Timeshare industry takes stock

Bryan Ten Broek

ORLANDO, FL – During last year’s Vacation Ownership Investment Conference, panels proceeded and speakers spoke, as the markets tumbled and the dollar fell. Now, a year later, vacation ownership professionals addressed the conference held Sept. 14-17 in Orlando, with their insights into a year of crisis.

The consensus among the panel was that conditions are changing favourably, that the GDP is growing and house prices are starting to stabilize.

“Consumers are likely saving more, but they are also likely to emerge from their bunkers,” said Scott Berman, U.S. industry leader, hospitality and leisure, at PricewaterhouseCoopers. For 10 years, timeshare sales have been increasing. Compared to lodging, airlines and new home sales, timeshare has seen huge long-term average growth of 12.9 per cent per year. But now, there is a self-induced slowdown.

“The industry is doing a much better job of controlling sales and marketing and product costs,” he said.

Influences on leisure travel include the fact that value is more important than ever, said Berman. The luxury sector remains “spiritless” and is “in intensive care”, the mid-scale market shows signs of life, there’s been a flight to the brands, and the industry might actually come out of this better than when they went in, he added.

In addition, he concluded, 85 per cent of the world doesn’t even have timeshare – so there’s huge potential!

Brian Ten Broek, vice president, resort sales and service, western Region, Interval International, looked at a very recent study of existing timeshare owners. Basically, it showed that they are affluent, aggressive travellers. The mean age is 48, 84 per cent are married, 90 per cent own their own homes, and 86 per cent are either satisfied or very satisfied with their timeshare purchases. For Interval International, 26 per cent of their U.S. membership makes more than $150,000 US annually.

Howard Nusbaum, president and CEO of the American Resort Development Association (ARDA), said the good news is that occupancy is still strong, the economic impact of vacation ownership has become highly relevant, there are many marquee developers in the business, the portfolio has performed well, owner demographics are favourable and consumer aspirations are positive.

On the challenging side, the business model is no longer working, the industry has been affected by an asset backed capital market freeze, access to capital is limited, and consumer confidence has been low.

As occupancies in hotels decline, the prepaid nature of the vacation ownership product has helped the industry. This leads to a positive economic impact. Total industry spending for the U.S. was $77 billion in 2007, and it created 588,800 jobs that year. Total income for the industry was $25 billion and it paid $10.2 billion in taxes.

The fact that the industry includes well-known players like Marriott and Ritz-Carlton adds to consumer confidence.

Defaults on timeshare payments have been surprisingly low, with nine out of 10 buyers current on their payments. This type of number resounds with lenders.

Demographics show that buyers are getting younger, more affluent and better-educated. And many of the top 10 consumer aspirations, as shown by Roper Reports, are conducive to vacation ownership. These aspirations include the first three: owning a vacation home, staying in a luxurious place, having a beautifully decorated home; and number 5, travelling abroad.

“There are still 76 million baby boomers eager for better vacations,” said Nusbaum, adding that 50 per cent of sales are from former buyers.

On the negative side, the previous business model, with its gross inefficiencies in sales and marketing, isn’t working since the credit crisis.

“We have to change the model – we have to make a profit,” said Nusbaum. “We have to go back to the idea that the first primary sale must be profitable.”

Nusbaum sees some new trends in sales – there’s a lot more FICO [credit] scoring, the percentage of down payment is up to 17.9 per cent, almost double what it was before, and the value per guest is up. This means that the industry is selling to the people who cost them less to sell to. Recisions are down, and knowledge of the product is up. New information shows that the average purchaser has been on three tours, and that many have actually rented the unit before purchasing.

“For lenders, the sweet spot is where the perceived risk is far greater than the actual risk, and that’s our industry,” Nusbaum concluded. “Consumer confidence is going up – it’s 54.1 per cent compared to a low in the 30s in February. There’s a lot of pent up demand out there.”