Futures Forecast

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Futures Forecast

By Harley Rolfe

The following article is the first in a new, monthly series for Inside Self-Storage entitled "Hard-Nosed Marketing" by Harley Rolfe. The column will focus on the application of formal marketing principles to the self-storage industry.

I don't pretend to be clairvoyant, but I wanted to apply to the self-storage industry some of the background I have in other industries that have faced the same types of problems and opportunities. The following are some of the marketing ideas I have for the future of self-storage. (I suspect that some of these activities may already be going on somewhere today).

1. Organizations will form in metropolitan areas to offer prospective customers a central location to call and check for prices and availability in different areas of the locale. This will reduce the current need for a prospective user to have to call a variety of facilities to check for rates and availability. You might call it "Storage Central." If you are going to be a "commodity," you might as will be a convenient one. It will mean that you cooperate with your competitor, which is usually a no-no. There are ways to make this service FTC-proof.

2. Wholesaling will begin where volume users will take rental responsibility for large numbers of units. Apartment complexes will rent a number of units for use by their renters. Local moving companies will subdivide larger units for the temporary storage of their clients' goods. Discounting may occur; however, that will be offset since only "surplus" units will be offered and the facility obligation period can be limited. Thus, facility units will be rented at a discount only until they can be rented at full retail price.

3. The key here, aside from simple bargaining, is to arrange your payments such that most of your income comes from the wholesaler's clients--not the wholesaler. That way only when he's making money with your service does he incur the cost of your service. It puts you both in the same boat and improves your bargaining power, since you are both taking the same risk. That halts one of the major disadvantages of wholesaling: getting too dependent on a large user. (The size is not bad, the unbalanced bargaining power is.)

As another example of this, new homeowners of smaller homes are usually disappointed in the amount of storage contained in their homes. Basements are passé and exterior sheds are unsightly. One of the strongest selling features for upscale homes in the last 10 years has been a third garage for storage. We can compete for satisfying that homeowner's desire by working with contractors/developers--especially for lower-end housing, such as single-family residences and condo projects.

A storage unit of sufficient size--a 10 by10 maybe--would be provided for an up-front--five years, for example--present-value price. This will help the housing contractor/developer to sell his development. At the end of the five years, the occupant will likely rent the unit personally. The idea of marginal vs. fully allocated cost will become a standard consideration in setting rates. The idea is useful in self-storage because it frees the price-setter to offer preferred rates in controlled situations. It is hard to identify an industry with less direct costs in selling the "next" or marginal unit than self-storage.

4. Storage units will be offered as condominiums. It is certainly possible that as storage units become a "habit," a portion of a self-storage facility can be sold. The idea is to have permanent extra space located separately from the residence. For businesses, the approach will appeal to those who eschew leasing as the only option. While there is some up-front effort involved in the additional platting associated with condominium recording, the reward could well be the realization of sufficient condo sales to recover most or all of the initial capital outlays after selling only a fraction of the total facility.

5. That also leads to the consideration of using the condo units as an investment vehicle with the facility management performing as a management company in renting and servicing the units for owners of these investments. This is a variation of item number four.

6. Retail developments/strip malls can increase their rental income by providing off-premise storage that permits their retail tenants to store their back-up inventory. By making it possible to fully utilize all of the high-priced, high-traffic, prime retail space for selling rather than storage, the space value to the retail client goes up. Who realizes the advantage depends on whether the retail tenant or their landlord makes the arrangement for the self-storage space.

I would favor having the relationship with the individual retail tenant rather than the management company or the operating developer for one reason: The developer won't take long to decide to put up storage facilities of his own when he sees a number of his merchants going for the idea. We will have pioneered a good approach and created a competitor.

7. An overt pledge of security to tenants is generally verboten. But, some organizations will figure a way to provide a level of security assurance to a tenant without betting the farm. That will give them a powerful benefit since it will highlight an essential vulnerability of many current self-storage facilities. Other kinds of businesses have the same challenge: How long would you keep your money in a bank that had the same attitude toward the safety of your money as many self-storage facilities have to the property that is stored with them?

