Summer has been a hot topic in resort circles for years. I’ve run a couple of snowboard companies so understand what extreme, snow dependent, seasonality means. I’ve visited resorts, written about resorts, but never worked for one. SAM, I think, thought I was the right balance of insider and outsider for this assignment.
At the beginning, this was supposed to be a straight forward article on summer business. I started with the simple idea that summer provides welcome cash flow in the off season. I figured out pretty quickly that summer activities at winter resorts is no longer an isolated topic, but part of the broader (and changing) circumstances winter resorts are facing.
That is, summer operations should be considered as one of the factors that will affect resorts’ success in the future. For some, summer ops could provide a bit of off-season cash flow; for others, it could become a major revenue source. I think there’s a group that’s going to need it to survive.
The summer business discussion has gone from afterthought or nice-to-have to more of a necessity for more resorts. Partly, that’s a global warming issue. But it also has to do with changes in our competitive positioning.
It’s important to understand the range of motivations, opportunities, and challenges that summer represents. We should put these into the context of global warming, the difficulty of financing a one-season business, and the current state of summer in winter resorts.
This broader view will force us to ask the questions where the answers are not obvious and there may well be more than one correct answer. Those are the fun questions to ask. It’s always useful to know what you don’t know.
I will generalize a great deal. Among other things, I’m adopting the institutional bias of using the term “resort” to mean any hill with lift served snow sliding.
Every resort is unique. When you send me the inevitable email or post on saminfo.com about how I’m wrong (which I welcome, because it’s the way I learn new stuff), saying, “It’s not that way at our resort!” I’m sure you’ll be right. Let’s plunge ahead anyway.
Forces of Nature
Global warming and climate change. Whichever moniker you prefer, it looks like we’re stuck with it. I’m not here to debate the cause. To leap right into my first generalization—and recognizing that climate change may help some resorts and hurt others—there’s going to be more summer, or at least more climate volatility. That means summer activities are going to be a survival necessity for some “winter” resorts, not simply an additional source of revenue to help even out cash flow. It means that some winter resorts won’t remain winter resorts.
I think what I just said is noncontroversial. Gloomy and maybe scary, but noncontroversial (and an opportunity for those willing to take a shot).
A second force of nature: former Intrawest CEO Bill Jensen. At The Assembly, in late January, he classified the approximately 470 U.S. winter resorts according to their financial structure and viability over the next decade or so. Here’s how he broke those resorts down.
Status Quo 125
Bill’s classification was based on a number of factors including revenue growth, EBITDA, their ability to fund maintenance as well as capital expenditures, and leverage. In this hierarchy, it’s good to be Uber and bad to be Sunset.
To be clear, he did not say the 150 Sunset areas were all disappearing. But he characterized them as having declining revenue, struggling to generate positive EBITDA and to find enough cash for maintenance, and lacking any source of financing. That doesn’t sound promising. I imagine some will go out of business, others will struggle along, and others will find a way to evolve, perhaps involving summer activities.
The Industry Financial Model
The winter resort business is the only industry where a negative current ratio on a balance sheet doesn’t lead to me assume the business can’t pay its bills. God, I’ve even gotten used to the idea.
Most financiers haven’t, though. When you’re dependent on uncontrollable events (the weather comes to mind), you are going to have a hard time borrowing money unless you’ve got a really strong balance sheet. Of course, if you’ve got a really strong balance sheet, you probably don’t need to borrow money.
So survival ends up being about diversification, cash flow, and the balance sheet strength to survive a bad winter. Don’t quite know what you do when you get three or four bad winters in a row. I suppose resorts in California know. I can imagine this bout of warm, dry weather has pushed some them into Bill’s Survival or even Sunset category.
How to cope? Consolidation continues, because it helps resorts diversify. Some resorts are running down their balance sheets to stay in business. That can’t go on forever. Smaller, more climate impacted-—by which I think I mean either/or lower elevation and further south—mountains will have to react soonest. Actually, they better already be reacting.
Still, it could be worse—you could be running a snowboard hard goods company- which I did. Foolishly, I did it twice. You put up letters of credit in February for product that gets delivered around June and then you ship it to retailers who don’t want to pay you until sometime after Christmas, if you’re lucky. I used to pray some retailer would want his preseason discount badly enough to send me a check during the summer.
What you learn is that just a little summer cash flow makes a big difference. And that gets us, at last, back to the subject of summer activities at winter resorts. For some, non-winter business is going to be a survival factor. For others it’s going to just make their financial life a little easier and their bottom line better.
What’s Going on Out There?
