By Molly Bilker
Canadian self-storage is an odd body. It seems pretty healthy from the outside. The heart of the market is still pumping in customers to keep facilities healthy. Growth is steady. Renovations and additions to existing facilities are regular. But there's a worrisome microbe in the bloodstream—what Canadian Self Storage Association Director Robert Madsen calls "the discount disease."
While self-storage demand is strong, discounting rental rates is a common practice among operators, Madsen says. It’s decaying profit and keeping the body that is Canadian self-storage from being its healthiest.
The cure comes in the form of marketing. Competitiveness on the Internet reduces the need for lowering costs to bring in more customers, says Hal Spradling, general manager and operating partner of Toronto-based All Canadian Self Storage. Besides, discounting may not even work as well as it seems.
"It’s extremely unlikely these concessions really change anything in the distribution of storage demand," Madsen says. "Self-storage is not a product you can increase market demand just by a price decrease."
A Heart Pumping Steady Demand
While self-storage demand isn't growing rapidly in Canada, it also isn't falling, which Madsen says is a pretty good sign. Occupancies are holding steady or improving slightly. "This will give operators great confidence to hold their rates and even work to improve them to cover some of the rising expenses we’ve experienced over the years," he adds.
Many operators expect to raise rates in 2014, now that occupancy and rental rates are picking up, says Marc Goodin, a civil engineer and owner of Caraquet & RV Storage in Caraquet, New Brunswick, Canada. "After several slow years, the rentals and rental rates are increasing," he says. A large amount of sites should start increasing rents modestly in the coming year, Madsen agrees.
With consistent demand, many operators have renovations and additions planned for the upcoming year. Vanguard Self Storage will add four buildings to the current six at its site in Peterborough, Ontario, a plan the company was always intending to carry out and chose to do in 2014 because demand was steady enough, says site manager Mark Blodgett.
Likewise, All Canadian Self Storage will add roughly 500 units to one facility and build another in Toronto, Spradling says. Apple Self Storage in Aurora, Ontario, has two expansions and a couple sites in early-stage development, says company president Phil Allan.
Madsen points out that while many existing facilities are being expanded, development of new facilities is much more difficult. "We see a lot of new activity brewing in the industry as existing facilities look to expand," he says. "New developments often see problems in high land and construction costs."
The Discount Disease
Discounting is prevalent throughout the Canadian self-storage industry. Apple Self Storage has no plans for increasing rents in the coming months because competition in the area is adding downward pressure on prices. "Everything is just going to keep pushing it down," Allan says. "We've got a lot of our competitors giving away free months and free this and free that."
But discounting only causes operators to lose money in the long run, Spradling says. "If they just figure out how much discount they're doing, how much that's costing them a year, take half of that money and put it in intelligent advertising, they could quit discounting and they'd have more money, more occupancy and better business."
Better advertising and marketing will rid operators of the need to discount, he continues. "The thinking being, ‘Oh, if I discount it, I won't get as much money, but I'll sell more.' And that's a huge fallacy, because to sell more, you have to advertise and expose your product more. Just because you're the lowest guy on the block doesn't mean more people will come to you. They have to know you're the lowest guy on the block."
Another way to minimize losses from discounting is to get creative, Allan advises. He suggests using prepayments such as giving a customer a 10 percent discount if he pays 12 months in advance. This way, the commitment is made and the customer is paid for the full year. "Depending on how you discount, if somebody walks in and wants the price on a 10-by-10 and you just reduce the price, that's one thing," he says. "And that has been happening. But pretty soon, that has to quit happening, because the prices are getting jumped on."
While some operators say rent concessions are “winding down," others, believe it’s rampant. "This is a fact of self-storage life and will become more so as operators become more focused on revenue management," says Mike Burnam, CEO of Columbia, Mo.-based StorageMart, which operates 135 facilities in Canada and the United States.
A Cure? The Digital World
The health of the Canadian self-storage market hangs in the hands of the Internet, according to Spradling. "The powers of the Web and website electronic advertising—marketing—are definitely becoming more important every day," he says. Social media such as Facebook and Twitter are becoming ever more prevalent, while search engines like Google require attentive search engine optimization as part of the marketing.
Without a handle on technology, discounting (and losing profit), may be the only answer, Spradling says. "Most people aren't concentrating on Google and reviews, and on being on the first page. They don't really know how to get there," he says. "They don't know anything about it. So those people, in order to capture the market they're losing, are going into discounting."
Many companies have a number of ideas for how to get involved with technology. Goodin says he uses Facebook and Pinterest, as well as offering customers the ability to research and reserve a unit online.
Blodgett plans to use more technology in 2014. "[We want to] look at new and different venues for advertising such as radio ads, electronic billboards and social media advertising," he says.
It's important operators invest the time and energy in using and understanding new technology when using it as an advertising tool. "How do we stay right up on the leading edge of developing value through technology?" Allan asks. "We invest in it. We invest in people and technologies to try to make it better, constantly."
Technology is rapidly defining and changing the Canadian self-storage market. Though demand may be steady, the playing field has changed. Even smaller operators can now compete with larger chains online, if they do it right. "Get better with the Internet," Allan advises. "Get better with that world, because that's where the generation has moved very, very quickly. The markets have moved dramatically in the last 12 to 18 months. They're not recognizable from where they were two years ago."