By Martin Knuppe
Developing in high-end communities has caused a substantial increase in construction costs.
Several years ago, I came to the disturbing realization that despite the success of many of us in the self-storage industry, we too often fly by the seat of our pants. Though we may have made all the right moves, we don't necessarily understand why. In no area is this more crucial than gaining insight into our customers and how to take significant, detailed steps to better address their needs.
It reminds me of the typical man stumbling into a Victoria's Secret store. He charges into the store on a mission. He knows (or at least he thinks he knows) exactly what he's looking for. After about 10 minutes of wandering around like lost boys at Disneyland, and after waving off sales assistance three times, he reluctantly flags down a clerk. "I could use a little help," he confesses. The sight of it is sadder than a sinner in the priest's confessional.
The questions begin: "Are you looking for anything in particular?" Thinking "Yes!" he finds himself saying "No." Nice going. "And what size is your wife?" Gesturing with his hands, he blurts out, "I'm not really sure." Now he realizes he's in deep trouble. He's in a store full of women being peppered with questions, the answers to which he has absolutely no idea. And his favorite weapons of defense--yelling, raising his voice and generally acting like a child--would only make matters worse. Like a condemned man, he endures; and one half-hour later he slithers out of the store with a tiny pink bag in his hand and 124 bucks charged to his VISA. (Author's disclaimer: Any resemblance to individuals living or deceased is purely fictional--and much too painful to contemplate.)
Well-placed, highly visible security cameras help Victoria feel safe.
It occurs to me that, like the guy in the store, most of us go about our business with little idea who exactly comprises the core of our customer base--the quintessential self-storage customer. More important, we have even less idea how to go about the crucial business of addressing that client's needs, whether in major ways (through project design, for example) or small enhancements. Toward that end, I offer this perspective.
But first let's look at why. Why expend effort trying to understand and satisfy an elusive customer who, in reality, may not even exist? Why invest money making upgrades and adding enhancements? One well-rehearsed argument goes something like this: "I built it cheap 30 years ago and it's still spitting out money. Why should I spend good money fixing what's not broken?" Then there's this argument: "Why paint it, maintain it and market it? After all, it's just storage." This is kind of like saying, "Why feed it? It's just a golden goose." The bottom line is ... the bottom line! Put simply, the most compelling reason to maintain, enhance and upgrade our facilities is that we will make more money by doing so. Let me illustrate.
A Tale of Two Owners
Adhering to local design standards has had the pleasant side-effect of "pleasing Victoria."
Take two owners. Owner A has a 15-year-old facility on the north side of town. It consists of 30,000 square feet and 300 10-by-10 units, each renting for $60 dollars a month. At 90 percent occupancy, his monthly gross income (without processing fees and extras) is $16,200.
By wild coincidence, owner B also has a 15-year-old facility, but on the south side of town. It, too, is 30,000 square feet and boasts the identical occupancy rate in its 300 units. But suppose owner B is able to get 7 percent more for his units because of facility enhancements. A simple chart makes the bottom-line rationale clear:
Let me make four observations: 1) the enhanced facility (owner B) reaps more monthly cash flow; 2) owner B becomes steadily wealthier (based on his yearly gross income); owner B pays back his $25,000 maintenance investment quickly; and 4) owner B increases his value by more than four times his $25,000 investment. Notice that what we are talking about is not just cash flow--as nice as that proposition sounds--but more net worth. In other words, by maintaining and enhancing your facility, not only do you bring in more monthly income, but you also become more steadily wealthy. If you find yourself in need of further convincing, perhaps you should also examine why you're in business.
There's another little bonus owner B derives, which is not readily displayed via the chart. Not only does he bring in more cash flow and increase his net worth at a faster clip, but which owner would you guess attracts the higher grade of customer? In a market with a limited pool of buyers, as you lower your price, you increase your potential number of consumers. Sure. But this being the case, owner A not only makes less money, he becomes the "magnet" for every late-pay, credit risk in town. By being the "low-cost" leader, he also becomes the Pied Piper for many of the marginal clients in his area.
Design and Appearance
Color-coded signs identifying buildings and unit numbers prevents tenants from feeling lost, confused and frustrated.
