It ain’t no rocket science. Selling a home on land that you already own for $5 million (at a cost of $2,000,000) gives the same amount of profit as 30,000 skier days at $100 per day. Each home sold brings in one more wealthy family that will come back every year and purchase at least four season’s passes for the family, and spend money in the resort village. That doesn’t suck.
Most of these resorts thought real estate always goes up in the long haul, even if the RE markets are cyclical, because that was the only experience they had. The problem was that the bubble created from over 40 years of excess borrowing popped, and we are now in uncharted waters. For example, if mortgage rates go from 3% to 4.5 (still historically low), does that mean the average person with a mortgage can buy approximately 50% less home? Our economy did not deflate because the Fed is doing exactly what got us in trouble to begin with. What happens when the printing stops? So far everything is OK for the wealthy but not the people out of jobs. What we do know is that some trends don’t change. For example, Lake Tahoe real estate will always lag wealth creation in the Bay area by a few years.
So what works for resorts? The answer is simple: Meeting or exceeding expectations of a defined market. For some resorts it means catering to the wealthy and giving them the best food, service and lodging for the defined market’s ski season, which for some is X-mass to New Years. Giving them what they want, making them feel good about themselves and letting them pay for it works for Deer Valley and others just fine. For other hills the idea is to serve everyone. Others are local hills that serve…locals. Perhaps the defined market wants to purchase second and third homes, and perhaps not.
The problem is what happens when customer expectations change? How can a smaller hill serving locals survive when they need to charge $800 for a pass to break even and they are competing with an EPIC Local pass sold for a few hundred dollars less? How can smaller hills survive when they haven’t reserved for lift replacement, and the competition is loaded with high speed quads and 6-packs? How can a hill in one state continue to survive based solely upon skier days while another resort just as close to the local airport also earns revenue from lodging, food, conventions, real estate sales and summer activities (e,g, Cottonwood Canyons resorts vs. Park City resorts)? The answer to survival is defining a market and serving (not servicing) it while being flexible and creative enough to change when necessary. When the customer expectations change due to the competition these hills have to also change. This means forming alliances with other hills, changing profit models, etc. This is why I believe the seven Utah resorts will eventually have an “interconnect.” It will keep a couple resorts in the black, greatly increase business for the others, and increase business for the entire state.
Right now Vail Resorts is the only operator that is growing at a rate rapidly enough for everyone to take notice. For the most part the company meets or exceeds customer expectations. When they buy a resort, all the local competition is forced to change by either lowering pass pricing or by forming creative alliances with other hills because Vail changes the expectations of their competitor's customers. Vail Resorts has growth that begets growth. Growth means they can find and retain the best management, being able to afford them. Growth continues from cross selling from other owned properties and businesses, which the other hills cannot do. Growth means the ability to serve every market segment while the competition cannot do this. Growth means access to capital markets or self-funding CAPEX, while other hills struggle or go out of business because they can’t even afford to replace aging chairlifts. Growth means being able to advertise while other resorts are struggling to break even. In some ways Vail reminds me of the big box stores that came into the county where I grew up. The people in our one-red-light town received lower prices and a much better selection of goods, while the smaller businesses on Main Street were forced to shut their doors. Even in the ski industry someone is always moving the cheese. But smaller businesses don’t have to shut their doors if they adapt. Everyone here knows of at least one ski shop that is doing quite well (deservingly so) despite the rise in big box sellers and the overall decline in the industry. Start Haus and other shops that "get it" defined their market and exceed customer expectations. This ain't no rocket science.
Edited by quant2325 - 9/4/13 at 10:35pm