The Discovery Club's Kevin Walker Speaks About The Destination Club Industry

By: Destination Club News
Date: January 9, 2009

"Almost two years ago we were launching our club. For the most part, no one had any idea what a destination club was. We had to be the educators as well as the sales force."

Kevin Walker of Walker Hospitality and The Discovery Club recently spoke with The Veras Group about how the destination club came about, the club's unique business model, and the value currently available to new members.

"The Discovery Club is off to a very solid first few years of existence," said Walker. "For background, Walker Hospitality is our parent company. A lot of different disciplines, bt all within the hospitality industry. We have been involved in hotel ownership, hired as property management, and even a new project in the islands that we are not really ready to announce. It has been my world for me, my wife, and now my kids for the past 33 years. It has been a discipline of the Walker family for three generations, and now with my kids for four generations."

"I was chairman of the hotel association of Canada for three years, worked with them for seven years. I was well aware of destination clubs for several years and was interested in the impact of destination clubs on the hotel sector. I realized that hoteliers are very creative in their search for new products, trying to outdo each other, and we put these two forces together and went to the hotel company, worldwide, and said 'we are going to assemble a group of sophisticated world travelers and provide lifetime travel benefits.'"

"We took our message to a group of 70 properties, and that was our start. We wanted to be introduced to new products for our members to enjoy. We filled our dance card completely full, and we now have thousands of properties in our portfolio. We have a worldwide agreement with Starwood Luxury, The Marriot Group, and we have lots of other activities: heli-skiing, heli-hiking, yachts, planes, safaris, even staying in Four Seasons branded properties. The affiliate program has grown beyond our imagination."

Unlike the more traditional destination club model where the club owns the properties available to members, the Discovery Club contracts on a wholesale basis for members to use a global portfolio of residences. Members pay a membership fee and annual dues that grants them points each year to use towards their luxury vacations. Based on the season and property, points are deducted from the members account as they travel. If a member does not use all of their points one year, the points are rolled over to the next, allowing members to use two years to use each year's points.

"We like to say there are three pillars to the Discover Club," continued Walker. "First is our service delivery. We assign a member services representative, carrying a Blackberry, available 24/7 to speak with members. We had a member in China last year when the earthquake happened. They sent the nicest letter, including that the following morning the first phone call they got was from their member services representative who called to make sure they are ok."

"Pillar number two is the strength of our affiliate agreements. We commit to our members that no one will be able to access the property for less than our members will pay. If those affiliate members breach this contract, their contract with us is cancelled. We run all kinds of spider programs to insure this is the case.

"The third pillar is how we manage our finances. We guarantee that 70 percent of their membership fee is available when they want to exit after five years. There is no waiting period, just a refund within an agreed upon period of time which is typically thirty days."

Like the club's three pillars, the Discovery Club offers members three different tiers of membership, ranging from C$98,000 that provides two to three weeks of annual usage to C$270,000, typically six to eight weeks per year.

Based in Canadian dollars, the current conversion rates do allow non-Canadian buyers to enjoy significant discounts on Discover Club memberships and the club has recently introduced a destination club financing option.

"We sell in Canadian dollars, and we were on the phone with a gentleman from California. There is essentially a 25 percent discount to American buyers. We just launched, just this week, a financing program. We have been talking to many prospective members who for understandable reasons don't want to disturb other investments to free up the funds to join the club, and yet they want to join. We allow someone to purchase a membership over a ten year amortized program. About $2,000 per month."

As the financial stability of many destination clubs have come into question recently with High Country Club's restructuring and LUSSO Collection's Chapter 11 filing, the Discovery Club has taken those concerns into account while creating the Discovery Club offering.

"There is a maximum commitment of 500 members. We are selling membership in an increasing amount. When the club is full, the member can sell the membership for the going rate, and even see an appreciation in the membership deposit. We take membership funds, they sit in lazy investments, pretty low yield, low risk, and we use the earning off those funds to purchase the member benefits. We are subject to a full audit, part of the financial indenture we provide to our members. We came through the audit in year one completely profitable and clean on a GAAP basis."

Not owning the real estate available to members offers the club and its members additional security during these economic times. Not only does the club not have high overhead in real estate mortgages each month, even in non-peak periods when members are not traveling, but the global downturn in high end properties has allowed the club to enjoy savings on their wholesale rates and subsequently pass those savings on to members in the form of discounted points for travel use.

"We are thankful that our club model is not such that we have a lot of real estate assets to maintain and finance. Clearly real estate values are falling and the issue of an asset rich balance sheet going offside is a real challenge for some of our colleague clubs. The Discovery Club is insulated from this outcome of the current world economic crisis. As our affiliate properties around the world adjust to lower levels of traveler activity from their regular customer base, they have excess inventory that in many cases they are asking us to promote to our members. What this means is that our wholesale contract rates are actually improving and our ability to offer you experiences with a lower point assignment are becoming commonplace."

As opposed to other travel sales platforms, the Discovery Club utilizes a soft sell when working with their destination club prospects.

"Our whole sales approach is very gentle and we want people to be thorough in their research. Our offices are right here on the waterfront of downtown Victoria. Anyone who is in the area is welcome to stop in. We would be delighted to sit and have a cup of coffee. If folks can't make it to the office, we are set up to do presentations online. Quite often we send two members of our sales team into specific regions."

Many of the problems that new destination clubs face revolve around the substantial real estate costs associated with carrying multiple mortgages. Responsible for only paying for nights that are used by members, the Discovery Club can significantly reduce their fixed, monthly costs and allocate member's deposit towards other club related costs.

If interested in learning more about the Discovery Club and how they compare to other destination clubs, please feel free to contact Destination Club News for a complimentary destination club review.