COVID-19 COULD SPELL THE END OF THE TIMESHARE ERA
It’s probably way too early to call the COVID-19 pandemic the most dangerous event of our lifetimes, but it’s extremely possible that it could terminate the current timeshare era.
Just before Easter Weekend, a respected Wall Street analyst all but declared the demise of timeshare as we know it. The next day, the chief cheerleader for the timeshare industry conceded that companies face a “massive reset” that will compel them to create a different business model to attract new customers. Which suggests, of course, that the current business model is not sustainable. In other words, doomed.
Speaking separately, both men agreed, one directly, one tacitly, that the industry’s current business model is obsolete in an online Internet economy where families can book weekly vacations, at timeshares, for less than the cost of an annual maintenance fee. The current business model? Companies sell weekly timeshare usage rights for $24,000 per week, plus annual maintenance fees — on lifetime contracts that they hope owners will pass along to their heirs.
First, the view from Wall Street
In a blistering analysis of Wyndham Destinations’ business model and finances, Wall Street stock analyst Andrew Hecht said in an April 7 report that the industry will have to reinvent itself to rebound in a post-COVID economy. Wyndham, which also owns exchange company RCI, is the world’s largest timeshare company. As such, it is the current bellwether of a 50-year-old industry that has never had to face the challenges of a worldwide pandemic that has shut down virtually all travel. Plus, with travel and health restrictions likely to continue, perhaps indefinitely, Hecht said the issues that confront Wyndham also apply to Hilton Grand Vacations and Marriott Vacation Club, among other publicly traded timeshare developers that rely on high-volume, turnstile sales presentations to seduce families into purchasing a timeshare.
Hecht says that while big-brand timeshare companies have succeeded in the past, they are not prepared to handle a complete collapse of the travel market — or the changes in travel behaviors that will likely follow. As a result, He says, developers may have to embrace more consumer-friendly business models to stay solvent after COVID-19.
Hecht’s terse summary?
- “Hospitality survives, but timeshares may not.”
- “Three reasons WYND and other timeshare companies could see their stocks go to zero.”
- “Financing deals and maintenance payments contribute to WYND earnings.”
- “A long trail of bankruptcies will also become a legacy as government bailouts will only go so far.”
“COVID-19 will change the world in many ways,” Hecht wrote. “Aside from a massive rise in germophobic behavior, spending habits will change. Those habits could impact the future viability of companies like Wyndham Destinations (WYND), and other timeshare companies like Hilton Grand Vacations (HGV), and Marriott Vacations Worldwide Corporation (VAC) dramatically.”
Despite past profitability, timeshare companies depend on sales tours, contract financing and maintenance fees to maintain profitability. Wyndham just announced that after a 9 percent year to year gain in sales during the first two-plus months of 2020, sales dropped 50% in March and will hit zero in April (and May, and June, etc.).
“Wyndham Destination’s survival depends on a return to the status quo in the wake of Coronavirus, which could turn out to be more than a leap of faith,” Hecht says.
Wyndham’s stock price crashed from $53.13 in mid-January to $20.44 on April 6, a decline of 61.5%. Other timeshare companies saw similar craters in their stock value.
Hecht foresees three basic triggers for the decline of timeshare, which has benefited from 10 straight years of growth in new sales.
“In the post-pandemic environment, timeshare tours will not make a sudden comeback as social distancing is not going away any time soon. While timeshare companies like WYND can use an online approach to sales, it is not likely to be as effective as high-pressure sales tactics. The first reason is that sales are not likely to come roaring back in the wake of the virus. Moreover, there are more than a few attorneys working with timeshare owners to get them out of their contracts and financial obligations. Advertisements on radio and TV offer the services of those legal services.”
In addition to seeing a decline in new sales — along with an increase in owner requests for exits — Hecht predicts that default levels from existing owners will “skyrocket” as cash-strapped consumers are forced to choose between paying food, rent and home mortgages — or payments for vacations they may not be able to use. A national credit crunch, meanwhile, will also depress sales as banks tighten loan policies for non-essential purchases, including timeshares. The net impact of all three developments? A cash crunch for companies that depend on retail sales, financial agreements and maintenance fees to pay all bills.
“While the hospitality business will survive and eventually thrive, the timeshare business could be one of many victims of the global pandemic. It is not unreasonable to think that WYND shares, and others involved in the same business, could go to zero unless the company radically changes its business model.”
Here is Hecht’s full report. It is chilling for people who invest in timeshare stocks and, more importantly, for owners who thought they bought an “investment” in real estate that would soar in value.
Second, the view from the Timeshare Bunker
Jason Gamel just concluded his first year as CEO of the timeshare industry’s national lobbying group, the American Resort Development Association. Prior to ARDA, he was the VP and General Counsel for Wyndham Destinations. In an April 8th interview with Resort Trades, an online industry trade magazine, Gamel offered an optimistic view of the industry’s future. But he also acknowledged that the current health crisis could change how every company does business — if it stays in business. Here are some of his key comments.
- The industry is actively lobbying Congress for bailout funds to protect the industry’s “assets.” He made no mention of providing relief to owners.
- “We’re all trying to reposition ourselves,” he said. “This crisis is changing the way we will do business. It’s a massive reset.”
- “It may be time to find a different customer or create a different product.”
- “It may be that we come out of this as ‘our best selves.’”
Gamel’s final comment, about the industry finding its “best selves,” begs the obvious question that discomfits many owners. Why aren’t timeshare companies already doing their best for customers? Why not offering comprehensive exit programs for owners who can no longer use their timeshare?
Under Gamel’s direction, ARDA and its owner-affiliate (ARDA-ROC, which stands for Resort Owners Coalition), has offered no guidance for rank-and-file owners on how to respond to the COVID crisis. On April 10, ARDA updated its website with educational and financial resources for members, such as IRS guidelines. The ARDA-ROC website, which ostensibly serves owners, makes no mention of COVID-19 whatsoever. While individual timeshare companies have provided numerous updates for customers about reservations and cancellation policies, ARDA has been silent. Almost as if, while working behind the scenes urging Congress to bail out timeshare companies, Gamel and crew are, indeed, working in a timeshare bunker.
Here is a link to Gamel’s interview with Resort Trades.