Services on the SideAncillary products reap profits for owners, convenience for customers
|Copyright 2014 by Virgo Publishing.|
|By: Teri L. Lanza|
|Posted on: 03/01/2000|
Services on the SideAncillary products reap profits for owners, convenience for customers
By Teri L. Lanza
There's no more gratifying feeling than when hard work pays off. You know you've reached that brass ring when you can kick back at the end of a long day to sip an ice-tea or crack open a beer, breath a deep sigh and think, "Life is good. Occupancies are up. My software program didn't even blink at the new year. I've got that problem with delinquent tenants nipped in the bud. I even did a routine maintenance check on the roof. I've got it all covered."
But before you revel too much in self-satisfaction, here's a newsflash for you: If your facility is running smoothly and things look good, the truth is, they could be even better. If you're wondering how that's possible, ask yourself whether you could stand to make greater profits with minimal effort this year. Similarly, if your scenario isn't as picture-perfect as the one described above, and you'd like to see things turn around, here's a concept for you to entertain: ancillary products and services.
It isn't unusual to find a facility operator who sells the occasional lock to his residents. But these days, ancillary products, such as locks, boxes, mattress covers, etc., are playing a much greater role in your average self-storage operation. Managers are discovering that these products--and their related services--are a fantastic way to draw business and boost revenue. Whether you offer a few incidentals or feature a solid retail space within your office area, what you are truly offering your customers is convenience, and that translates into better customer relations, better overall business.
"I find facilities are searching to use their office space as a place to sell retail product," says Nancy Martin, national sales manager for Chateau Products, which has been catering to the self-storage industry for nine years. "They're making that space bigger and brighter, including display and wall equipment to exhibit products; and they're starting to lean towards the moving-and-storage center idea, where a person can come in and buy anything he needs, including boxes and packing materials and, of course, locks for their storage units and rental trucks." According to Martin, most new sites are being built with space for an actual retail store included.
Ken Stephan, sales manager for Stuart, Fla.-based Key Mart Inc., agrees that the sale of ancillary products has boomed in recent years. "I walked into a store the other day while out visiting customers and was shocked--it was like walking into a little retail store. A lot of the items being sold are bigger and take a little more place to display, but it all looks very uniform once it's on the floor or the wall," he says.
What items are being sold? Aside from the predictable locks and cardboard boxes, facilities are expanding into the sale of such items as mattress covers, Styrofoam peanuts, tape and tape dispensers, dropcloths, tie-down cords and straps, bungee cords, razor knives, shelving, moving blankets, gloves, flashlights, marking pens--anything that will facilitate a move or the organization of a storage unit. Let's not forget the inclusion of services, such as truck rental, or the rental of other common equipment, such as that you might rent at a grocery or hardware store.
That's not all. According to Kathleen White, senior vice president of Dahn Corp., a national real-estate investment and asset-management company based in Irvine, Calif., "The ancillary business has changed considerably in recent years. Most facilities entered the market offering boxes, locks, tape and other moving supplies. Today, some offer conference rooms, mailbox rentals, message services, truck rental, fax services, packing services, business-record retrieval, etc." With so many money-making options, an owner would be foolish not to at least consider the sale of ancillary products or services.
Getting on the Bandwagon
Of course retail may not be plausible for every facility--each market is different. "A prudent self-storage operator should know the market and needs of the tenant before offering ancillaries," says White. "Inventory-control procedures are an important part of ensuring successful sale of these products."
Martin suggests examining your surroundings before taking on retail sale of items. "You want to look at what your market is like," she says. "Is there a university close by with lots of college students? You can gear your product towards different segments: housing, office, industrial. You want to look at your visibility from the road and make sure you mention that you sell boxes, for example, on your sign. Definitely have some kind of signage--inside and out--that lets people know you carry moving supplies. Also have reminders on your phone message. In your Yellow Pages advertising, make sure you list the products you sell."
