Fixed weeks and the resale market

Discussion in 'Purchasing DVC' started by SFlaDisneyfans, Nov 6, 2013.

  1. dmunsil

    dmunsil Disney Uber-Nerd

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    I don't think I understand your point; can you phrase it another way?

    My mental model is of someone who buys a membership and then does nothing. They get busy with work, life, etc. and they never call in and never do anything (other than make their dues payments). If such an owner had a normal contract, their inaction will inevitably make some rooms available for breakage revenue, which eventually flows to Disney once the 2.5% cap is reached (and it seems to have been reached for all resorts for the last few years). If the owner has a fixed week, though, there is no breakage to be had. The fixed week comes and goes, and their points are used to rent a week that does nothing for anyone.

    So the bottom line is that fixed weeks *might* result in lower breakage revenue. Perhaps Disney's waiting to see if that's actually going to happen or not before they commit to selling more weeks.
     
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  3. wdrl

    wdrl DIS Veteran

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    First, I don't believe the little amount of revenue generated from breakage inventory would persuade DVD to hold off on selling more fixed weeks. Keep in mind that the fixed week deeds sold to date average 337 points. At $150 a point, that is an average of $50,542 per deed that DVD is passing up for a small amount of income.

    Second, I'm not positive but I believe that Fixed Week owners are subject to the same rules as traditional point owners when it comes to not showing up for a reservation: A no-show on the first day of the reservation forfeits the entire reservation. If Disney subsequently can book the room, it counts as breakage income.
     
  4. Dean

    Dean DIS Veteran<br><a href="http://www.wdwinfo.com/dis

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    It's not that uncommon historically for someone to buy a timeshare then never use it. As it applies in this case they'd own say 300 VGF points tied to a given week. If they paid the dues and never used it, the points AND room would go unused and wasted. No one loses except the owner. I too don't think either the dollars or in principle that they would specifically structure sales hoping to get breakage. There will be very little breakage at VGF in all likelihood, it will likely not get to the 2.5% level where DVCMC would take home the extra. Remember that a fixed week also reduces costs in other areas. Less phone calls overall, less cleaning compared to shorter stays, etc. No other answer makes any sense other than they simply have chosen to sell it this way so far for whatever thinking led them to that decision. When Marriott has combined floating time with fixed weeks, they normally sell out the high demand as all fixed weeks or as a very small window floating time like Xmas, NY and Spring Break.
     
  5. dmunsil

    dmunsil Disney Uber-Nerd

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    If they feel like they're going to sell all those points anyway, then there's no extra money in it for them to sell the points as a fixed week.

    Disney has enough history with DVC to feel pretty confident that they'll sell all the points eventually. So selling someone a fixed week deed doesn't have a huge advantage for Disney. In the end, they'll sell the 98% or so of the resort, and they'll get the same amount of money whether 5% of the deeds are fixed week or 15% of the deeds are fixed week.

    But consider that if 15% of the deeds are fixed week vs. 5%, that extra 10% is a pretty significant chunk of inventory that realistically isn't going to get any breakage. Yes, they can go ahead and forfeit the reservation if the person doesn't show up for the first day, but then they have 6 more nights that are going to be super hard to book, I would think.

    And we have no idea how much money breakage is worth to Disney. As far as I can tell, they've hit the 2.5% cap every year that I can find on every resort I've looked at (but I haven't looked at them all). Everything over that amount goes to Disney. It could be a significant source of revenue; how would we know? As Dean says, it's not uncommon for people to buy a timeshare and not use it.
     
  6. Dean

    Dean DIS Veteran<br><a href="http://www.wdwinfo.com/dis

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    I think it's dramatically unlikely they'll hit the breakage limit with VGF. While there may not be any advantage to selling the fixed week, there's absolutely no disadvantage that I can see. Personally I think there are subtle advantages related to reservation systems, phone calls, etc to the fixed weeks. Had they not gone there with the last 2 properties, we wouldn't have been having this discussion but they did. Regardless I can't see them making the decisions on breakage inventory, it's simply too small of a fish overall. Personally, if I suspected they were making such decisions in that direction, I'd start to question every little decision and thus wouldn't be comfortable owning. Put another way, we have to have a certain amount of trust to make owning worthwhile. Making this type of decision to manipulate the breakage would cross over that line for me personally.

