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Growing its presence in China
The weather is warm and humid, the breeze tinged with subtle scents of the sea ... It is the perfect day to hit the beach when I find myself being ushered to interview Henri Giscard d’Estaing, chairman and CEO of Club Med. I am led to a quiet section of the bar at Club Med Phuket facing the crystal clear waters of Kata Beach. Clad in a pink top and khaki shorts, Henri strikes a friendly figure as he greets us with a warm and ready smile.
Henri — the son of former French president Valéry Giscard d’Estaing — is the reason behind the resort’s recent stellar performance. Since he joined the group in the fourth quarter of 2004, he has led a massive turnaround — repositioning, rebranding and revamping the business to one that is very upscale yet family-oriented.
This is a far cry from the original image of the resort founded in 1950 by Gerard Blitz, a Belgian championship-level athlete and resistance fighter. Back then, he was inspired to establish Club Med as an all-inclusive non-profit organisation for youngsters to forget the woes of the Second World War, mingle and have fun, and develop an appreciation for the outdoor life, physical education and sports.
The first village opened on the Spanish island of Mallorca. The original villages were very simple in concept, with members staying in unlit straw huts on a beachfront and sharing communal washing facilities. Such villages have since been replaced with modern blocks or huts with en-suite facilities.
Club Med started small but expanded quickly, opening 19 resorts in the 1950s, 32 in the 1960s, 59 in the 1970s, and 29 in the 1980s. Club Med now owns and operates 75 resorts in 40 countries, ranging from Caribbean beach villages to Alpine ski locations. It also operates luxury cruise ships.
After Henri took over as group chairman and CEO, Club Med resorts — or in Club Med lingo, villages — that did not meet its upscale criteria (four to five trident) were promptly shut down while millions were spent on renovating and upgrading the existing resorts. That includes, for this year, Club Med Phuket, and Kabira Beach and Sahoro, both in Japan.
As we settle down to talk business, Henri declares that 2011 has been one of the more exciting years for the group despite the uncertain economic conditions. Business has grown more than 6% globally to €358 million (RM1.4 billion) while operating profit surged 50% in FY2011 ended Oct 31. On top of that, the group reported a wider distribution channel and increased international presence.
“The increase in operating profit gives us good leverage and is in line with our plans to move upward. In the past four years, the proportion of four to five trident [upscale] customers has surged to 65% from 45%,” says Henri. The number of guests at most of its upscale resorts grew 19%, which is about 130,000 of the total 810,000 customers recorded last year.
“All regions contributed to this sharp improvement, with the best performance recorded in Asia-Pacific. Our strongest growth was in greater China, followed by Southeast Asia. We’ve seen good results in Latin America too, especially in Brazil. Naturally it has been a difficult year with Japan, following the earthquake and tsunami,” says Henri.
Despite the weaker American economy, Sandpiper Bay — Florida’s Club Med — has been doing well after renovations. Henri adds that Club Med has been successful in capturing growth in these regions, with 60% of sales via direct distribution. “The network of franchised agencies in France will expand from 15 to 25 and the ‘shop in shop’ concept in Brazil and China will be deployed at a faster pace,” he says.
Venturing into China
“We plan to make China our second largest market by 2015,” Henri says. By then, the group plans to add three more villages to its existing two (the recently opened Snow Village Yabuli in Shanxi province and the soon-to-open Guangxi Village in Guilin province later this year. At the moment, Club Med’s largest market are the French.
Henri says Chinese customers have been growing at a rapid rate of about 40% since 2003, more than half of which are southern Chinese.
“The all-inclusive package is very well received in the Chinese market. Most are looking for a new experience without venturing too far from their comfort zones — being around Chinese-speaking GOs amid an international atmosphere is something they appreciate and like,” says Henri.
In its bid to tap the growing wealth of China, the board agreed not too long ago to end the predominately European ownership of Club Med in recent years.
In mid-2010, the group agreed to sell a 9.7% stake to Fosun Property Holdings Ltd, a subsidiary of Fosun International Ltd. Incorporated in 1992, Fosun is China’s largest non-government controlled group, with businesses covering steel, property, pharmaceutical, retailing, financial service and strategic investments.