While White feels less is better when offering ancillary products and suggests you only offer those items your tenants have requested, Stephan asserts that to be more aggressive in the marketplace, you have to offer more. "It doesn't take much--just the right display. And the earnings are definitely worth it. If you have more products on the wall being advertised, you sell more. And your little retail items add up after a while." Just decide beforehand how much you want to invest in the sale of these products. But as with most things, you get out what you put in. Martin agrees: "The more you offer, the more money you're going to make, and the more walk-in business you're going to have."
"We've got basically two types of operators," points out Kirk Nash, vice president and chief operating officer of On the Move Inc., which sponsors a turn-key, truck-rental program for self-storage among other industries. "We've got the cutting-edge operator who wants to offer as much as he can to the customer, because it's a lot easier to keep a facility full than it is to get it full. Then there's the last guy on the block, who's only doing it because everyone else has done it, and if he doesn't, he's going from 60 percent to 40 percent occupancy, so he goes kicking and screaming.
"An argument can be made that the sale of ancillaries takes the manager away from other business. The flip side to that coin is that you want to serve your customer so he comes to you instead of going to someone else. Personally, I think the cutting-edge storage operations are giving customers everything they can in an ancillary product without detracting from their primary purpose: selling storage."
Profits To Be Had
According to Chris Shope, Southwest sales manager for LAI Group, which specializes in security products, "In all the facilities I make sales calls on, I would say probably 90 percent are selling locks or some other product to their customers." While he has come across some smaller facilities that are not participating in the selling of retail product because of a reluctance to pay taxes on those sales, he says he doesn't believe that cost would be sufficient enough to override the profits to be made.
"It's to their advantage to sell these items," he says. "We sell locks to the managers and owners at a great price, which allows them to sell to their customers at a great price, and they're still coming in below the Home Depots and Kmarts. If you can offer your customers security and, above all, great security, and they can purchase it right when they rent their unit, that's definitely convenient for them. You can make a good profit and offer your customers the best service. You make out, the customer makes out, and we make out. It makes everyone happy."
As Stephan points out, offering ancillary products encourages customers to think of you as more than just a self-storage operation. "If you advertise 'space available,' that's one thing. Someone will drive by and really not think twice about it. But if they see a sign that says, 'boxes and packing material,' they might not have even thought that a storage place would have something like that. It does draw in your customer."
Choosing What to Sell
The question of whether less is more when selling products and services on the side is debatable. One item may sell extremely well, but who's to say five won't sell better? Whatever you decide, be certain to listen to your customers' requests and honor them. They'll let you know on what they're willing to spend their hard-earned money.
"We are constantly adding new products to the line, thinking of what a self-storage facility could possibly sell," says Martin. "We added 10 new pages to our catalogue this year, and a lot of what we added were things customers suggested to us. Each one of our telemarketers here keeps a running list of things people ask for and we don't have. When we do our catalogues, we source these products."
LAI also takes its ideas for products from one-on-one conversations with the managers and owners. According to Shope, locks are the number-one choice for ancillary products, with boxes a close second. But what if you could take these items one step further? Private labeling is becoming a popular choice among operators, because in addition to offering the convenience of the product to customers, it becomes additional advertising and reinforcement for your facility.
"Before you get into the sale of ancillary products, think about just how much you want to get into it," suggest Stephan. "I suggest you go the whole way and private label every product you can. In business today, name is everything--product recognition is everything. I have a client in Miami with 15 facilities, and everything that goes into his stores has his colors and name on it. He's actually selling his name throughout the community."
Martin agrees private labeling has its advantages. "Companies with anywhere from three to 300 facilities are now wanting to have their name out there. They want people to have boxes with their name on them so that they are more visible. I find that--big and small--the smart people are going private label, because they're trying to build up their name and make it so people come to them with their needs."
Once you've decided what to buy, the issue becomes, how much? White says all of Dahn's facilities have set quantities they order, as well as set reorder amounts. "Each property has a different volume of business, and we keep approximately $500 of inventory at the facility," she says.
