friends, their business associates. They sell it for us.” Even following the September 11 terrorist attacks on New York City, The Phillips Club had membership sales, Schnatterly says. And the timeshare component helped to keep The Phillips Club’s occupancy levels in 2001 above 80%.
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Greater Segmentation
While luxury timeshare properties
continue to captivate developers, as within the hotel brands themselves,
the timeshare industry is seeing greater segmentation. “The
vacation clubs are catering to smaller and smaller segments of
the high, middle and low ends,” May
says.
Radisson, for instance, is focusing on the traditional timeshare market, Rubin says. “I think there’s such a big, untapped market still there,” he says. “Demographically, that’s the biggest range, so that’s where you focus attention.”
Indeed, the Travel Monitor revealed that among consumers with an annual household income of less than US$30,000, 18% are interested in buying timeshare within two years, and among those with an annual income between US$30,000 and US$49,999, the number is 17%. There also is a strong emerging segment for singles and young professionals, with 23% of those aged 23 to 36 expressing an interest in making a timeshare purchase, followed by 19% of those 22 and under and 13% of those aged 37 to 55. Just 7% of adults 56 and older expressed an interest in making a timeshare purchase. “Globally if you lay that same likely purchaser, the penetration is only about 1.5%,” says David Matheson, vice president, investor relations, Starwood Hotels & Resorts Worldwide, White Plains. For those who recognize the niche opportunities and create product to meet them, “There’s a lot of potential there,” Matheson says.
To exploit that potential, though, developers will need to consider what type of product appeals to consumers in this different marketplace. Following September 11, travelers around the globe have tended toward more regionally focused travel in drive-to destinations. While consumer habits may revert to their pre-9/11, globe-trotting ways, Rubin suggests that on an emotional level, a more lasting change may have occurred that timeshare developers would be wise to consider. “There is a shift now occurring that tells us that the travelers want to do family-oriented things, so maybe the industry will need to think about what that means,” Rubin says. It might equal fewer trips to theme parks and more to national parks. Or it could require units of a different size or layout. Whatever the case, “Responding to events and paying attention to where consumers want to go and how they want to travel are going to be the big challenges,” he says.
The Timeshare Advantage
Challenging, indeed, may remain
the best way to describe the operating environment in 2002. But timeshare
will benefit from more stable usage patterns, and adjacent hotels
also will reap the rewards. “In
the early days, the hotel guys viewed the timeshare folks
as, ‘They’re
going to steal all my customers,’” says Marriott’s
Weisz. “Now hotel operators have a much more enlightened view.” Weisz
notes that timeshare owners from Marriott’s Desert Springs
vacation club villas bring millions of dollars in spa
and retail sales to the Marriott Desert Springs hotel. And in addition
to hotel operators benefiting from heightened operational efficiencies
and a straightforward growth in the number of individuals on the
hotel campus, they also benefit from a greater propensity on the
part of timeshare owners to keep their spending within the company
of which they see themselves as part owners. “The share of
customer wallet that Marriott enjoys goes up after an ownership purchase,” Weisz
says.
Everything about a timeshare product can work to increase customer loyalty to the brand and reinforce a company’s image, says John Burlingame, senior vice president, Hyatt Vacation Ownership, Chicago. The physical product, in terms of architecture and layout; the service level; and the reservation and use systems all should work to build on a brand promise. “Our reservation and use system is complementary to our brand in that it offers a high degree of flexibility in how they use the product,” Burlingame says. Flexibility, Burlingame says, is key. “The exchange companies are a very important part of a timeshare product.”
But exchange companies now need to do more than ever. It is not enough to simply allow owners to trade time at one resort for time at another. “If we are simply an exchange company, we don’t add much value,” RCI’s May readily admits. “It is necessary to be more than a utility. We have to mix and match and find nuances that make a real difference, bring brands together, find supporting brands, and make the product more flexible.”
An integral part of this, May says, is finding companies that offer valuable, branded products for which timeshare owners might wish to barter points, and then developing partnerships with them. “There are a number of companies that are not in the hotel business but are in the travel and leisure space and want to team with hotel companies,” May says. Once one of those companies partners with a hotel company, enriching the timeshare product offering, May says, “It becomes more than just another vacation club from another hotel company. It becomes more than a name, when a name is simply not enough.”
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