8. We should never lose a sale because we didn't have the correct size. Yet, unit mixes seem to be invariably wrong. Since they are built in concrete (literally), considerable periods can elapse before the correct prospect shows up to match what is available. Several things will help, including the following:

  • Design 20 percent of a facility with a good degree of flexibility in physical unit-size dimensions. It is more expensive to provide that flexibility--which is why the whole facility can't be designed in that fashion. But there is a trade-off that equates the cost of having flexibility vs. income penalty of vacancy.
  • Handle it administratively. When you have a unit that is somewhat larger than what is required, rent it for the lower rate. Because rental periods are pretty short, it will be returned to your inventory soon. For modest differences in size, it takes a long time to make up vacancy income while waiting for someone to show up who needs exactly what you happen to have. Or the reverse: If you don't have a larger unit that is needed, but do have a couple of smaller ones, rent the two smaller ones for the same rate that the prospect would have paid for the larger one.
  • Arrange the interior partitions so that the units can be expanded fore-and-aft and side-to-side to permit accommodation of larger tenants. That flexibility will allow the tenant organization to add space incrementally.

9. Some facilities will evolve into specialty operations. Some will stick to a conventional, one-type-fits-all operation. But others will specialize in business/ commercial operations or other types of applications with tailored offerings indigenous to those specialties.

10. More specialized types of marketing will be introduced. Larger operations will be able to introduce this type of market attention from within. Smaller operations will contract with wholesale-type selling organizations that will sell to specialty applications--some of which are enumerated above.

11. As more competitive pressure or apparent saturation develops, the national chains or franchise organizations will offer good marketing support as a part of their bargain with each local operation. They will solve the paucity of marketing expertise that presently exists among many of the current operations.

12. The local and national trade associations have a role to play that includes the following:

  • Expand the pie. It wasn't too long ago that indoor plumbing was a census item. Now, two bathrooms are the norm in new homes. A "two-car family" used to be a real sign of affluence. Now it's commonplace. Earlier we mentioned that three garages are becoming common. These things don't happen by accident. We want to increase the size of the pie--not just slice it into ever-smaller pieces. Effort should be made by the industry associations along with developers/planners for moving unsightly storage out of neighborhoods. This should be reinforced in the media for public consumption.
  • Businesses will be interested to hear how easy it is for them to grow "painlessly." The phrase "do-it-yourself" has become commonplace in residential upgrades. Why not the same for business storage? It's the job of the association to propose to the public new, generic uses of self-storage.
  • Additional off-premise storage can become a way-of-life item for both personal and business applications. Zoning standards/covenants can bar the storage of big recreational toys and storage sheds in nice residential neighborhoods. Help the local planners see the light. A self-storage unit can become a sign of good fortune and a well-ordered life.
  • The national and local associations will take a leading role in setting marketing-planning standards. They will identify and define segment definitions, search out effective correlation bases and establish good procedures for market research. The work proper will be done locally, but will use standards that allow comparative analysis and help with credibility to outside organizations, such as financial institutions, investors and rating groups etc.
  • Price elasticity is low. The association could commission technicians to determine what it is because knowing about elasticity is implicit in every pricing decision being made. If one doesn't know, then one must make a guess. It will probably vary by segment. If so, that would justify very different pricing strategies depending on the segment being pursued.
  • Marketing expertise will come into the industry through evolution. Larger, more venturesome facilities will get some expertise. Others will see their progress and want to attract those people. Items 11 and 12 will kick in to fill that shortage. Through these avenues solid marketing experience and knowledge will permeate the industry.

Harley Rolfe is a retired marketing specialist whose career included executive-level marketing positions with General Electric and AT&T. He owned lodging and office facilities for more than 20 years and now works as a part-time office assistant for a self-storage facility in Nampa, Idaho. Mr. Rolfe holds a bachelor's degree in Economics from Wabash College and a master's of business administration from the University of Indiana.

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