VHDestinations

I'm curious to understand why the membership fees of DC's are trending upwards, when the price of acquiring real estate in some markets is down by double digits. Are you utilizing the market fluctuations to buy additional properties not in your original growth plans; does this skew your member to property ratio?

Appreciate your insights!

caribbeansun

One would hope that they are using the higher fees to lower the debt/equity ratio on the new properties. However, many clubs are built on a model that has ever increasing fees as a means to pay for past sins or members that joined at rates that were "too low".

TarheelTraveler

I personally think it's a combination of factors:

1) The product keeps getting better (larger portfolios, more services, larger or name brand players, etc.), so it's easier to justify a higher membership deposit
2) It's still a heck of a lot cheaper and more enjoyable than your vacation house alternatives IMHO, particularly as compared to whole ownership
3) More people are getting to know and understand DCs (we're now past the infancy stage)
4) There are fewer viable competitors charging unsustainable membership fees to get people in the door (there was a time when you had a new legitimate DC competitor pop up every month it seemed)
5) See above from Caribbean Sun (i.e., some are trying to decrease the debt/equity ratio and some are having to raise deposits to pay for the deals that were offered in the past)
6) Most DCs target the affluent market, which has not been hit by the economy nearly as hard as the average consumer
7) Most of the real estate markets DCs are in have not been hit as hard as other markets (they tend to be in prime markets with limited supply)
8) The referral base is growing (DCs are incredibly compelling once you actually experience it)

GregGH

OUCH -- that was too the point

I wonder if raising rates is a way to close more deals on people 'thinking' ...so hurry up and buy now - the price is going up .... I didn't say Ponzi Scheme ( but I sometimes think it ).

At some point the rates have to plateau , don't they ?

Greg

caribbeansun

Yup - in the words of one DC rep "price increases are used to clean out the pipeline of prospects." It effectively triggers a number of sign ups OR walkaways and then they have to rebuild their prospect list.

Bourne

Risk vs reward...Catch 22... call it whatever...

A DC cannot charge retail till it reaches critical mass. It cannot reach critical mass if it charges retail upfront. The "past sins" are integral part of a DC business plan if they do not have 50-100 Mil in the pocket to build out upfront.

No one will pay 300-400K to buy into a startup DC with 5 properties if the same money can get you a membership in ER.

__________________
The Nile is a river in Egypt......

DC Skeptic

Case in point: right after the UR/PE merger UE was advertising, if I recall correctly, a $45,000(!) discount before price went up $20,000. Comical.

I agree with the early comment about past sins; start up clubs are often underpriced and the escalating fees are designed to set things right over time. Same goes for dues; 5% increases per year add up pretty quickly. $15,000/yr dues is over $20,000/yr in six years. Certainly a good chunk of the 5% is inflation but a good bit is also real increase. Especially when you remember that all the clubs talk about economies of scale yet as they actually experience them you don't get the benefit.

pwrshift

In less elequent terms I have expressed these concerns too...generally resulting in flames. There has to be an end to twice annual huge increases in membership fees and dues ... at some point they will reach critical mass and you better get out before the crash. In my business, we grow by selling more and keeping price increases to no more than CPI if that - we have to discover ways of merchandising or changing our product to sell more to expand and grow - that takes 'vision' if you want to price properly.

HCC is a case in point ... they, like others, seem to raise prices every 6 months. When they did it in the fall of 2007 they had a dramatic increase to about 350 members I believe and became the 2nd highest in member numbers. Then they did it again for June 08 ... but the number is only about 360 members .. and they may overforecast 400 members by year end (before the next increase in Nov?). Slowing economy doesn't help, but perhaps its more a result of reaching critical mass for what they provide. And members wonder why their club isn't grabbing a pile of lower priced RE while they have the chance...and corporate communications to members is inadequate.

I thought HCC had the right approach in being the low cost DC provider -- getting a run of increasing memberships should have been their number one objective and consistent pricing would have increased their advantage over those DC's that continually raise prices - it can defeat the purpose when new members start to dry up. Thus, you find them coming up with more attractive trial programs, smoke & mirror price changes (ER), etc. Walmart is the number one retailer for one reason - volume, low prices, and availability. But with most DC's early members got in at the lower prices and lower dues and over time that will become an accounting nightmare. Something like Southwest buying futures of oil for $51 -- they are enjoying it now, but what about in 2012 when it ends?

It's a little like the gas price/dollar value situation in the USA right now and IMO the only reason it hasn't slipped into recession is that exports are way up based on a lower dollar. Long term, that's what helped get Canada's economy grow and now that it's on par with US$ it seems to be slowing down...and gas is getting the blame. Critical mass.

Bourne

Two sides of a coin.

It is the nature of the business plan of DCs.

Buy early with risk and you reap the rewards if the club swings to the fences. Buy later and you pay more. For every ER/UE/HCC/QN there has been a TH/Portofino and numerous other clubs that bit the dust.

Look at the bright side. The industry is not nascent anymore and the cost of entry has increased. You will see more realistic startup prices of memberships and the current ones do not have more than 20% room to grow in the near future.

__________________
The Nile is a river in Egypt......

Quintess Michael

I can't argue with anything written above. Every point that was made, is a little piece of the pricing puzzle.

__________________
Michael Aumock
Director, Membership Development
Quintess, The Leading Residences of the World

caribbeansun

I think your HCC #'s are off. I think they hit 300 last Nov not 350.

The DC market attempts to sell the experience and the lasting memories as opposed to the price/value equation. HCC is more aggressive along these lines by diminishing their "add-ons" and focusing on the entry level to DC's.

Pricing is very difficult and in fact is probably the most difficult part of most businesses to get "right". Price too high and you get volume falling off, price too low and you drive your overheads per sale up and carve into your profit or compromise your quality due to overloaded systems that can't keep up with the growth.

Vicious circle - start up a DC = need members and need houses

Lease houses to say "look at our locations", stick pins in a friggin' world map and label them as "Under Development" which is basically just crap for "wouldn't it be nice if everything worked out and you could eventually go here?"

Get members = price it low, add more pins to the map, talk about future possibilities while ignoring the tenuous nature of the start up sucking sound of cash literally being flushed through the organization.

Result = cash flow negative and few owned houses. Starting praying more people sign up so that you can actually start buying houses (no really the business plan is solid - look I have an MBA from XXXX I must know what I'm doing - what do you mean I don't have experience running a DC, of course I don't, it's a new industry (damn silly newbie type questions from prospects - yeeesh). Look "Just trust me."

Create a "call to action" - unfortunately the DC industry hasn't figured out any other way to do this than to create the illusion of price increases and discounts for "acting now!!" Very used car salesmen like if you ask me and a marked departure from their supposed product. "So what'll it take to get you into this brand new 4 door DC today? Sure we take trade-ins..."

How's that for cynical???