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Many consumer businesses bemoan rising inflation as a buzzkill, but not Hilton Grand Vacations. The timeshare company believes that consumers will find its stably priced product relatively more attractive compared to increasing rates for hotels and vacation homes.
“If you’re a hotel, you’ve got your own costs to cover plus the overall profit you’re trying to drive,” said Gordon Gurnik, chief operating officer. “In our product, fees for maintaining a property really are set at the resort level by the resort homeowners association, and they’re just looking to cover their expenses. There is some inflation in that, for sure. But you don’t have the profit factor.”
To evaluate the inflation-themed sales pitch, know that Orland-based Hilton Grand Vacations was an early industry adopter of a points-based system. Old-school timeshare contracts were title-based, meaning consumers bought a contract for years of access to a specific property. Points-based models offer a more contemporary twist where members typically buy an interest in a club where they can exchange points for stays at a variety of condos or hotels. About 512,000 of Hilton Grand Vacation customers have bought the flexible membership program, while another 210,00 are just owners.
In the past year, Hilton Grand Vacations hasn’t boosted the cost per point in its program, in contrast with sharply rising hotel rates.
Sellers of timeshares can make up net income over the long term by first boosting the percentage of customers who agree to buy after listening to sales pitches. Then the companies can cross-sell or upsell those owners over the years. This latter tactic boosts “volume per guest,” a key industry metric.
David Katz and fellow analysts at Jefferies wrote in a November report that they’re expecting Hilton Grand Vacations’ “volume per guest” to grow between 10 percent and 15 percent a year next year, which would be relatively high compared to the brand’s peers.
Hilton Grand Vacations keeps improving its skill at coaxing current owners to spend more. For September 30, the company reported $4,229 a year in volume per guest, up 23 percent versus the pre-pandemic year of 2019.
“When people look at the overall cost of transient travel, they’re looking at room rates per night,” Gurnik said. “When somebody buys a timeshare product, they’re looking at an investment for the rest of their life.”
Might possible recessions in some markets boost default rates?
“Generally, we’ve had fairly good default rates in the industry because I think we have very good consumers in general,” Gurnik said.
The company said it had gotten better at only selling to qualified individuals, and that helps keep its default rates low. In August, the company said the annualized default rate for its originated portfolio was 4.26 percent. However, some properties it inherited from its $1.4 billion acquisition of 92 Diamond resorts completed in August 2021 may have a somewhat higher rate. In a recession, Barclays analysts said in a recent report they expected this figure to normalize toward prior cycle levels, settling in the mid-to-high teens, or roughly 15 to 16 percent.
“We don’t have a very high default rate compared to others in the industry, and that shows people are happy with our product,” Gurnik said. He added that the company had used data analysis to try only to pitch potential buyers who could afford the investment.
Aiming to Improve Contract Sales
Timeshare companies want to shake off their image of padlocking buyers into multi-year contracts that aren’t a good fit. Hilton Grand Vacations was early in pursuing package sales, which differ from older sales tactics and products.
In the package model, consumers can buy traditional vacation stays, such as three nights in a Malibu hotel, at deeply discounted prices. The stays can be at hotels, resorts, or cruise lines, not just condos. Consumers pay upfront for a chance to travel over a set timespan, typically a year. Guests agree to listen to a timeshare sales pitch during their trip, and they typically earn a pile of loyalty reward points redeemable for travel at Hilton properties as part of the deal.
“We have over 500,000 packages that are currently sold out there,” Gurnik said. “Almost 100,000 people are dated, meaning they have a vacation on the books. That’s a nice number. We’re starting to see tours come back to our historical level. Japan just opened up [by loosening its pandemic-era travel restrictions] in October.”
To boost the percentage of tour takers who become buyers, the company has turned to data analysis. The company said it’s getting better at understanding who is a probable buyer and who has the wherewithal and interest to buy. It’s also improving at predicting what incentives will help close a sale, Gurnik said.
“We’ve done some really good things with modeling to target the right type of people, which improves our systemic efficiency,” Gurnik said. “What do we offer someone to come in and take a tour with us, and how might we potentially incent that person a little more than someone else?”
“The company now uses AI [artificial intelligence] to provide real-time support to their sales agents, drive consistency, and adhere to compliance standards,” wrote analysts at Truist in an August report. “Hilton Grand Vacations expects to drive over $50 million of contract sales to their virtual channels this year.”
Hilton Grand Vacations has been rebranding the sales process and the physical properties of its acquired Diamond portfolio.
Barclays analyst Brandt Montour wrote in a recent report that his team believes “the company will not only continue to benefit from the underlying structural demand tailwinds supporting timeshare contract sales but also benefit from a long tail of self-help relating to the up-branding of the legacy Diamond system.”
The company uses a variety of products to appeal to different customers.
Points-based systems have helped boost consumer trust in timeshares. In older models, a specific product underlies the deal’s value and equates to a number of points you can use there or elsewhere in the network. In newer models, you can buy points for redemption anywhere in the network.
“Those two products appeal to different customers,” Gurnik said. “There is a customer that wants to be in Hawaii every year, and they want that to be what they own, while another customer is just looking for the most cost-effective way to buy a certain number of points for redemption across the network.”
Plans for Growth
Hilton Grand Vacations has said it might like to add more inventory in New York, Charleston, Hawaii, Mexico’s resort areas, and Japan, in particular. It will pursue a combination of development with partners and acquisitions of portfolios wherever demand might exceed supply.
“We’ll continue to look where owners want to be next,” Gurnik said. “If there’s an acquisition that makes sense to fill in the map, we might pursue it.”
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Photo credit: The Beach Resort Sesoko by Hilton Club 5 on Sesoko Island in Okinawa soft-opened a year ago. Source: Hilton Grand Vacations.