Desties

Timeshare watchers will remember how the industry was obscure and shady until the major hoteliers like Disney and Marriott came threw their hats into the ring. Is the destination club industry now being upsized?

Ritz-Carlton finally announced its entry into the market.

The Ritz-Carlton Destination Club is an equity-based luxury travel program where Members select either a Home Club Membership which provides a titled residence and usage at a property they can return to every year, or a deeded Portfolio Membership which affords the opportunity to discover a wide variety of locations and experiences.

In other words, it’s not a pure destination club as it borrows liberally from destination clubs, fractional residence clubs, and timeshares to arrive at its product. It will be the point-based — like Disney Vacation Club. It will offer deeds — like many timeshares. It will offer equity — like Abercrombie & Kent on the DC side.

If history is any kind of teacher, existing clubs may tweak their models to fall into what the public will now expect destination clubs to be and offer. What remains to be seen is if Ritz-Carlton will go on a shopping spree, to quickly build up its critical mass before someone else does. It would also help Ritz-Carlton acquire some homes, since at the moment its portfolio appears to consist mostly of Ritz-Carlton resorts and retreats. That may work for hotel and timeshare buffs, but the thousands of existing destination club members expect larger stand-alone properties that are truly unique and can’t be booked without joining. 

Learn more about the Ritz-Carlton Destination Club here.

The past few months have been rough for the destination club industry, with Lusso, High Country Club, and now Solstice filing for varying levels of bankruptcy. Other clubs are also smarting with higher dues or financial assessments.

How’s the spouse? I’m asking only because the allure of destination clubs comes mostly from the availability of large, luxury vacation properties. Nearly all destination club members are likely married or living with someone special, many with families to take along on the unforgettable treks that clubs — at their best — can offer.

So, I have to ask again — how is that special someone in your life coping if you happen to be a member in one of the languishing or obliterated clubs? It’s not an easy question because odds are that you both didn’t arrive at the destination concept on independently. One of you probably read about it in a magazine, newspaper, or blog — or maybe you saw an online ad — and checked it out before suggesting it to your spouse.

If so, and your club has gone under, make sure you don’t play the blame game or your relationship may go bankrupt too. Financial concerns can be a marriage killer, so it’s important to accept that mistakes are made. You weren’t the only one to join your club. Others came to the same conclusion after their own due diligence. As long as you can survive the shorfall without pointing fingers, I see great vacations in your future.

These are lean times in the destination club industry. Weaker clubs have resorted to hiking dues, doling out assessments, or filing for reorganization. I won’t address the problems ailing the industry given the one-two punch of falling real estate prices and a dearth of new member signups. This time, I’m all about solutions.

Clubs can do a better job of monetizing their properties and broadening their brand awareness. I have several suggestions. Some may be outlandish, but there is a grain of logic even in the more far-fetched ideas I’m presenting today.

See if you agree or disagree.

1. Go Hollywood - Destination clubs have amazing homes in amazing locations. It’s just the stuff that movie and commercial shoots need. Major studios pay thousands a day for the right to film in high-end properties with clauses to fix anything that is damaged in the shoot. Clubs should be all over this, especially when it comes to the lull in seasonal properties. Even if a last-minute shoot overlaps with member stays, it would be cheaper to relocate the member to perhaps a superior short-term rental than to go without the film production money.

2. Enroll the homes in luxury vacation rental sites or launch a separate club-owned site, to fill short-term openings - No one likes to see third party guests dish out wear and tear on a club home, but a dormant property is even worse. High-end travelers looking for last-minute getaways can generate incremental revenue and also be prime candidates for new memberships.

3. Reality Television - Travel Channel, HGTV, and perhaps even the Golf Channel would probably eat up a DC-driven reality television show. “Local Host” can follow a different property host every week as he or she goes about interacting with house guests, setting up concierge services, and coping with the daily grind of pampering. The show would do several things like generating brand awareness for the club and also creating interest in potential local host hires.  A more direct cable channel show could be an industry-backed “Destination Clubs” show that profiles different clubs in an entertaining manner without coming off as an infomercial.

4. Get aggressive with affiliate programs - Online lead referral sites like Commission Junction and LinkShare offer cost-effective ways to generate leads beyond the obvious Google AdSense approach. They reach a wider audience, but are action-based instead of simply click-based, so It can be useful in promoting entry-level trial plans and offerings without breaking the bank. Working with real estate professionals as some clubs have is a good low-risk move, but this moves the challenge to travel site webmasters and travel bloggers who really now how to promote a product and have more street cred.

Oh, I have far more than four ways, but I’ll leave it here for now.

The luxury travel industry came to a bumpy finish in 2008, as falling real estate prices and waning interest — and ability — to invest six-figure deposits in superior vacation experiences left their marks.

Rather than look back at the year that was, let’s take a look at how 2009 will play itself out. I have a few predictions. Let me know what you think.

1. Consolidation will continue, at the hand of the hospitality giants

It’s inevitable. The shakeout of weaker clubs started last year and will continue until either the economy improves or just the self-sustaining operators are left. This is the kind of environment that is ripe for sector consolidation, but who will do the buying when the credit markets are tight? By the end of the year, you will see the fractional and interval giants like Ritz-Carlton, Marriott, and Disney swooping in. They want into this sector, and it’s going to be a lot cheaper to buy an established club with a dedicated member base to learn the industry from the inside out than to start from scratch. 

2. Deposit hikes are history, for now

Remember the days when fast-growing clubs would hike their initial deposit fees to shake potential members off the fences they were straddling? That is unlikely to happen in the near-term. Clubs will simply move to temporary promotional incentives or offer to grandfather new members in with old perks as a way to rattle observers into action.

3. The 3-to-1 member redemption ratio will be toast 

During its glory days — circa anything leading up to the summer of 2008 — clubs could get away by offering to redeem exiting members on the resignation list once three new members signed up. That won’t work on either end these days. Resignations are likely to pile up in a recession. New memberships will be harder to come by. Some clubs have supposedly been quietly implementing a 1-in, 1-out plan to help clear up the bottleneck at the exit turnstile. Now that clubs are shoring up their annual fees and slashing expenses to be self-sustaining enterprises, it makes sense that the new member to resignation ratio go to 2-in, 1-out, or even 1-in, 1-out.

4. More clubs will follow Ultimate Escape’s lead in creating luxury hotel and resort partnerships

Cutting overhead will mean increasing the member-to-property ratio. The solution to avoiding frustrating availability levels will be deals where clubs broker great rates to have members exchange their plan nights at third party destinations. The entire luxury travel industry is smarting, so everyone wins in that scenario. Clubs will also ramp up the use of seasonal rentals for peak travel periods.

5. There will be more failures, but the industry will close out 2009 stronger than it started

There will be more failures in the industry. Some will get scooped up by larger players, while others will not. However, real estate prices should stabilize by year’s end. This doesn’t mean that prices will head higher. That aspect of the DC model is toast for at least several more years. However, new memberships will begin trickling in once the dust settles and bigger names move in to validate the industry while educating the country on the concept. Larger clubs will introduce concepts like club-financing at attractive rates, broadening the reach of the market. It will be a bumpy 2009, but it will be worth it in the end.

Again, these are just predictions. If I’m way off on some — or all — of these, blame my crystal ball.