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From the
November 2008 issue of:


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Affordable Luxury Travel in a Tough Economy: Keeping Vacation Dreams Alive and Well Part 2
 
by Alan N. Schlaifer
Principal
Law Offices of Alan N. Schlaifer, P.C.
 
With the economies of the United States and other leading nations caught in much turbulence, the concept of affordable travel – let alone affordable luxury – is undergoing constant re-evaluation. Legislative, political and financial market turmoil in the U.S. and overseas has added to the tension and contributed economic uncertainty.

Enactment of the Troubled Asset Relief Program (TARP) in the United States, after initial rejection in the House of Representatives (worried that TARP was really a “TRAP”, benefiting Wall Street at the expense of Main Street) should help calm the waters in America and abroad.

As political and business leaders have tried to make clear, enactment of this rescue package should also ease the credit crunch squeezing every business from auto makers and dealers (Ford, Chrysler and Toyota sales down about 33% in the latest month) to small businesses of all types. Business and consumer loans are vital to maintain sales and cash flow and fuel our economy.

Added help should come from government interventions to rescue failed or floundering large financial institutions in the U.K., Germany, France, Italy and other foreign nations. Their governments have injected billions of Euros into their own rescue efforts.

Well-capitalized companies are making extraordinary efforts to deal with the challenges. Thus, General Electric, one of the world’s strongest, took a multi-billion dollar investment from Warren Buffett’s Berkshire Hathaway.

Companies offering travel and vacation ownership products, as well as middle-upper and upper income people are also being affected, as recent events and news made clear. Some of these may help you act in ways that will make the “best yet to come” for you and your company, as you provide affordable routes to the “high life” for your owners and guests.

  • The French Embassy in Washington, DC, raised $160,000 for Goodwill Industries. The Washington Post reported that judges, lawyers, executives and other elites who attended eagerly paid $10 to $50 for “previously owned” designer items they might have scorned in a more stable economy

  • A nose for news? Maybe, but little more. A Wall Street Journal story noted that “rhinoplasties,” or “nose jobs,” and other types of plastic surgery among the doyennes of Manhattan and their offspring were, in essence, facing the chopping block, not the surgeon’s scalpel.

  • Travel deals and ads reflect the more uncertain economy. Competition appears to be keen at all market levels and in all parts of the U.S. and many places abroad. Initiatives detailed below may help stimulate your own thoughts about actions you can take to improve your company’s results.

    • Timeshare deals: Vacation Resorts International is promoting these, such as 20% off normal fall rates at its Cape Cod, Massachusetts properties.
    • All-inclusive properties:
      • Sandals, with many locations in the Caribbean, features national TV ads with “luxury included” and possible free airfare, plus other promotional deals. These are a wonderful break from incessant political ads.
      • “Where Happiness Means the World” is Club Med’s tantalizing message to a stressed-out world. With about 80 sites divided into five major categories worldwide, the company is also offering deals to appeal to consumers. These include its “7-day weekend,” where travelers buy an all-inclusive 7-day and night package for the price of 3 nights; free suite upgrades (savings up to 50%); and 2 free nights on winter getaways.

    • Be thankful for tankfuls:
      • “Attractive deals abound from resorts within easy driving distance from major cities. One of many in the non-timeshare category is Bedford Springs Resort, an elegant 212-year old property in south central Pennsylvania, operated by Benchmark Hospitality, The Woodlands, Texas. The resort reopened last year with the theme, “A Legend is Reborn,” after a spectacular $120 million restoration. It is less than a three-hour drive from D.C., Baltimore and Philadelphia, and less than four hours from Pittsburgh.
      • “To attract customers who want a personal getaway or business retreat less than a tankful (roundtrip) away from their homes, the resort is offering a variety of value-priced packages, including unlimited golf, “His & Hers,” “Eternal Indulgence,” “Links & Legends,” Thanksgiving weekend and Christmas week. Its website allows interested prospect to learn about special by subscribing to their RSS (or “Really Simple Syndication”) feeds, a tool other properties are also using.
      • “Timeshare resorts can, and sometimes do, offer similar specialty programs. Some even provide gas vouchers to attract more tours and even mini-vacation bookers.

    • “Luxury hotels in Las Vegas and elsewhere are offering deep discounts. One of many examples: The Wynn Las Vegas, the city’s only five-star, five-diamond property, has offered its gorgeous rooms for $199 on selected nights, sometimes with other perks thrown in.


  • One of the words most often found in the upper echelon real estate offerings in the Wall Street Journal: “Auction”.

  • Financial reports in the U.S. and Europe indicate stronger performing companies include discount and value retailers, such as Wal-Mart, and manufacturers.

    • One WSJournal report questioned Procter & Gamble’s continuation as a recession hedge in view of its abandonment of food and lower-end personal items in favor of more upscale ones.
    • Luxury suppliers, such as LVMH (Louis Vuitton Moet Hennessey), which has a full range including the LV luggage and handbag lines, champagne and cognac, are being affected by the slowdown. So even many of those bubbles are fizzling.