My favorite annual source of light reading, NSAA’s Economic Analysis 2014, tells us: “Ski areas are increasingly offering summer activities, leveraging summer visitors and traffic to fill hotel beds, utilize base lodges and conference space, and run (chairlifts and trams. Nationally, 72 percent of ski areas in the study report at least some revenue from summer operations. Of those with summer operations, total summer revenue averaged $3.8 million. The average resort with summer operations was open 107 days, employed 211 people, and contributed 12.9 percent of annual revenue from summer operations.”
Remember, however, that this report is skewed towards the larger resorts. Average winter visits for the resorts in the report is about 290,000. For resorts overall, the average is about 120,000 (that is, 57 million visits, divided among 470 resorts). So the truly “average” resort likely does a lot less than $3.8 million in summer revenues.
What operations are resorts pursuing in summer? It runs the gamut from Camelback’s Camelbeach water and adventure park to Angel Fire’s just-announced luxury (and year-round) RV park to the Liberty Mountain Snowflex Centre summer ski and snowboard camp. And of course it’s all the concerts, weddings, hiking, mountain biking, golf, zip lines, etc., that are almost too numerous to list. Every resort is different, after all.
The NSAA Journal summarized a lot of that in its summer 2014 issue, citing three surveys it had done on the subject of summer business. If you are an NSAA member and haven’t seen the article, log on and read it. It’s worth doing.
Inevitably, NSAA raised as many questions as it answered. It found—not surprisingly—that “The most common summer activities and events at ski areas leverage existing infrastructure.” Hope so. Equally unsurprising, “Less common at ski resorts are activities that require a greater level of investment in new infrastructure…” However, “…those activities that require additional investment and infrastructure tend to perform better financially, while those that leverage existing infrastructure aren’t rated as highly from an ROI standpoint.”
Hmmm. I’d have to see the various ROI calculations before I believed that. In any event, while I believe in ROI, for resorts that are fundamentally winter-focused I’m more interested in incremental cash flow from summer than ROI. If you invest in mountain biking, people eat your food and drink your drink. But the costs of getting those people to eat and drink (excluding variable, incremental costs of course) could show up on the mountain biking ledger. So calculating an ROI is not a trivial exercise, and there’s a number of ways I could imagine doing it. Incremental cash flow, however, I know how to measure.
What’s a Winter Resort to Do?
Let me ask a really stupid question. Are people who don’t take chair lifts for granted scared of them? Remember, the view from a chair looks a lot higher in summer when there’s no snow on the ground. And, not to push this too far, snow looks way better to fall on than dirt and rocks.
Stupid question number two: How do mountains that don’t do snow sliding in the winter but are summer tourist destinations make their money? What activities do they offer? Has anybody done that study? It’s the first thing I’d want to know.
Third question: what’s the potential in summer business? The NSAA Journal article reports that consumers say that “the top reason for not visiting a mountain area for a summer trip was, ‘just haven’t thought about it.’” However, the level of attractiveness for such a vacation was high, once it was suggested. I’m just a finance-trained guy, but I sense a marketing opportunity here.
We are also told that 39 percent of summer visitors are locals or second homeowners. Where the hell did the other 61 percent come from?
How many summer visitors are winter visitors at the same resort? One of the NSAA studies notes that “…about one-third of operators did not know whether their winter guests visited in summer or vice versa.” Oh dear. I am also curious to know if summer visitors return at the same rate as winter visitors and, of the 470 resorts, how many are actually candidates for some form of summer business.
Here are the questions and approach I might take if I was trying to evaluate summer opportunities at my winter resort.
- What’s your goal in developing summer activities? Either you’re trying to generate some incremental revenue with fairly low risk, or you’re prepared to make some significant investment. There is, of course, a continuum here between a little and lot.
Due to climate change and some of the factors Jensen outlined, certain winter resorts have no choice but to build their summer business. It’s an existential issue. But it may also be too late for some, as financing just isn’t available unless there are some creative joint ventures out there.
I’m told that’s happening. Resorts have land and infrastructure that can support entrepreneurs with a good summer idea and access to capital. I’d encourage mountains that have some financial flexibility at this point to figure out how important summer might be in 10 or 15 years and build toward that.
- Resorts ask, “Should I use my existing facilities or invest in new activities?” The answer is yes. I’m pretty sure people who come in the summer are going to need parking spaces, bathrooms, and food at a minimum. And even if all you did was open your trails to hiking, there’s some expense involving signage, insurance, etc.
- How do you structure your summer operations? The winter resort model, where you buy a lift ticket and use it time after time over one or multiple days, doesn’t work for many summer operations. The price of the lift ticket is going to be built in to the cost of the wedding at the facility on the top of the mountain.
