Lessons Learned From Failed Destination Clubs

By: Destination Club News
Date: December 5, 2009

Over the past year, a series of destination club bankruptcies have made it clear the lessons that should be learned from the collapse of some of the sector’s leading clubs. The need for annual dues to offset operating costs, a dedication to responsible spending in operations and on real estate, and increased disclosure to club members are just a few of the many takeaways that have been learned throughout 2009.

But with the destination club industry closing in on 100 total clubs in the history of the sector, there are many positive lessons that can also be taken from some of the destination clubs no longer in operation. Despite their failures, many of these former clubs did have interesting portions of their club structures that could potentially help some of today's current collection of destination clubs.

Multiple Redemption Policies

Members of High Country Club and LUSSO amongst others know the problems associated with the resignation policies of their respective clubs. Predicated on acquiring new members to redeem exiting members, when new sales halted in 2008 and 2009 as a result of the slumping economy, resignation lists across the industry swelled.

The three largest destination clubs in the world all use different redemption models. Exclusive Resorts refunds 75% of a member’s deposit when they elect to resign. Ultimate Escapes refunds 80% of the future value of a membership to exiting members. Quintess, LRW allows members to resign within their first year and receive 100% of their original deposit refunded with 75% refunded thereafter.

While now deeply enveloped in bankruptcy, the ultra-luxury Solstice Collection allowed members two different membership redemption models to choose from. Members could elect to receive 100% of their original deposit refunded to them when they resigned or 80% of the future value of their membership, letting members choose the model best for their unique situation and risk aversion. Could a club emerge in the future with multiple membership redemption structures, charging variable rates for different redemption rights? Or charging a non-refundable fee to receive preferred redemption privileges? Or will the entire industry evolve towards structures more similar to the Ritz-Carlton Destination Club where members are deeded owners?

Philanthropy

One of the more popular and worthwhile trends to emerge in the destination club industry over the past several years is the diligent support of charitable events and philanthropic ventures.

Founded in 2005, My Global Playground set up two philanthropic programs: My Global Playground Rising Stars and My Global Playground 3 Wishes. The Rising Stars would provide college scholarships to three deserving students each year but the 3 Wishes program was a foundation that virtually every other destination club could implement without spending funds obligated to members or compromising availability to members.

My Global Playground donated unused nights in their club’s portfolio to the families of terminally ill children. Most destination club properties typically sit vacant between 30% and 50% of the time, allowing for a great opportunity to benefit the lives of these families, returning soldiers, or any number of other groups of individuals identified by the club.

Since 2007, Ultimate Escapes has donated nearly $400,000 through their Ultimate Giving Foundation to charities such as the American Cancer Society, Cystic Fibrosis Foundation, and The City of Hope. Quintess created the “Making a Difference” program to award scholarships to deserving students and providing internship opportunities and mentors. The Abercrombie & Kent Residence Club has assisted in planting trees, educating children, digging wells, and providing medical assistance over the years.

Growth Structure

When LUSSO Collection made their official introduction into the destination club world, they already had 30 members that were acquired during the club’s soft launch. With a preexisting property portfolio of multi-million dollar vacation properties and members, the club would quickly become one of the leaders in the destination club sector. Solstice Collection would fiercely support their invitation only structure, relying almost exclusively on referrals from current club members during their early years before emerging as the industry's leading ultra-luxury club.

Today's young destinations clubs continue to debate which public launch strategy is best: entering with an established base of members and properties or making an aggressive foray into the industry and growing the membership and property portfolio in unison. Luxus Vacation Properties has quietly grown their Alberta based club to nearly 100 members since their official launch in 2007 while the similarly named LUXLife introduced their club earlier this year with no members, but have seen "positive market response" to their Founder Membership offer.

During these lean economic times, clubs continue to learn from rival clubs, members, and potential members about how to make their own clubs more sustainable, but while many of the clubs mentioned above may no longer be in operation, they also brought new perspectives and formats to the design of their clubs that could be utilized by the current generation of clubs. If you would care to discuss your ideas regarding the destination club industry, please visit our friends at Destination Club Forums to voice your own thoughts on this topic with other members and prospects.