While the Chinese group prefers to lay low and let the other board members make most of the decisions, it is a huge move. Up until the last few years, most of Club Med’s top management have always been European. Other Club Med shareholders include C.M.V.T International (a 9.1% stake), Rolaco (8.8%) and AXA Private Equity Capital (9.9%).
Investing in happiness
Leaseback management of holiday homes and resort property is a thriving business that Club Med ventured into last year. The Albion Villas, which is adjacent to Club Med La Plantation D’Albion in Mauritius, is the international resort chain’s first real-estate investment offering and consists of 40 freehold villas on 11ha of freehold land.
Launched last year, 26 villas have been built, with 24 taken up. Five have been taken up for private use while the remaining buyers have opted for the leaseback scheme. The group is now selling the next phase, comprising five larger villas, with three to four bedrooms.
Building on the buzz generated by its first offering, the international resort chain launched the first phase of freehold chalet-apartments in the French Alps. The project is close to Club Med Valmorel, located in the valleys of Aigueblanche at an altitude of 1,400m to 2,550m. To guarantee exclusivity, only 80 units are available for sale on a freehold basis. The units have two to four bedrooms, and measure 893 to 2088 sq ft, with prices starting from €529,000.
Most of the 27 units offered in the first phrase have been taken up by a diverse group of buyers from 19 different countries, says Henri. He explains that the owners can opt to purchase a villa for private use or lease it back to Club Med, which will manage and maintain the unit for them.
Henri adds that buyers who purchase a Valmorel Club Med chalet and sign a lease management contract for a minimum of nine years will benefit from worldwide advertising campaigns, communication tools and the international renown of the operator’s brand.
The potential return would be about 4% based on a 50% occupancy rate after common levies and fixed charges. During their stay, owners have free access to the adjoining Club Med Valmorel facilities as well as a personal butler.
The group will be rolling out all 80 chalets for sale in phases. “We aim to offer another 40 by next winter”, says Henri, explaining that construction can only take place between May and November. “It is too dangerous to work in the icy terrain during the other months.”
All Club Med chalets and villas are designed by Marc Hertrich and Nicolas Adnet Studios, which also handles Club Med’s resort renovations and refurbishments all over the world.
Other plans
Apart from China, what does the group have in store for the future? “We are looking at many other locations with a very open mind,” says Henri.
“Of course, we are always looking to find potential partners around the world. At the moment, we are eyeing suitable sites in Indonesia, Vietnam and Cambodia. Club Med is also very willing to build a second resort in Malaysia — preferably in East Malaysia,” he adds.
According to Henri, the group had attempted to acquire a beachfront site in Sabah a few years ago. However, negotiations fell through due to the strict land laws.
There are also plans to refurbish Club Med Cherating in the near future. “We hope to build a second swimming pool catering to only adults,” he says.
So what is Club Med’s strategy to weather the financial crisis and shrinking disposal income in hard-hit European countries — its primary market?
“Definitely, we do feel the impact of the economic evolution. But we still try to gain market share in the international market.
That said, I believe our very strong positioning is set to benefit from growth in international markets, especially in Asia. Our all-inclusive package is well adapted to the situation,” says Henri, adding that the resorts provide a good level of comfort with many fun activities, especially for families with children, at a controlled price.
“Once you are in the resort, you don’t need to spend more,” says Henri. He adds that despite the British economy being hit as a result of the eurozone crisis, Club Med managed to gain 10% market share every year for the past three years.
Sticking with a successful formula
The resort chain’s target clientele has shifted from singles, couples and honeymooners to affluent families. “In Asia, 70% of our guests consist of families. Globally, that amounts to slightly over 60%, followed by the 20% that are couples. Last but not least, 10% of our customers use our resorts for meetings, incentives, conferencing and exhibitions,” says Henri.
“For the moment, we will continue to focus on what we do best, all the while investing, adapting and innovating to suit market trends. Targeting affluent and middle-class families is clearly our core business — we have the facilities and know-how to look after children, from babies to teenagers — which is the key to a good holiday. “
He adds that Club Med Phuket has the largest childcare facilities in a resort, and has introduced a new service where infants from four months are welcome. “It is the only resort in Asia which has a dedicated team catering to such a young clientele,” says Henri.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 903, Mar 26-Apr 1, 2012