    The other component I was thinking was related to the balance of one week vs another. They may not be comfortable with having 35% for some weeks fixed and little or none for many weeks, not that there's any inherent disadvantage, they may be limiting the fixed weeks to try to sell them across all weeks. Remember they really don't have much experience in this arena thus I still think the most likely reason is simply cold feet.

    DVC has a history of being overly optimistic on sales and putting themselves in a situation of being disappointed. In part this was what happened at VB and HH and probably for HI and AKV as well. This is obviously not the only issue, they've been notoriously passive about getting people in for tours over the years though we see some subtle hints that they are changing in this area at least somewhat.
     
  7. DVC Dude

    DVC Dude Disney World Rocks!

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    I think Fixed weeks are especially desirable at small resorts like VGF and not so desirable for a larger resort like SSR.

    The main advantage is that you are guaranteed your week and room type and that is a great benefit for small resorts like VGF that book up fast or even worse has people "walking" their reservations.
     
  8. tjkraz

    tjkraz <img src="http://www.wdwinfo.com/images/silver.jpg

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    Reduced overhead. Given a choice between selling 10,000 deeds of 200 points each or 8600 deeds of 230 points, the latter is going to be a more profitable venture.
     
  9. wdrl

    wdrl DIS Veteran

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    To prove your point: To date, the traditional points deeds sold through 11/07/2013 average 136.5 points per deed. The Fixed Week deeds are averaging 337 points per deed.
     
  10. dmunsil

    dmunsil Disney Uber-Nerd

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    An excellent point. One would think that the fixed weeks are primarily a kind of upsell. But if so, why are they limiting the weeks that they're selling, beyond the 35% rule (which obviously they created themselves in the first place).

    Obviously if fixed weeks were unambiguously ultra-fantastic for Disney, they'd be selling all of them they could, and maybe would have originally decided to make the limit larger, like 50% or something. And if fixed weeks were an obviously terrible deal for Disney, they wouldn't offer them at all, or make them cost more not just via requiring more points, but through an actual higher cost structure, like a 10% extra cost per point or something.

    Right now, as Dean says, they seem to have cold feet about them. They're being extra-conservative about selling them, and I'm just curious why. Sure, we'll likely never know, but if idly speculating about Disney's motives is wrong, then I don't want to be right. :)

    Really I doubt the loss of breakage revenue is a deal-breaker, but it's not clear that it's trivial either. As I said earlier, all the resorts I've looked at have hit the 2.5% cap, and we have no idea how much money is being made beyond that cap. It could be a significant enough sum that the loss of a percentage of it is noticeable.

    And if it's not the breakage loss, what then? The only other good reason I can think of is to enforce artificial scarcity as a sales tool. It can help people feel like there are deals passing them by if the salespeople say, "Several weeks are already sold out; you should jump on this now."

    But it might be something else. Any ideas? Come on, hop in the speculation pool. The water's fine. :)
     
  11. Dean

    Dean DIS Veteran<br><a href="http://www.wdwinfo.com/dis

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    Remember this is somewhat uncharted territory for DVC and represents a significant paradigm shift even at 35%. I suspect they're simply uncomfortable with the direction. I'm sure they'd hear a lot of complaints if they sold the high demand weeks as most or all fixed weeks as well because that'd mean NO access to that time. From a sales perspective, it would be much better because they'd sell more points to less people who would call in less and require less MS interactions. That can reduce their costs and thus increase their profits on the DVCMC side as well as the DVD sales side. Ultimately I doubt we'll ever have a true answer and I'll say now that the guides will not have the answer even when they give one.
     

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