Martin says her clients report the sale of ancillaries absolutely helps their business, and the profit margin can be great, but it's important to carry a large variety and keep plenty of stock. "It's important to look like you're in business," she says. "When people walk in the door, it's important to have lots of options. Very rarely will someone buy something when there's only one left on the shelf. But if they see that you have a supply, and it's priced fairly, you'll sell it."
She stresses you should be sure you're competitive with the market around you. "Really think about the customer walking through the door and what he would pay for something. You want to make sure you're making at least a 30 percent profit margin--and with most things you can make 50 percent--but make sure also that you're being fair and competitive with all the major retailers around you. The customer is not stupid--he knows if the product is cheaper somewhere else. You can't get away with charging too much for your products."
Choosing a Distributor
You won't want for options when it comes to selecting a distributor with which to do business. There are several vendors who specialize in self-storage and sell all the pertinent ancillary products. When you choose, be sure to keep in mind your level of service. "Find out how quickly you can get your product and what your freight costs are," Martin suggests. "Compare different products, and make sure you're comparing apples to apples in terms of quality."
According to Stephan, the most important consideration when selecting a distributor is whether or not they have knowledge of the industry. "There are new suppliers that import all of their product out of the Orient, and there are suppliers that offer a variety of products, but you should support your industry," he says. "Sometimes a local vendor won't anticipate the products you need. Yes, they can get it, but what about when you need something down the road? Keyed-alikes, for example? Will they be able to get the same keys for you down the line? The distributors in the industry know the industry, and they can better help you with your decisions."
At the same time, Shope points out there are several companies selling multiple products, and while one-stop shopping can be convenient, there are other options. "Every major city across the United States has a box supplier, for example. And most of the time, they deliver for free."
In addition to products, there are services you, as an operator, may want to offer your tenants, either for cash or to secure the rental. One particularly profitable option is truck rentals. "I would say the most important ancillary product after locks is trucks, because everybody coming into your facility is coming in a truck," says On the Move's Nash. His company sells or leases trucks to the self-storage industry, ultimately for rental to the general public. On the Move also supplies all the necessary insurance and rental forms.
The primary benefit to offering this service is convenience for the customer--not to mention that it offers managers a means of sealing the deal for a wavering prospective tenant. "If someone's moving into a facility, they're probably going to need a truck," says Nash. "To have that truck available at your facility so they don't have to go elsewhere to rent it is a service to the customer. But it also adds a profit center--and a very large one--for some operators. The operator purchases or leases the truck, then rents or comps it out to tenants. Often, they'll comp a truck instead of running a special on the unit price. The other added benefit is that they now have a moving billboard advertising their business."
What about the expense? Although offering truck rentals will involve an initial investment, Nash says an owner can expect to see a return on his investment within three months. Out of the 3,000 trucks he's providing to the self-storage industry each year, he only sees maybe two come back a year on their guarantee, indicating the turn-key program to be successful. "We don't want trucks out there that aren't working for people," he says. "But we've had steady growth over the nine years we've been in business in this industry, so the popularity is increasing--there's no doubt about that."
Nash points out that while all operators have the option of becoming a Hertz, Ryder, U-Haul or Penske dealer, this doesn't afford them the advantage of having their own facility name advertised on the side of the truck. He does confide, however, that offering one of these truck-rental services is still better than offering none at all.
Wrapping (or Packing, or Locking) Up
In terms of offering convenience for your customers, and creating extra profits for your business, the retail sale of ancillary products and services is a difficult avenue to miss. The planning, inventory and initial investment involved will prove to far outweigh themselves for the operator who can afford to make more money and have a better relationship with his customers. Remember: Creating a retail space at your facility not only offers an opportunity to improve your financial picture, it's another way to interact with tenants and respond to their needs, generating word-of-mouth referrals and overall satisfaction.
"Today, even your little mom-and-pop operations own five facilities, and they've gotten away from the little countertop business," says Stepan. "They've moved on to bigger and better things, like the sale of retail items. To keep up with the changing times, it's worth it. I think in the future, business is going to come down to selling a lot of retail product."