Club Med faces trouble in paradise after rough year

Sunday, January 20, 2002

PARIS -- The swaying palm trees and thatched-roof bungalows of Club Med villages from Ixtapa to Bora Bora create an air of tranquility that's not being felt at the French vacation company's headquarters.

Club Mediterranee has shuttered 17 resorts and earlier this month announced its worst results in years: a loss of $62.3 million for the fiscal year ended in October.

The company, which has more than 100 resorts worldwide, was badly hit by the economic downturn and a slump in the travel industry since Sept. 11, but the problem goes deeper. After more than 50 years in the business, some say Club Med's image is getting wrinkles.

"People under 50 don't feel drawn to the same formulas that pleased their parents," said Mark Watkins of France's Coach Omnium, which studies the hotel and restaurant industry. And so many companies have copied Club Med's formula that people looking for rest and relaxation can usually find it cheaper elsewhere, he said.

In recent years, Club Med has tried to play down its reputation as a hedonist paradise for frolicking, suntanned singles, billing itself instead as a family oriented chain with plenty to cater to kids -- like day care and circus workshops. The man behind this transformation was chairman Philippe Bourguignon, who was responsible for turning around the fortunes of Disneyland Paris.

New directions, new clients

Bourguignon has taken Club Med into a different direction, diversifying it by buying health clubs and opening urban "leisure centers." That plan has mystified some observers, who don't understand why a fitness chain and urban night spots would appeal to the company's client base.

The company is also trying to attract younger travelers, recently opening an inexpensive resort in Tunisia where guests sleep in rustic beach huts, share bathrooms and have round-the-clock activities.

The club had 10,000 visitors in 3 1/2 months, but some complained it was simply too Spartan, with too many pizza-and-pasta dinners.

Bourguignon stands behind the company's overall strategy.

"The Club Med model is not out of date," he insisted at a news conference Jan. 8 to present the group's results.

But he admitted it had been a rough year for the Paris-based company. Citing restructuring costs and a collapse in the travel industry, Club Med lost a bigger-than-expected $62.3 million for the year ended Oct. 31, compared to a profit of $52.5 million a year earlier.

Trouble started when the U.S. economy began slowing down. Sept. 11 was the final blow. The company said fallout from the terrorist attacks erased $20.5 million from its operating profit.

Bourguignon has tried to fix the company's problems with a restructuring plan, announced in October, that has closed down 17 resorts, some permanently. The company's board also recommended skipping a dividend payment.

"Either they have to reduce costs or attract new clients with advertising," said Arnaud Frerault of France's Societe Generale.

The company is cautious about the future, and said it would be unwise to make forecasts for the coming months.

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