What does a married, 34-year-old mother of two children (high school age or younger) have to do with this? Statistically speaking, she is the customer the storage industry strives to please--at least in the residential market. As close as we can identify, on a nationwide basis, she is "the face" of the average rental customer. Call her "Victoria"--because she has a secret (actually two).
The first secret is that it's Victoria who decides to clean up the attic, garage, spare bedroom, etc. She is the one who, having driven by a local self-storage facility, now goes to her phone directory and shops prices for storage units much in the manner of comparing retail ads. She then visits the facility of her choice. Finally, she is the one who makes the decision to buy or not to buy. Her husband is relegated to giving the yea or nay, and wrestling the stuff out of the garage, room, closet, etc., and into the unit.
The message: Remember Victoria when making important decisions about the features of your facility or you're dead where you stand.
Whether enhancing an existing facility or designing new, there are two things we had best keep in mind about Victoria: She likes her surroundings to be clean, and she insists upon feeling safe. Violate either of these laws, even on an occasional basis, and she won't return. What's the big deal about losing Victoria? Well, there are thousands of other potential customers just like her. Lose her and you risk losing them all. That's Victoria's second secret. In reality, Victoria and her "friends" are closer to being Ghengis Khan and his Mongol horde. Mistreat them and they'll wreak havoc over your countryside--and they all ride together.
Courtesy spaces--whether for handicapped visitors or moms with small children--should be clearly marked.
Cleanliness is a high priority for the Victorias in our markets. They're environmentally aware, notice their surroundings and want them to be presentable and orderly. Victoria wants the places where she buys groceries, purchases her clothes and stores her belongings to make sense. If you observe the other places where she does business, odds are they exhibit a sense of order and cleanliness. Look closely and you will observe this even in the frenzied success of large merchandisers such as Home Depot and Wal-Mart. That is one reason they continue to be successful.
Victoria also insists upon feeling safe. If there is any key to understanding Victoria, it is this insistence upon security at all times. And note that it is not so much being safe and secure, but feeling such. This can prove to be a difficult and expensive distinction to understand. It's not enough to place a couple of signs in the driveway that read "Surveillance Cameras in Use," or to tell a white lie, "We've never had any problems." She has to feel safe. In reality, your facility can have a flawless crime record and yet fail the "feel safe" test. One well-placed, highly visible camera can do wonders in this regard.
Another aspect related to feeling safe is that Victoria doesn't like feeling lost. She doesn't like wandering down poorly lit halls trying to find her unit. When she gets lost or disoriented, she doesn't feel secure, and that's a major violation in her book. Understanding of this fact should inform our entire design process, with wider, simpler hallways, etc. (More on this point later.)
All exits and other doorways should be easy and quick to locate.
In terms of new facility construction, pleasing Victoria has been an unexpected bonus. As local communities have heightened their approval standards, we are all familiar with the related unpleasantries. Our preference for developing in high-end communities has witnessed our construction costs going from the mid-$20 range per square foot (excluding land cost) to more than $40 per square foot. At the same time, locales have become more architecturally demanding.
Upon completion of our newest facilities, my company noticed an unexpectedly pleasant side effect. Victoria and her Mongol horde flocked to them--and no wonder. The extra dollars we were "encouraged" to spend by local design standards steered us toward extremely Victoria-friendly facilities. In order to gain design and community approvals, we also inadvertently designed the types of clean, secure environments she likes to frequent. I call it the "Victoria Effect." The next time you go to design a new project or upgrade an existing facility, look more to the shopping centers where Victorias shop rather than to your competitor down the street.
The "Victoria Effect" is also the best explanation for why, whenever a new facility is opened in a market, it is always able to draw away new customers from the competition--even with higher prices. A newer facility, regardless of unit-size availability and higher rates, is almost always cleaner and brighter and, therefore, feels safer. Victoria loves this atmosphere and, when convinced of its value, will pay top dollar for it.
Numbers, Signage and Directionals
Once we understand the core of our market--Victoria and her thousands of close, personal friends just like her--it begins to reorient our entire way of thinking. For example, the simple observation that this customer prefers a clean, orderly and safe environment revolutionized my company's entire approach to numbers and signs throughout our facilities. It also gave birth to one of our side businesses.
