COVID 19 Impact on Inventory Management

It is indeed heartening to hear about the reopening of most resorts in Florida and other parts of the country as of the beginning of June. It was even better to hear Michael Brown, CEO of Wyndham Destinations announce this week at the Bernstein Strategic Decisions Conference that their bookings for the second half of the year look like the bookings for the same half in 2019. But even as one cheers on the efforts across the industry to reopen and keep the resorts safe for the Owners and staff, one has to wonder what the impact of COVID 19 is going to be for Clubs trying to manage the precious inventory for the summer and beyond. Obviously, the answers are going to be different for those that are in sales as opposed to those that are sold out. Here is a brief note on the impact of COVID 19 for those interested in revenue and inventory management.

First, and the most obvious impact of the crisis is the looming inventory crunch. Yes, that’s right! Despite all the unused inventory over the last three months, the result of COVID 19 is going to be a major inventory crunch. Roughly, 25% of the Owners at timeshare resorts across the country have been denied their right to a vacation assuming that resorts have been closed for about 3 months, from sometime in March to sometime in June. To put this in perspective, a Club that has, for example, 200,000 Owners (roughly the size of say Bluegreen Vacation Club) would have nearly 50,000 Owners who would have been disenfranchised and unable to take their vacations because of the closures.

Let’s take this example one step further. If we assumed that all those 50,000 odd Owners owned a full week equivalent within a Points Club, that would mean 350,000 room nights of usage that now potentially has to be fulfilled with the inventory in the remainder of the summer and the rest of the year or potentially even be pushed out to the following year. What can Club Managers do to accommodate these Owners who have not been able to use their week?

In addition, for those Clubs that are in Sales, there needs to be a balance between making inventory available for Owners and inventory for Guests who are arriving to tour the resorts i.e. potential new buyers. In talking to a few people in the Industry, I have anecdotally gathered evidence that Mini-Vacs/Trial Packages are being sold successfully and that the sales decks are going to open up along with the resorts. It seems that while close rates on these calls to sell the Mini-Vacs is lower than before, the contact rates are pretty high as more people are at home to take their calls. All this means that sales decks are going to be busy touring Prospective Buyers. So then, how does the Club accommodate the needs of Sales even as it tries to do the right thing for its Owners?

While there are no easy answers to the inventory problem, here are some strategies to mitigate the problem. Assuming that the Clubs will want to take care of their disenfranchised Owners, it is likely that they would tweak the Club policies to allow for onetime extensions of expiring points and spread the demand over to future years. Also, many including Disney Vacation Club have already placed restrictions or stopped Owners from borrowing points from future year entitlements in order to not exacerbate the inventory crunch. Some Clubs may also be willing to use some of their unsold inventory to fulfill some of this obligation instead of renting it out assuming that the payback would be in the form of higher upgrade sales to the Owners that occupy them. Hilton and Wyndham have already stated that they are going to lean on the Owners for more upgrade sales this year.

Another creative strategy would be to promote more out-of-network usage of points. For some Developers and Clubs that have access to powerful Partner Connectivity Platforms, their Owners could use their points to potentially book Hotels or other out-of-network experiences. It is also likely that this will be a good time for Developers to negotiate great deals with Hotels and Experience Providers struggling to increase their bookings. The costs incurred in provisioning these out-of-network stays and experiences can be traded off appropriately with the likely ability to sell more at their sales decks as they use their own inventory to optimize the mix of Owners and Prospective Buyers at their resorts.

Last but not the least, it should be noted that this crisis has awakened the Developer to the necessity of reconfiguring their products, processes, and systems. In particular, there is an urgent need for new-age digital platforms that can help rethink their processes that are stuck in the rigidity of their legacy systems. The ideal time to execute change is when markets are in disarray and conventional performance metrics go out the window. In fact, many clubs are already reconfiguring their physical resorts, re-tooling systems and preparing new value propositions for market re-entry.

In conclusion, while it is counterintuitive, there will be an inventory crunch for many Developers and Clubs for the rest of the year and beyond. But this is also good news. The reason is that timeshare Owners are going to be driving this summer to the nearest resort to take a welcome break from all the stress from COVID 19. However, due to the shutdown, there isn’t going to be enough inventory for the remainder of the year to service all the Owners this year. Clubs will have to use a variety of creative strategies to help them manage this inventory crunch. The crisis has also resurrected the need for Developers to innovate or die by initiating change across all their systems and processes. The upside to all of this is that Owners will still be vacationing, and Developers will be in active sales!

Sri Raghavan is the CEO of Club Alchemy LLC. Club Alchemy is a state of the art, digital, cloud-based, Inventory Management, Partner Connectivity, and Booking Platform tailored to meet the needs of the timeshare industry. Club Alchemy platform supports several major Developers and over 300,000 Owners with their vacation needs. Prior to founding his company, Sri was the Senior Vice President of Global Revenue Management and Analytics at RCI. You can reach Sri by writing him at sri@clubalchemy.com.