Brand Maintenance During An Implosion

With all this news, and knowing that the destination club model thrived on the idea that the economy would grow, potential members would always, somehow, show up, what happens now? In very general terms, in our wildly oscillating universe, many clubs are functioning in a neutral gear, neither moving head or moving backward, maintaining their brand quietly, hoping for better times in 2009-10. How one defines better times is when potential members become real members, when real estate pricing will rise again from the ashes, when investors will unthaw their capital and when developers, and others can get loans, whether it be investment or refinance, and don’t have to sell their firstborns to get them.

One of the more painful Achilles Heels of the DC model, as well as some of the subsequent hybrids, was the issue of annual dues – that were, with 20/20 hindsight, too low for the escalating costs of operating existing homes as well as buying and maintaining new ones. Another dimension to this problem was the idea – and this is where the falling apples come in – that the economy would always grow, members would always come. The Field Of Dreams dictum, “If You Build It, They Will Come” applied to not only unlikely baseball fields in Iowa, but also to destination clubs and probably to some degree, PRCs also. They were built, many did come, and were happy with the membership deposit and dues – yet the dues often did not reflect company growth and demand. Myopically, also with 20/20 hindsight, the dues were not raised as the operating expenses became higher,, and eventually they did not cover the expenses of the club infrastructure and their residences. This was one of the subtle reasons why the first and as yet only bankruptcy in the DC industry occurred with Tanner & Haley in July of 2006. Back then it was presumed this was an anomaly, now with the implosion of the economy, we are not so sure.

There has been movement in many of the clubs that are trying to offset this unexpected thud in the industry – some raising their membership deposits and annual dues ( Solstice and Lusso), while another, M Resorts in Canada, asked their members to become shareholders in the company. Yet another, High Country, appears to be overhauling their system by implementing some substantially unique tactics, some being: an increase in annual dues as well as pre-paid dues a year in advance,
a cleaning fee for each member stay; decreasing their home portfolio, a new resignation policy, allowing members to redeem with a one in, one out ratio, members can resell their own memberships.

What these strategies are doing , and with some validity, is buying time, increments that will allow clubs to move in a direction where they will not have to declare Chapter 11, Chapter 7 or even suspend all membership sales. Of course, as our parents used to tell us, the less debt the better – so the debt-free clubs, those equity based entities that are doing well despite the downturn are Abercrombie & Kent Residences, and a small, debt free club out of Atlanta, Equity Estates.

The brand that can weather unexpected economic implosion or explosion is a brand that will withstand just about anything. But can they survive, even debt free, without some kind of media exposure?

 

Posted:
10/12/08
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