We used to think numbers were for conveying information, i.e., this is unit #234. I thought signs were for telling ignorant or recalcitrant customers what not to do: Don't park here. Nothing could have been farther from the truth. After much "coaching" by the Victorias of the world, we realized the most important function of unit numbers is that they ought to facilitate leading the customer to his unit. We now spend much more time and effort numbering our facilities in consistent, simple patterns. Rational numbering schemes are especially important for facilities that operate as part of a larger chain where a tenant may use more than one location. It's all part of avoiding that "getting lost" feeling.
Another step the new or existing owner can take to please Victoria--and make more money--is to color-code his buildings. As mentioned above, unit numbers are not just informational or stand-alone placards. A majority of us already assign a number or letter to each of our facility buildings. But this falls far short and, in reality, is often ignored by tenants and management. Just listen to how your managers direct customers to their building. For us, it used to be with a grunt, "Over there," while pointing in the general direction. Now each building is color-coded and marked with a large, colored, acrylic sign (often with an image and building letter or number). All hallways and stairways are also color-coordinated. All courtesy spaces, whether code-mandated handicap zones, or convenience parking for senior citizens or "moms with young kids," are clearly marked.
You should also be using directional signage in your facilities. Bearing in mind that customers don't like to feel lost, you want to provide signage directing them to their units, particularly when it involves internal hallways. Our construction guidelines call for a directional sign at any juncture where a decision of where to turn needs to be made. For first-time renters, we have a standard practice of escorting them to their unit. The need for explicit signage also applies to exit signs within the buildings (lighted signs are best) and in the driveways.
Banish the Paint Can
Another "Victoria observation" leads us into one of my personal obsessions: banishing the paint can. Several years ago, a customer mentioned in passing that the paint drips and splatters on our driveways looked horrible. And she was right. It wasn't so much from repainting the building exteriors--that was done infrequently and by professionals. Rather it was the constant touch-up of building-corner bollards, crimped downspouts, etc.
That simple comment set in motion a new priority in our management. It can do the same for you as you seek to enhance the appearance of your property. We explored ways to reduce ongoing maintenance in our facilities, especially the paint-related kind. Rather than continuously painting building bollards whenever they are hit, we now use colored bollard caps. Made of 1/4-inch plastic and custom-colored to our facilities, these caps can take a tremendous hit and be little the worse for wear.
Downspouts crimped from customers backing into them were another of our perennial problems. Once they were straightened, out came the paint can. Now, we cut off our downspouts at 3 feet above the drive and use a plastic extender to convey the water. If the extender is hit, it has a certain amount of flex and is inexpensive and quick to replace. We are currently experimenting with concrete stain in lieu of painting our slab floors. Floors--particularly well-traveled hallways--are in need of some protective coating. Yet most paint products bubble up over time, unless applied under ideal circumstances. Concrete stain seals the pours of the concrete and prevents spilled oils, etc., from penetrating the floor surface.
Victoria may be a demanding customer, but she is loyal to the end. Providing you acknowledge her basic requirements--cleanliness, orderliness and a sense of security--she and her thousands of friends will have no need to look for a more "respectful" place to do business.
Martin Knuppe has been in the self-storage business for 20 years. He is founder and president of The CastWater Corp., which owns, develops and consults in the self-storage industry. The MiniSource, a CastWater company, sells complete finish packages (numbers, signs, protective products) to "Victoria-friendly" self-storage facilities nationwide. Mr. Knuppe is also a frequent contributor to industry publications and seminars. For more information, call 925.462.4029.
|Facility status||No improvements|
|Monthly gross income||$16,200|
|Payback on 25k maintenance investment||? years|
|Average operating expenses||25%|
|Facility value w/ 10 cap rate||$1,458,000|
|Facility value w/ 9.25 cap rate||$1,576,216|
|Facility status||Several improvements|
|Monthly gross income||$17,334|
|Payback on 25k maintenance investment||1 year, 8 months|
|Average operating expenses||25%|
|Facility value w/ 10 cap rate||$1,560,006|
|Facility value w/ 9.25 cap rate||$1,686,551|
Checklist of Finishing Touches
Eliminate 'Maintenance Painting'