Perhaps other aspects of summer business have winter analogs. We have spent endless time and effort on making the process of learning to ski and snowboard easier and less intimidating. Yet I’ve never heard anybody talk about making it easier for new summer visitors. I already mentioned, half humorously, the issue of lift fear. What else do summer guests need to know to make their visit more successful? How are procedures, staffing, and flow different in the summer than the winter?
- What activities are possible? I assume that anybody active in or considering summer activities knows where their customers come from and what summer activities already exist in their market area as they consider which activities might make sense. As someone said at The Assembly, a zip line is probably a bad idea if there’s one every 20 miles along the road to your mountain.
Competitive Analysis and Market Position
If I had clean slate, I’d start by making a chart of all (reasonably) possible summer activities. Then rank them, in two more columns, by cost and target audience. Writing that was easy, but filling in the blanks is no doubt a lot of work.
The only things that are truly unique about you are your terrain, that it’s lift served, and that you’ve got gravity working for you once you get off that lift. I suppose, then, that the fourth column on my chart would be an indicator of which activities played to these strengths.
One more column: What summer activities are already available in your market area? If you are going to duplicate any of those, use great caution, but evaluate the synergies among local activities. Invite, for example, people to stay at your lodging while taking advantage of other nearby activities. Any co-marketing opportunities available?
My goal would be to select related activities that create an attractive package given the resort’s facilities, location, target audience, and financial capabilities. That might be one activity or half a dozen.
After figuring this out for myself, I learned that SE Group does exactly this kind of planning for summer as well as winter activities, and they’ve been at mountain planning for over 50 years. I talked with Kent Sharp, a principal there, about their process.
“We start with physical planning, to see what fits,” he says. “Then we look at the demographics and location and level of current summer visits, not just at the resort but in the surrounding area. We create a plan based on what’s missing, then do a financial analysis to determine the level of investment required, and the potential return.”
Kent confirmed some of my suspicions: that operating expenses are a lot lower in summer and, as a result, margins are higher. But he cautions, “This is true for resorts or communities that have good summer visitation already. If you’re starting from a very low or non-existent summer base, embarking on a full suite of summer activities may not be the right solution for you.”
Once you find yourself in the summer business, there are a couple of other things to think about. First, you are no longer a winter resort. Or at least less than you were. You are, if not four-season, at least multi-season.
David Belin, director of consulting services at RRC Associates, reminded me that “summer” really starts when the kids get out of school and ends when they go back. That’s a shorter season than winter, but the visitation tends to be steadier. “Attracting families is a huge opportunity and, unlike during the winter, we don’t just get to do it during school breaks and holidays—we have a whole three months,” Belin says.
Suddenly, you have a new group of customers. Or do you? We’ve already learned that some resorts with summer activities don’t know who’s coming when. And we know that winter resorts are so well branded as winter resorts that some consumers just never think to visit them during the summer.
This looks like a job for some strong marketing people. How do you want your customers to think about you? Existing customers know your winter brand. What’s your summer brand? That would be an interesting question to ask in an upcoming survey.
And how do you make the transition to a summer business? Your summer activities are not going to spring into existence fully formed and functional; you will likely phase them in. There are issues of logistics, finance, and the fact that there are only 24 hours in the day. How quickly and in what order do you bring them online?
Next question: how does your marketing evolve? How do you position your resort for your old and new customers as your activity expands? “Summer resort” or “four-season resort” doesn’t tell me much. I guess I’m asking how the act of having summer activities impacts your customer base and how they think about you. Is there any risk there? Vail, Aspen, and Camelback seem to have it figured out. Can you?
Opportunity and Necessity
The issue is choice. There are more leisure time activities. To the extent they involve sitting on your ass and playing video games, that’s hard for us to address directly.
But there are other destinations, be they Disneyland, golf resorts, spas, or a host of others that operate year round. They have a fundamental financial/cash flow advantage, to the extent that their off season is shorter or nonexistent. Their financial model doesn’t suck. I wonder if that doesn’t translate into a pricing advantage if they choose to take it.
Climate change and competition for leisure dollars are the two reasons why summer activities, and the resulting repositioning of winter resorts as multi-season resorts, are necessary. What that means for each individual resort, though, is different.
I imagine there are a few mountains that don’t need to operate in summer. And there’s a group that can’t. But if you fall into the broad category of those that need to and can, please don’t let the inconvenience or perceived risk of making changes stop you from thinking about the issues I’ve raised.
The biggest risk is taking no risk at all.