Yet, regional magazines, nationals such as The Robb Report, and other sources continue to extol the best that life has to offer. Publisher Condé Nast has a website, concierge.com, that touts the luxe life.

The high life redefined could include many high-end estates in the United States and abroad. Within the United States, from Malibu and Beverly Hills to Palm Beach, and elsewhere, various properties have asking prices in the millions to tens of millions of dollars. Unlike the manic days where prospective buyers often bid up prices, in these times, most offers are below asking levels, sometimes considerably so, even for mansions and estates.

Fractionals: Adding Up to Big Whole Numbers
For those of more modest means, developers offer many more paths to affordable luxury. Fractionals are one of those paths, with rapidly rising popularity, even in a mixed economy.

John Sweeney, President, Global Resorts, Las Vegas (globalresortsinc.net; 702.699.9331), has been involved in the various forms of vacation ownership for over three decades. For 22 years, he has worked on domestic and international fractional projects, with a total of 25 projects in his portfolio.

He says this segment of vacation ownership has gone from “a fledging satellite part of industry to a major part in the past decade,” with sales shooting up from $200 million to $2 billion.

He says the differences between timeshare and fractional buyers are more than just socio-economic, with timeshare having lower prices and less extensive services.

Mr. Sweeney says that timeshares have evolved in three stages. First, the product was “king.” Then, products/resorts and amenities became more important. In the third phase, the customer became “the king,” with greater emphasis on value, services and benefits.

He says fractionals, and the logical extension into PRC’s, began in the third stage, where you have to satisfy your upscale customer with concierge-level total quality service. They want to delegate tasks, from flight reservations to transport directly to a resort; they are “not used to digging through a book.” They want a “hassle-free” experience.

These are some of the characteristics Mr. Sweeney cites for these affluent customers, which he says amount to “two to three percent of American households,” in the current economy:

  • Many families are cutting back. “But the fractional customer is not affected as much as the timeshare prospect by recession. Fractional buyers are in higher socio-economic bracket, $250,000 and up income, $3-5 million and higher net worth.
  • Many have accumulated wealth, often in significant amounts, and are often a bit older than timeshare buyers.
  • A high percentage own their own business and have used that vehicle to accumulate their wealth.
  • Fractionals and PRC’s promote cross-generational use. Owners may invite their extended families, which they can do with the larger fractional PRC unit. “It can be a kind of legacy deal for the fractional family.”
  • Affluent customers come from a different station in life. They are usually not going to respond to timeshare solicitations. A fractional or PRC buyer needs to have a proclivity for a particular area, with at least three visits, and maybe owned a home there.
  • The best fractional or PRC owner might be someone who realized the foibles of owning a $1 million vacation home, couldn’t use it, and didn’t get enough value.
  • Fractional owners are often empty nesters, not a family with kids, unless it’s grandchildren.
  • The sales process is longer with fractionals. “You not going to have a first day sale.” The greater the price in general, the longer the sales cycle, the greater the number of contacts.
  • You need to use great “story-telling,” and people will respond, whether to fractionals or timeshares. He says a good book, by Rolf Jensen, is The Dream Society. “You need to get into people’s hearts, not their heads. People respond to story telling. The Marriott story is about rising from the humble beginnings of A&W Root Beer and Hot Shoppes. Nike sells success, youth, and famous people using the product. You need a story that appeals to person’s emotions and heart, past the product, to the customer experience, the vacation.”
  • Mr. Sweeney contends, “It is vitally important for us to better understand this somewhat arcane affluent customer, and more research is one of the keys. There are several good books written by Dr. Thomas Stanley such as Marketing to the Affluent, Selling to the Affluent, and The Millionaire Mind, that should be required reading for all industry professioinals and practictioners.”
  • The numbers are different. With fractionals, marketing averages about 25%, product costs about 50%, the opposite of timeshares.
  • Resale indicators are that fractionals hold their value because of “the composite of services provided. Locations are prime, product is far superior, and services are personalized, concierge-level.
  • Finally, Mr. Sweeney cites three key factors in comparing fractionals or PRCs to timeshares:
    • Privacy and exclusivity: higher for fractionals
    • Recreational variety: less for fractionals, without young families
    • Environment: much more important to fractional buyers


Private Residence Clubs
These are another option for high-end consumers. Like fractionals, PRCs may be in prime urban, mountain, seashore or other locations. Other focuses may include types of leisure interests, such as golf, skiing and varied other recreational activities.

One with a special niche is Meriwether Ranch, Melrose, Montana, which bills itself as “the Nation’s First Private Residence Club for the Outdoorsman.”

