The Timeshare Beat: Jerry Sikes; Costs

At the end of November 2005, General Motors (GM) announced deeper restructuring plans in an effort to assure Wall Street that bankruptcy isn't a threat. GM raised the number of jobs it plans to cut over the next three years to 30,000, and said it expects to lower its annual cost structure by $7 billion by the end of next year. Clearly GM thinks that one major way to reduce COST is to eliminate jobs. When Firms like GM want to impress Wall Street analysts they most often go after the dramatic such as slashing payroll, reevaluation of direct expenses and their other processes. At the time of the announcement, the GM U.S. work force included 111,000 unionized employees and another 39,000 salaried staff. The 30,000-job reduction equates to about 20% of their total work force. The announcement also included plans to buy more components from suppliers outside the States.

Those in the Timeshare / Vacation Ownership Industry that deal with the management and operations of Resorts are also concerned with COSTS. This concern has not suddenly manifested itself; it is and has been ongoing since the beginning of the concept. The reason: our business COSTS are most often directly related to maintenance fees that are passed on to our owners and to many of those owners, these ever-increasing fees are like open sores.

Scottsdale Camelback Resort (SCR) is one such resort. The resort employes about 66 associates and purchases all its supplies locally. Payroll and related COST (FICA, Workers Comp, Benefits, Recruitment, etc.) equate to about 60% of the resort's total annual expenses. Approximately 47% of all the SCR associates are in the Housekeeping Department and generally speaking, are among the lowest paid associates on staff.

Federal and Arizona minimum wage is currently $5.15 per hour however; the Governor wants to raise the state minimum wage to $6.65 per hour. There is always a differential in the minimum wage and the going wage. In Greater Phoenix, the going wage for housekeeping staff member is approximately $8.50 or about $3.35 above the minimum wage. If the Governor gets her way and the increase goes into effect the going wage for housekeeping staff members will approach $10.00 per hour.

As of January 1, 2006, the Santa Fe, New Mexico minimum wage increased to $9.50 an hour and they joined the 130 other cities that have enacted 'living wage' law. This month, Emeryville, California enacted a local $9 minimum wage for hotel workers. If Greater Phoenix were to follow suit, then the going wage for housekeeping staff members will exceed $12.00 per hour and would result in more than a 40% increase in the COST of the housekeeping staff at SCR.

Do we follow the pattern of firms such as GM and make drastic decreases in our employees? How would this effect the SCR product? At SCR we have 4 basic types of units, 50 Studio villas, 52 - 2bd/2bt villas, and 9 - 3bd/2bt villas. Due to the size and mix of our units each guest room attendant cleans approximately 3 units during the typical 8-hour shift. If we were to cut 20% of our staff (the GM standard) we would lose 6 guest room attendants and the labor needed to make 18 villas ready for occupancy to an arriving guest. Does this not become a downward spiral with this cut and the next and the next?

In the hospitality industry there is an age-old saga that goes something like this: A man owned a motel on the primary highway which ran east and west through one of the Midwest states. Business was not good so he began looking for ways to market his property. One very bright advertising salesman sold him a package of 6 billboard signs, three coming from the west and three coming from the east. Within a relatively short period of time, business began to pick up and soon the motel occupancy was excellent. With this added revenue he was able to begin some much needed renovations to the property. Once these projects began he found himself experiencing a cash flow problem and determined that he could cut his billboard sign package from six to four, two from the west and two from the east. Within a few weeks his cash flow problem had escalated and he was looking for some ways to decrease his ongoing costs. Surely he reasoned, one billboard from the west and one from the east would be sufficient to direct guest to his motel? You guessed it, business continued to decline and now he was in real trouble. He had to find ways to make payments on those renovations and the one major expense left to cut was those two remaining billboards. You already know how this saga ended.

FINAL THOUGHT

There is another saga which deals with unique COSTS at the typical Timeshare / Vacation Ownership Resort. This developer had opened three projects in the same major marketplace and wanted to obtain better sales results. One of the primary lead generators used by his marketing group were mini-vacation packages and it was determined that enhancing the prospects' stay at the properties would pay great dividends. This developer placed a bowl of fresh fruit on the dining room table in each villa and had the morning newspaper delivered to the front door every day. On Wednesday night each week he hosted a wine and cheese mixer poolside for each guest. People coming to the property on these mini-vacations seemed to like the added benefits and the developer realized an increase in his net-closing ratio. These programs were continued until all three properties achieved sellout. After the developer departed to another market and the HOA's took over the responsibility of operating the resorts, they could not justify the fruit bowls, newspapers and parties as ongoing COSTS to be passed on to the owners. A few owners complained about these missing 'freebies', however, the most lasting effect was in the scores provided by many of the inbound exchange guests that downgraded these properties as 'not as nice as my home resort' on the exchange firm comment cards. You see, these guests were owners at resort properties still in the sales and marketing arena and all those little perks they were accustomed to, were being paid for by marketing and not from the owners' maintenance fees.

Each spring ARDA presents a group of educational sessions at its Convention and Expo. This year that meeting is being held at the Venetian Resort-Hotel-Casino in Las Vegas between March 26th and the 30th. One of those educational sessions is titled: Controlling Operational Costs and the description is as follows:

"Managers today can explore opportunities to reduce costs of operation in several ways. These savings will be available for continuing resort improvements. Learn the best way to obtain savings by finding better pricing through everything from lowering your operational supply cost to enhancing the overall efficiency of your staffing and operations. Join this informative session and discover ways to control your costs and enhance your product." It will be my pleasure to be one of the four individuals making that presentation. Hope that I see many of you there this year.

JS 1/06