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Gorin: The Park Industry Needs Modern Product

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August 8, 2013 by   - () Leave a Comment

David Gorin

David Gorin David Gorin is the former president of ARVC and is currently the president of Best Parks in America and the principal of David Gorin Associates LLC. The following In Sites column appears in the August issue of Woodall's Campground Management. He can be reached by e-mail at david@bestparksinamerica.

Just about every industry, product or service I can think of, from the mundane like breakfast cereals to the most sophisticated technology products like mobile phones and tablet computers, go through regular innovation and new product introductions from brand new products to a “new and improved” version of their reliable long term products.

The RV industry thrives on introducing new products ranging from totally new RV models to new and improved versions of old reliable rigs that have sold well for years. The recent recession sparked innovation among RV manufacturers to make their product lines more in sync with the new market emerging from the ashes of the recession. Smaller RVs. Lighter RVs. New floorplans. Island kitchen counters. A renewed emphasis on travel trailers. An emphasis on rigs designed for long-term camping in a single location. Engines with greater energy efficiency. And on and on.

For every RV manufacturer that fell victim to the recession, a new one emerged with new product for new times.

The RV industry lives in two worlds. World one is the world where the manufacturers try to grow the market and get more Americans to go camping and buy RVs. Thus, we have Go RVing.

World two is the world of innovation that drives committed RVers to purchasing new and improved rigs to meet new needs and wants and to entice the RVers to upgrade or buy that new rig with the latest design, efficiency, floorplan, technology or whatever.

The key is product innovation to keep the rigs in sync with the various markets and to keep consumers interest in the newest and best. We all want the latest and greatest whether its cell phones, televisions, cars, fashion, kitchen, home appliances, RVs and so on.

Savvy park owners and operators in the campground and RV park business introduce new products – activities, services, sites, cabins or whatever – each year to keep and excite past guests to come back regularly and to entice new guests by assuring them that the resort is keeping up with the times. New park products and services – premium and upgraded sites, site food service delivery, water play features of various kinds, new cabins, new and more entertainment, golf cart and other rental recreational amenities, new and enlarged RV sites, introduction of accessible sites, new and upgraded restrooms – are some examples of new products and services featured in many parks under the heading of “new for this year!”

And, of course, in the RV industry and in the park industry, new product often allows increasing fees and prices.

One thing savvy business people also realize is that innovation and new product introductions always entail some level of risk. Regardless of the innovation, there is always a cost and there is always some uncertainty of how the innovation will be received in the market. Risk and innovation go hand in hand in every situation. Risk can be minimized but every time something new is tried, there is a risk associated with it. By the time six or eight RV models had slideouts in them, the market data reduced the risk of the next RV introduction with a slide out. After a dozen or so RV parks introduced water slides and other park owners could visit the parks and talk with the owners, the next water park built was less risky than the first.

Risk and innovation are what keep industries alive and growing. If there are no risk takers, there is little or no innovation and little if any growth.

In the park industry, the ultimate innovation and risk is the development of a new RV park. Totally new. Built on land where none previously existed.

In my view, the RV park and campground business needs new RV park products. Not just older parks with new restrooms or a new clubhouse, not one upgraded with Band-Aids, water slides or other adjustments. Brand new.

Survey Results

In June, I surveyed state campground associations to find out how many new parks have come online between 2003 and 2008 and since 2008. Eighteen states responded to the survey and the results are interesting. And this period included the peak years of new RV sales culminating in 2006 with a 25-year record of 390,000 sales.

Between 2003 and 2008:

• One state indicated that three new parks were built, opened and are operating during that period.

• Six states indicated that they could locate just two new parks during that period.

• Eleven states reported either zero or one new park.

Since 2008, the picture is pretty much the same except that only one state reported two parks and the others reported either zero or one. Now, again, remember that this period included the recession years where RV sales plummeted to the 165,000-level, the financial markets busted and funding for construction generally dried up.

Why so little new park construction prior to the recession and post-recession?

I think the answer lies in what RV park owners consider to be the extreme risk that lies in new construction and business development. Park owners (and many other business people) want immediate cash flow to cover loans and generate immediate NOI. They are unwilling to take the risk associated with development and opening of a new business and potential for larger profits or bankruptcy. Development requires zoning and permitting, site planning, construction budgeting and funding and a business plan based on opening a successful new business that will develop revenue sufficient to pay back the construction loans, carry a mortgage going forward and develop a stable and superior income within a reasonable period of time. And provide an opportunity to refinance in a reasonable period of time so the investors can recover their investment.

Prior to the recession, the best new parks that came into the market came in as condominium resorts where sites could be sold for prices high enough to pay back loans as sales were made and where the immediate income was sufficient to allow the park to be built to a high standard that surpassed almost anything on the open to the public market.

The biggest players in the park business – Equity Lifestyle Properties (Encore or ELS), Carefree RV Resorts, KOA and Sun Communities, for example – grow their business by acquiring existing parks. Not one of these companies has introduced innovation and new products into the industry in the form of new parks built to a modern standard. They tend to buy, Band-Aid, raise rents and occupancy, refinance and repeat the process – more Band-Aids, higher rents and occupancy, etc.

Given the successes of these companies, it’s certainly hard to take issue with their model.

In the survey noted above, I asked what were the primary obstacles to building a new park. The responses were pretty much as expected. Access to funding was mentioned more frequently than any other reason. This was followed by regulatory issues, especially water and waste water concerns, and the length of time to gain regulatory approval for a project.

Industry Needs to Address These Issues

As an industry, I think several issues need to be addressed.

• First, can we agree that the park industry needs new product in the form of new, modern RV parks and campgrounds that can attract the new, younger outdoor enthusiasts, new RV owners, families and empty nesters?

• Second, there is a need for very clear and accurate operational and cost of doing business data on which sound business plans can be built that will provide developers and bankers with reliable information on which to base decisions.

• Third, we need a business model that allows a new park to develop sufficient revenue and profits to make building a new campground as attractive as building a new hotel. Campgrounds require considerably lower investment to develop – let’s say 50% less. So if site fees are set at 50% of nearby mid-range newer hotel fees, and if occupancy can be built to approach hotel levels (60% or so), developing and operating a new park could be a feasible business idea.

• Fourth, how can the industry help control construction costs? This seems to be the most risky park of building a new park – uncertainty of bringing the project in on time and on budget. The best way to achieve this is to attract experienced developers to developing parks.

The job of a developer is to acquire land, entitle the land for a particular purpose, build the infrastructure and then perhaps sell the entitled, developed land to a builder/operator, or to build out the project for an operator who agrees to either buy or lease the new park without the development risk – a build-to-suit model similar to that used in commercial real estate.

The recession has created some outstanding opportunities to locate new RV parks and campgrounds in some very desirable locations – high quality tourist and recreation areas where land prices have come down to earth from very high pre-recession prices that made new development difficult if not impossible.

It would be to the benefit of both the park and the RV industries if new 21st century parks designed and built to meet the needs and wants of today’s market can be developed. You can’t build and grow either industry without innovation and new product. And with the new and vibrant interest in outdoor recreation the time seems right for innovation and taking modest risk for future rewards. No risk, no innovation, no growth.

 

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