A recent release described the appeal of this resort: “Meriwether Ranch is the dream project of outdoor enthusiasts and conservationists Dave and Emilie Ellingson (Lincoln NE). Nestled between the 3.23 million acres of the Beaverhead-Deerlodge National Forest and the Big Hole Valley, Meriwether Ranch offers 724 deeded acres and approximately 180,000 acres of permitted land.

“Fewer than 10% of the deeded acres will be impacted by the development of new home sites and other buildings. The remaining acres will be protected from further development by the establishment of a conservation easement.”

Timeshare Luxury
The largest audience, in numbers of people and total dollars, is still the timeshare product. Roughly 80% of the industry’s annual U.S. sales of about $10 billion still come from this core.

Despite the challenging economics, industry leaders are continuing to find ways to fulfill vacation dreams and build their companies at the same time through this vehicle. Mr. Sweeney says hospitality brands and the facilities of multi-use resorts can add real value to a timeshare product as he experienced in his work as a former senior executive with Marriott Ownership Resorts .

One example is Orlando-based Sol Melià Vacation Club (SMVC), with 25,000 owners and now in its fourth year under the leadership of industry veteran Alain Grangé. The company just reported 2008 first half growth of 17% over the year earlier period. Gross profit margins continued at a solid 40%.

Several major factors support this record and underline why SMVC has been able to continue growing. These include:
  • Painting an irresistible picture with a multi-colored palette: From a recent press release, these are comments about one of SMVC’s projects. Note that the word “luxury” is not used alone. Rather, specific details spell out the features that define what is available:
    • “The Reserve at Paradisus Punta Cana (Dominican Republic) features 190 luxury oversized one-bedroom suites, one-bedroom master suites and two-bedroom lock-offs with lavish amenities such as plasma TVs in the living room and bathroom, hydro massage showers, private balconies, hot tub for two, full-equipped kitchenettes, lagoon style swimming pools, children’s pool and kids’ club, and the world-class Yhi Spa.”
    • Capitalize on the array of amenities if you have a multi-use resort: “SMVC Members have access to all services and amenities of the 550-suite Paradisus Punta Cana resort complex, including its 10 restaurants, seven bars, casino, golf course and 24-hour room service.”


  • Upgrading services to owners and guests:
    • Here’s what an SMVC release says in powerful language that conveys compelling images: “Earlier this year, SMVC rolled out an exclusive, customized training program for its concierge employees using the Paradisus Palma Real (Dominican Republic) as its beta site. The training program focuses on optimizing services and anticipating guest needs to provide an exceptional experience through a high level of service and make each stay a memorable one.”


  • Cite dream destinations and options that you make offer.
    • Obviously, these could include your own internal options, plus the array of dazzling choices for resorts worldwide and cruises available through exchange companies, such as Interval International, RCI, ICE or others with which you may have arrangements.
    • Here’s what SMVC says: All members have access through SMVC to stay at all Sol Meliá’s hotels and resorts worldwide, including those in destinations such as Paris, London, Madrid, Rome and more.

  • Build your brand, as you build on it, to enhance your credibility: Here again, the SMVC release is powerful, stating the parent company “is a 50-year-old international hospitality company with 350 hotels in 30 countries on five continents.

  • Cite the flexibility and other major aspects of your value proposition: “Sol Meliá Vacation Club members enjoy the best of both worlds: all the conveniences and amenities of a world-class resort, plus value, flexibility and choice that vacation membership offers throughout the Sol Meliá Vacation Network.”

  • Carefully cut your costs or improve efficiency where you can reasonably do so. The release quotes Alain Grangé. He says SMVC is “focusing on what we do well and implementing ways to tighten efficiencies, especially in automation and computerization. Our IT team is implementing and rolling out a new information system to be used by all SMVC resorts for marketing, sales administration, accounting, … as well as launching a more interactive member’s website.”


More Ideas for You to Consider:
One of the best sources for additional input from industry experts is the recording from this year’s ARDA Convention and Expo in Las Vegas. Available for $13 per audio CD, or just $249 for all of the 57 sessions (the best value) from http://www.store.avmg.com/arda, these a few of many parts of the program that could make this a valuable resource for you. We have listed both the track and name of the specific session:

  • Foundation: Cross-Industry Trends
  • Fractionals and Products:
    • Emerging Trends in Regional Fractional Development – An Open Forum with Audience Participation
    • Beyond Timeshare: The Whys and Wherefores of Alternative Vacation Ownership Products

  • General Sessions: Opening Session – State of the Industry
  • Marketing:
    • Rich Dad, Richer Dad: The Growing Segmentation of Luxury
    • Sales and Marketing Differences in Non-Equity Clubs, Condo Hotels and Traditional Timeshare and Fractional Products

  • Resort Development: Opportunities & Lessons Learned in a Mixed Use World
  • Resort Management: Protecting the Value Proposition – Product & Service
  • Technology:
    • Blogs, Wikis: Defining User-Generated Content, Social Media and New Online Communications Tools and When to Use Them
    • Hooking Leads Online: Making Lookers Bookers




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