Here is the latest in our series of interviews with the people leading the key destination clubs. This time, Steve Greer from the LUSSO Collection was kind enough to answer our questions.

LR: Hi Steve. Thanks for taking the time to chat. For whom is LUSSO a natural choice, do you think, and why? Feel free to describe a ‘typical’ scenario, if you like.

SG: A LUSSO membership makes most sense for someone who is committed to traveling a minimum of 2-3 weeks per year and is looking for a luxury travel experience. It works particularly well for those who like to travel with family and friends and will therefore really appreciate the expansive homes that we have in our portfolio.

Since the concept is one of shared access it may require some flexibility at times on the part of the member as to where they travel, so empty nesters find the Club particularly appealing since they have fewer constraints as to when they can travel.

However, the unique way in which we have structured LUSSO makes us a natural choice for a wide range of people, including those with school-age children. Beyond economics, most prospective members are focused on just how easy it to be able to travel at the times that they want to travel and to the sort of places that they want to travel to.

We recognize that some of our members are constrained by when they can travel – typically by the schedules of their school-age children (and not just during the school year, given the extent of participation in other activities during school breaks). This is how we, as I said uniquely, address that:

(1) No more than 35% of our Members will have school-age children

We wouldn’t pretend that someone without school-age children would not consider traveling during school breaks but the fact is that they have a lot more flexibility and often a desire to travel close to, but not overlapping with, those times. For example, taking a spring break trip in early March or mid April rather than between say March 15 and April 7 which are by far the most common school spring break weeks. Airports are less crowded, flights are cheaper (and more readily available) and yet everything at the destination is open – it is certainly not “out of season”.

(2) We sell our Memberships with a balanced geographical dispersion across the country

This achieves two things. Firstly, it spreads out the occurrence of spring break for those Members who do have school-age children more evenly across the peak period. Secondly, it balances the regional travel patterns that exist across the U.S. A perfect example of this is Floridians and Minnesotans – their travel patterns are often diametrically opposed so when Minnesotans are most looking to travel (typically Q1 of the calendar), Floridians are likely to not be traveling.

(3) We have the lowest ratio of Members-to-properties in the destination club industry.

At 5.5:1, if all of our Members traveled 28 days a year our properties would be occupied 42% of the time. Even allowing for a generous use of gift reservations at no extra cost (again, unique to us) we would still be at less than 60% occupancy. Most other clubs are targeting 70% occupancy rates – this could translate to higher than 80% occupancy when expressed as a percentage of “desirable” rather than “theoretical” capacity.

Obviously the 42% is an annual average. The occupancy range is probably from 70% (at certain times during the peak periods (Christmas, New Year, Presidents Week, Spring Break, other “secondary” holidays such as Memorial Day, Independence Day, Labor Day and Thanksgiving, and the 10 prime weeks of summer) down to 30% or less outside of these times.

(4) We only have one tier of individual Membership.

This is crucially important. We have resisted the temptation to offer “LUSSO Lite” – a lower priced, shorter reservation window and capped usage membership level. We believe these would have the effect of “filling in”, albeit closer to a travel date, much of the Club’s capacity not yet reserved by the full-paying Members. These types of Memberships, along with excessive “group” memberships (ours are strictly limited), would have the effect of inflating the effective number of members potentially wanting to use the Club at what are already peak demand times. We also prefer for all of our Members to know that they are on a “level playing field” with all other Members when it comes to reserving properties.

(5) Our Priority Groups for Holiday Periods ensure equitable access for all of our Members and a guarantee of at least one Holiday reservation every year.

LR: Can you explain for us the differences in your plan levels, and the reasons people choose each of them? Can you tell us which is the most popular?

SG: We have only one category of Individual membership and this represents 95% of our overall membership base. The remaining 5% are either group or corporate memberships where the primary differences are a cap on the total number of days’ usage each year.

See above as to why we decided to maintain one only category of individual membership.

LR: What do you think are the most important questions a prospective member should ask of a destination club? Any questions that people tend to forget?

SG: Ask a lot of questions about availability and delve into specifics about destinations you are interested in – don’t just accept aggregate statistics that may not reveal what is of most interest to you. Make sure that % availability in future periods is genuine availability and does not happen to be available because no members are allowed to reserve for that period yet.

If additional incentives (i.e. relative to advertised price) are being offered to entice you to join, ask why and ask how you can be sure that other and better incentives will not be offered to the next person. Ask how the cost of these incentives is likely to impact the dues you will be paying in future.

