Walmart, Costco, Whole foods; which skier are you?  How does this impact real estate?

 

The ski industry has been on a wild ride since the resorts were shut down last March.  Mountain real estate has been on a tear and summer visitation has been off the charts.  What does this mean for the upcoming ski season?  How are the resorts adapting due to the Cornavirus?  What does this mean for real estate?

Walmart and Costco rule skiing throughout the World.

Aaron Brill, the owner of Silverton mountain in SW Colorado said: “the Ikon and Epic passes represent the Costco and Walmart of skiing. He calls it big box consumerism creeping into skiing.” (source Denver Post).  The new model in the ski industry is consolidation and most resorts are getting on one of the two trains.  For example, Telluride is on the Epic Pass train and Copper/Eldora got on the Ikon pass train.  The two passes are approaching consolidation much differently.  Every major resort in the United States is either owned or affiliated with one of the two passes.

The Walmart ski model:

Vail resorts epic pass is going for the lowest cost model to drive volume to its resorts.  Think of Breckenridge; it is one of the busiest resorts in the country.  Vail might be heading towards a “Spirit Airlines” model where getting on the plane is inexpensive and they make their money by the add ons (assigned seats, bags, etc…).  Vail resorts is beginning this shift.  For example, the cost of food at Breckenridge is almost double Steamboat.  My wife was at Breckenridge with our daughter and got chicken nuggets for lunch… the cost $40 dollars for lunch!  At Breckenridge parking is also 10-20 bucks whereas in Steamboat there are several free lots close to the base area.

The Costco ski Model:

Alterra’s Ikon pass is adopting the Costco model.  It is a little more expensive than Walmart, but you get better service and a higher end experience with mountains like Steamboat and Snowmass.  Like Costco, the Ikon pass isn’t trying to be the low-cost leader and then nickel and dime you on everything… at least not yet.

The Whole Foods ski Model:

Resorts like Aspen and Telluride are focusing on the ultra-high net worth markets by pricing their products substantially higher.  For example, a season pass to Aspen is almost 2500 for an adult versus 800-900 for an Ikon or Epic pass.  They are using pricing to limit volume and ensure a better guest experience with limited crowds.

Coronavirus has thrown a wrench in the Costco and Walmart model

When Coronavirus hit, it was immediately apparent that the old ways of doing business would not work. Last season on a powder day on a holiday weekend, lines stretched for half a mile at Vail, in Breckenridge it was taking two hours to get from Breckenridge to Frisco due to traffic volume which led to multiple accidents.  In Steamboat lines for the gondola stretched over a quarter of a mile encompassing most of the base area.  How does this work in the age of Coronavirus?  Unfortunately, it doesn’t.  The models quickly break.  The all you can eat buffet cannot work in the new paradigm.

What happens now?

Epic: Vail resorts is the largest ski operator relying heavily on the “all you can eat buffet” to drive substantial volume to their resorts.  Vail was the first to implement a reservation system where pass holders get 7 reserved days and then can make a reservation the week of if space allows.  This is quite the change from being able to go whenever you wanted.

Ikon: Alterra is taking a different tact where they are not requiring reservations, but they are substantially limiting the ability to purchase day passes to try to control volume.  Copper/Eldora (Powder Corp) which are part of the Ikon pass implemented a policy where users will reserve parking as opposed to lift reservations.  Copper took a twist on this model by saying for 500 dollars more than your pass, you can add on a “premier” pass and have guaranteed parking, ensuring you can ski when you want and also getting a separate line.

Aspen: Aspen which is affiliated with the Ikon pass is going a different route by raising the price of tickets to 2500 for a season pass to substantially reduce volume.  At the same time they are offering less expensive pass products to encourage weekday visitation to spread out the volume.

Why did they each implement different models?

The beauty of America is that each company can decide for themselves how to maximize goodwill and return on their investment.  It is well known that drive up traffic is substantially less valuable than destination traffic so each resort is trying to ensure they protect the destination traveler who is going to spend more money as opposed to the all you can eat buffet.

 

What is the correct solution?

Looking at the four models (will count Copper as a separate model than Alterra) which solution will be the “best model”.  Unfortunately “best” will be dependent on where you fit in the skiing paradigm.  For example if you live in Denver and would come up every weekend, the Vail model doesn’t work for you.  If you are a destination skier the Vail model is spectacular as you can basically have the mountain at substantially reduced capacity.  Alterra on the other hand is pushing people into their pass products to ensure they can ride.  Copper is taking a blended approach with a reservation system but you can upgrade if you want to ensure you are able to ski.

Personally, I think a blended approach will win this season.  The pass products were priced inexpensively in order to gain market share.  Just like the airlines you will see tiering.  For example, first class is priced higher than economy with more amenities. The ski industry will embrace a similar model to optimize revenue and goodwill.  Once riders experience an uncrowded mountain, I’m doubtful they will want to go back to the old free for all.

 

What impact will this have on real estate?

Nightly rentals in Vail communities will have a tough time this winter (Breckenridge, Vail) that are not directly owned or managed by Vail resorts.  With a limitation of 7 days of reserved skiing there will be substantial reductions in volumes.  Each of these markets was built on the assumption of volume which will lead to considerable excess capacity.

In Alterra communities the story will be a bit mixed.  If Alterra can continue the season with no reservations, this will move more volume to places like Steamboat and Winter Park.  Copper’s unique solution will help its lodging as when you reserve lodging you get a parking space and are guaranteed to ski.

Aspen will have little impact as they are already catering to the extremely high net worth they will limit drive up volume which wasn’t that profitable but I don’t see much impact on Aspen rentals.

What will happen in the long term?

Even though this ski season will be unique, I don’t think that the solutions created will magically disappear.  Each of the resorts will continue to evolve and I see some sort of process in place to limit the crazy volumes that many resorts were starting to experience.  They will do this via reservations, limitations of day passes, and pricing.

Impact on ski Real Estate

As volumes decrease in the winter, real estate will be impacted in each of the respective mountain communities.  Winter is by far the most profitable season in the mountains.  During the winter room rates will decline along with occupancy.  Furthermore commercial properties will be impacted due to the decline in volume due to resort limitations.

On the residential side, many nightly rentals will suffer.  I see many of these rentals being sold to second homeowners.  Due to the immense shortage of inventory, they should be absorbed relatively quickly without much if any impact on pricing.

On the commercial side, I’m not as optimistic.  Rental rates will have to come down due to the reduced volume of visitors.  For example the t-shirt shop will sell less t-shirts due to the decline in visitors, they can’t increase the prices much as nobody would buy them.  Businesses will demand reductions in rents or totally close their businesses as they are no longer profitable.

Summary

The changes in the ski industry are here to stay.  I don’t see a return to the “all you can eat” buffet of the past as resorts focus more on the user experience and profit optimization. With volume reductions, residential and commercial property owners will have to adapt to the new paradigm.  The changes in the ski industry to control volume will be with us for the long haul.

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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