The purpose of this article is to document my observations concerning the Covid-19 effect on the timeshare industry and how this may cause fundamental changes to occur to current timeshare business models. It is the result of discussions with a number of industry veterans and was prepared at a macro level, supported by experience and gut feel, not detailed research and analysis.
Pre-Covid-19 industry status. The timeshare industry performed at very high levels in 2019 and – like its hospitality industry sister – was poised to achieve new record levels in 2020 from sales, financing, rentals, and ancillary business operations. The ten or so brands and major independent companies accounted for more than 90% of new sales in 2019 – albeit at a somewhat higher cost than before. Cash flow from operations was both reliable and substantial. In short, the industry was healthy and business was robust.
Covid-19 impact. The Covid-19 Pandemic has brought every aspect of the business to an abrupt curtailment or a complete halt. Marketing and Sales activities have been shut down completely, many resorts have been temporarily closed, new projects have been put on hold, up to 75% of industry employees have been furloughed, senior management compensation has been reduced, and stock buybacks, dividends, and distributions have been stopped. So far, adequate liquidity has been maintained, but this is of increasing concern as the timeframes for the Pandemic are extended. In short, the industry is shut down and hunkered down to weather the storm.
Post Covid-19 Impact. While history and conventional wisdom would likely forecast a return to pre-Covid-19 industry performance over time, there are a number of factors that could change this, including:
- A cautious return to travel – particularly air travel. Drive-to resorts will be the beneficiary of this.
- Gradual consumer financial recovery, which will result in more cautious and conservative decision making for major purchases.
- A reduced need or desire for superfluous resort amenities and facilities. The post-Covid-19 consumer will likely be more cost-conscious and value-oriented.
- A return to the fundamental reason to buy and own – a prepaid vacation, secured by real estate ownership, and ease of personal use or exchange.
While the various points-based use plans offered by the major companies provide variety and flexibility (albeit somewhat complicated to use), the vast majority of purchasers still buy to use at their home resorts each year.
New Opportunity. With these thoughts in mind and a crystal-ball gaze into the future, there appears to be a fresh opportunity to design, market, sell, and operate projects designed for and targeted to the Post-Covid-19 consumer. This would result in a “back-to-basics” approach that was the platform upon which the industry was founded over 50 years ago. These new projects can be “stand alone,” or a boutique component of large, multi-phase projects. They also can work well in a mixed-use scenario – sharing the amenities and facilities of a companion resort hotel.
A solid “value proposition” has always been the basis for the timeshare industry. Over time, the cost to build, market and sell the product has climbed … thus narrowing the universe of qualified buyers. It is likely this will be made worse by the more cautious post-Covid-19 prospective buyers.
In my view, a valid response should be a “back-to-basics” product that is less expensive to build, market, sell, finance, buy, and use and a more boutique approach that can be applied to projects of all sizes.
Allen G. Ten Broek is the retired CEO of The Mariner Group – a pioneer timeshare company which developed and operated 30 timeshare resorts in Florida. He was a co-founder of Hilton Grand Vacations Company and currently provides various timeshare consulting services to industry participants. He invites readers to share their thoughts on his comments and can be reached at firstname.lastname@example.org