LR: How do you respond to the very common (and important) question ‘What guarantee do I have that I will always be able to receive a refund of my membership deposit?’

SG: We have an industry-leading DepositTrust™ feature that provides our Members with a secured interest in our real estate assets – ahead of general creditors and investors. We also commit in the Membership Agreement that no less than 85% of the Deposit will be used for real estate purposes or held in cash. We report semi-annually on our compliance with this commitment.

LR: Equity-based destination clubs seem to be gaining popularity. Do you think the trend will continue, and what do you see as the strengths and weaknesses of that model compared with the options you offer?

The trend is likely to continue, however such clubs are often hampered by (i) a members-to-properties ratio closer to 10:1 which severely limits availability, and (ii) an potential inability to publicly market the Club (e.g. Crescendo) if it is indeed a security. We don’t feel that the existence of reasonable amounts of leverage is a deterrent to potential members – most would gladly trade greater availability for some reasonable degree of leverage on the real estate.

LR: Service is a huge part of what destination clubs offer their members, but it’s not always clear to prospective members just what they might be able to expect. Can you give us any examples of times when your staff have been able to go the extra mile, or help out in unusual situations?

SG: We have many examples….here are a few.

A friend accompanying one of our members suffered a bereavement of a family member back home during the trip – our concierge showed up at 5am to drive the friend to the airport so that there was minimal disruption to the rest of the vacation party and the friend was personally accompanied back from the property to the airport.

Our concierge in Hawaii, knowing that a member in residence loved to cook, called from the local market to tell about the wonderful monkfish that was rarely available but was in that day. He brought it over and the member still talks about that wonderful little touch and what a difference it made to her vacation experience.

Members traveling from the Twin Cities with two small children, connecting in Phoenix to go to Lake Tahoe, left their Baby Bjorn (baby carrier) in the overhead compartment of the flight into Phoenix and only discovered it after running to catch the connecting flight. Before the aircraft door closed on the connecting flight the husband text messaged the concierge asking if she could find a replacement product for them. When they landed in Reno he had a text message waiting from the concierge confirming that it had been done and would be waiting for them when they arrived at the club property in Lake Tahoe.

Members in Deer Valley, out snowmobiling for the day, decided they were too tired to eat out that night and wanted to dine in. They used their Blackberry to e-mail the concierge on her Blackberry and requested her to cancel their dinner reservation and to have a list of groceries in the residence by the time they returned from snowmobiling. Needless to say, the concierge arranged all of this and had the property ready for their return, fireplace burning, kitchen stocked, etc etc.

Within a week of joining the club, one member contacted our “Wherever, Whenever” concierge service that is available to all members and requested tickets to the London premier of the latest Harry Potter movie a few weeks later. The concierge service came up with two tickets, at no cost to the member (when they were selling for $4,000 each).

LR: What’s on the horizon for the company?

SG: Continued growth of the membership base and the property/destination portfolio. A third of our members are referrals from other members and we expect this to be a significant component of our future growth.

We may also consider launching similar clubs perhaps with different geographical focus.

LR: What’s on the horizon for the industry as a whole?

SG: Total destination club memberships sold to date across all clubs is no more than 6,000.

Industry observers predict that the destination club category could grow to anywhere from 50,000 to 500,000 in the U.S. – though at the higher end of this scale it is likely that more would be at lower price points than LUSSO.

Regardless, we can confidently say that less than 1% of our target audience has joined a destination club and the sector has achieved less than 10% (possibly as little as 1%) of its ultimate penetration.

With growth, particularly with lower priced clubs selling memberships in large volumes, is likely to come regulation similar to that seen in the timeshare and fractional sectors.

OUR ANALYSIS

One of the most useful things about these interviews is that they provide a chance to see how the people driving the destination clubs handle themselves. We think it says a lot if a CEO comes across as having his or her head screwed on straight, and having thought through the important questions and considerations.

Steve has given solid answers and shown that LUSSO really has taken the time to consider the key issues. We’ve always been impressed with the way that LUSSO conducts itself, and we think this interview provides more evidence that they’re running a tight ship.

Steve makes some excellent points about assessing destination clubs, and we’ll chime in to say that he’s 100% right that destination club members owe it to themselves to check out the clubs thoroughly.

OTHER ARTICLES THAT MAY BE OF INTEREST

• LUSSO member survey
• Try before you buy
• Destination clubs - an overview
• Private Escapes and Ultimate Resort merger
• Gold passes for LUSSO members