Following the announcement of the $200 million Private Escapes and Ultimate Resort merger, Private Escapes’ CEO Richard Keith spoke with Helium Report about what’s next for destination clubs, why bigger is better and why he thinks tiered pricing is the future of the industry.

The combined Private Escapes-Ultimate Resort club will have 1,200 members making it the second largest club in the industry behind behemoth Exclusive Resorts. That membership number is important, said Keith, who will serve as chairman and co-CEO of the new club, because it is only as a club reaches the 1,000-member mark does it find the greatest opportunity to scale growth. More members means gaining more recruits by referral. And more members, of course, equal a greater amount of capital to invest in new homes and destinations. “Big will get bigger,” he said. “A merger gives the club the ability to scale overnight.”

As a result of the merger, which will close in November, the newly combined club will have some 140 homes in 50 different destinations. The club, said Keith, will have a substantial budget for new homes and destinations. Larger clubs will be more likely to buy multiple residential units, anywhere from five to ten homes in developments, and such clubs are in a better position to take advantage of offers from large luxury resort developers early in the sales process. “There is terrific pre-construction pricing,” he said.

Tiered pricing works

Keith started the Private Escapes operations in Ft. Collins, Colo. where he oversaw the development of a custom reservations system, a tool that proved to be attractive feature to Ultimate Resort in the merger. Another appeal? Private Escapes’ unique tiered plans that offer members different sizes of properties. After all, he said, empty nesters and couples have different needs than families with small children. Instead of a 4,500 square foot home, they are equally happy in smaller, yet still luxurious property.

An industry in its infancy

Keith said the destination club industry is still in its early stages, with some 5,000 to 6,000 members, but the full market potential is in the tens of thousands of members, if not more. Early customer reluctance to join, he notes, will be steadily overcome as the tenure of clubs lengthens. Additionally, a self-imposed industry ethical code now in the works will not only help to curtail outside regulation but reassure customers of the financial soundness of individual clubs by requiring basic financial disclosures.

An ethical code is necessary he said because destination club members’ appetite for risk is limited. He sees new customers migrating towards proven brands. In fact, he sees a market that is dominated by the two largest brands who will maintain an 80 percent lock on the industry, while the next tier of companies battle for the remaining slice, and likely he said, think about their own mergers. What’s next? He anticipates that the Private Escapes and Ultimate Resort deal may spur a wave of small company mergers among clubs seeking to get to that magic 1,000-member mark.