You may not personally want to buy a timeshare. But the sales pitch for the timeshare business can still reveal valuable intel about broader trends, such as cross-marketing tactics and the rise of subscription clubs.
Marriott Vacations Worldwide‘s current president, John Geller, will become CEO of the timeshare giant on January 1, 2023, succeeding Stephen Weisz, who’s retiring. Geller will be taking the helm at a time when the company may see how well timeshare sales perform during economically turbulent times.
Geller has been the company’s president since 2021 and was its chief financial officer for over a decade. He’s helped Marriott Vacations slip off the timeshare sector’s reputation for locking customers into convoluted contracts after extensive sales pitches. The company has done this through simplified processes, brand standard processes, and the delivery of better-than-average inventory at “upper-upper-scale” resorts. Since its spinoff from Marriott International in 2011, it has gone from 12 percent to 17 percent market share.
Geller’s experience will be handy as the timeshare sector navigates a possible recession. A Bloomberg survey of economists estimates that the chance of a U.S. recession is at about one in three — and the chance of a European recession is at one in two.
“An inflationary environment increases the value proposition of timeshare,” Geller said in an interview with Skift. A timeshare contract helps owners lock in a price long-term, compared with spikes in daily hotel rates.
“[In early June] we took our vacation contract sales up roughly $100 million [to $1,875 million forecast this year] because the product is resonating more than ever,” Geller said, adding that sales volumes are above pre-pandemic 2019 levels.
Industry-wide, the annual maintenance fee timeshare companies charge rose 15 percent over the five years through 2021, while the cost of a seven-night hotel stay at a “resort hotel” rose 24 percent before resort fees and taxes, according to the American Resort Development Association (ARDA).
Touting the Safety of a Premium Segment
If economies stop growing for a while, selling timeshare may get trickier.
“Markets have continued to price in a slowdown,” wrote David Katz and other analysts at Jefferies in a report to investors. Investors have beaten down Marriott Vacations’ stock price on the assumption that consumers would cut discretionary spending if a downturn happens.
Yet Marriott Vacations stands apart from other timeshare companies by having a wealthier-than-average customer base. The company’s customers self-report having an average net worth of $1.5 million. Half of the owners in its Interval program have annual incomes above $100,000. These better-off travelers might be more insulated from a recession.
“For them, it’s not really discretionary,” Geller said. “It’s part of their budget, which is great for us.”
That said, attracting new owners may become harder if economic conditions get choppy. Besides sales and fees, timeshare companies generate revenue from financing. As interest rates spike, Marriott Vacations may have to balance keeping the rates on its timeshare loans relatively low to encourage sales without letting its margins erode.
The company told Jefferies analysts that its delinquency and default levels were recently around 10 to 12 percent below the levels experienced in 2019 — and the 16 percent range around the great financial crisis.
The company also told Jeffries analysts that it thought it might have the ability to push prices 5 percent to six percent higher, depending on the product, because of how high hotel average daily rates have soared lately.
Seeking Operational Efficiencies
Customer acquisition remains a high cost for all vacation ownership companies, with tours and free trips common tools instead of cheaper digital sales.
“When thinking about a potentially more challenging sales environment, Marriott Vacations noted that it has reduced tour flow acquisition costs by 20 percent over the past two years,” wrote Chris Woronka and other Deutsche Bank Research analysts in a recent report.
The company is also investing in digital tools to boost its marketing efficiency.
“A lot of the technology we’ll be investing in over the next two to three years will continue to unlock how we interact with our owners and future owners,” Geller said. “Through data analytics, for example, we’ll better understand potential buyers and make them the right offers at the right time while also servicing our owners more seamlessly going forward.”
Other efforts could help reign in costs. Mergers have brought about a mishmash of technology platforms, which Marriott Vacations is now unifying to remove redundancy.
This year the company is spending close to $150 million on technology and integrations.
“Going forward, probably call it $40 to $50 million a year on new technology investments,” Geller said.
In a related move, the company is making it easier for owners to stay at places across its network rather than just in niche portfolios.
A soon-to-debut Abound by Marriott Vacations website will let owners use points they accrue for stays at more than 90 vacation club resorts across the Marriott, Sheraton, and Westin vacation clubs for the first time. The effort will also let owners redeem points via an exchange program that gives access to more than 8,000 Marriott Bonvoy hotels, 2,000 vacation homes, and other offerings.
“It’s about expanding the breadth of offerings across all the brands in one seamless portfolio,” Geller said.
Inspirato as Inspiration?
Marriott Vacations touts its premium offerings. But it could do more to boost its truly luxurious resort offerings — a category whose appeal to high-net-worth individuals has been demonstrated by the rise of subscription travel service Inspirato.
“There are a lot of different clubs out there, and I’m not sure anybody’s figured it out completely yet,” Geller said. “We continue to look at ‘edge products,’ and at how we could leverage our expertise in leisure given that we know how to market and sell, we know how to service customers to provide great vacation experiences.”
Marriott Vacations does offer some luxury properties under the Ritz-Carlton and St. Regis Brands, but it hasn’t developed any recently.
“So, are there other travel platforms we could develop that would be complementary?” Geller asked rhetorically. “Those are things we’ll continue to look at — at what might allow us over time to diversify our business model out of just pure vacation ownership and the exchange business.”
“What’s different about us compared to a lot of these startups is we’ve got a business model that, after investing in new technology and efforts to grow, will still generate about $600 million a year of free cash flow,” Geller said. “Which historically we’ve returned to shareholders, or we’ve acquired new businesses to expand.”
“We have the ability to invest and look at other adjacent platforms and things that might make sense for us,” Geller said.
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