Seven Deadly Sins of Self-Storage

Are you really recession-ready?

By R.K. Kliebenstein

Talkof recession is in the air. Whether you are a seasoned operator or the neweststore in lease-up, this has to be a subject of interest. Have you alreadyprepared for an economic downturn, or do you believe your business isrecession-proof?

The prosperity of the last seven years has made many of us lazy. Ihave noticed a trend among owners to let important issues slide because theyhave gotten comfortable in their self-storage business. Let me share some of themost disturbing comments I hear from owners:

These statements are sure indicators of the seven deadly "sins" ofself-storage. They are really just examples of how comfortable we can becomewhen the work has gotten easy. Do you remember the days when you first openedyour store and were trying to reach 80 percent occupancy--when the grass wasgreen, the driveways were fresh and the paint in the office was still wet? Doyou remember how you looked at your occupancy (or lack thereof) each day--andthen did something about it? Let's take a look at each of these seven deadlysins and some ways to correct them.

Staff Replacement

This is a really tough issue. We could spend volumes debating the pros andcons of staff changes, deciding whether they are necessary. But let'sconcentrate on those of you who know your manager or staff is not workinganywhere near peak efficiency. What did their last review look like? Is it yourfault as an owner or supervisor that you did not address issues that neededattention because it was uncomfortable, or because you did not want to spend thetime? This is particularly bad if you have things about your staff's performancethat really bother you, but it was just easier to let them slide. I'm willing tobet your staff thinks they are "doing the best job they can." We alldo. Who wants to admit they are not doing their best?

First, organize your thoughts as to what your expectations--as asupervisor--really are. Set written, achievable goals, then discuss them withyour team. Make sure they have input regarding the solution. Have a written planof action with goals, criteria, measurements and, most important, time frames.Make certain you communicate the importance of performance, then give youremployee a chance to offer a workable solution to meet your goals. Use definite,measurable standards, such as a percentage of delinquency, occupancy levels,call-to-visit conversions and turnover reduction.

Delinquency

Are you reviewing the aged receivable reports with your employees? Are youcharting the delinquency to show how it has increased? Do you review eachaccount more than 30 days past due and formulate a plan of action with the staffto collect? Are you working to settle potential auction accounts, moving out thetenants in high-demand unit sizes?

Let your team know the importance of collections. Even if you are asingle-facility operation, you should have a collection policy that outlineswhen to make the first call, send the first letter, etc. You should also followa regular auction schedule. Each account more than 30 days past due should betracked, and a weekly plan of action should be discussed.

Perhaps you need a consultant to review your auction procedure, limiting yourrisk and exposure. Does your team need a pep talk on professional collectioncalls? Give your team responsibility, but also the authority to make collectiondecisions. Make sure each collection action has a definite result and doesn'tjust delay the issue. This often means when you "make a deal" with atenant, part of the deal is a move-out!

Custodial Duties, Repairs and Maintenance

You only get one chance to make a first impression. Look at the entrance toyour office. Is the door clean? Is there trash between the parking area andoffice? Are all your signs professionally produced and bright? I recentlyconsulted a store where the owner was looking for suggestions on curingdeclining occupancy. There were potholes and cigarette butts in his parking lot;the grass was growing in the cracks in the sidewalk; and the front door wasdirty. The "Do Not Tailgate" sign was faded. The "Hours ofOperation" had changed four years ago--the vinyl letters had been peeledoff the sign and the new hours handwritten in magic marker. I know I wasimpressed!

I asked the manager about his tenant base and he said, "We just don'tget as good a tenant anymore. It must be the neighborhood." Oddly enough,there were two new buildings down the block: a professional office for lawyersand CPAs and a new Starbucks.

Carefully examine your office for cleanliness and good repair. Do you knowthe cost of clogged gutters and downspouts? The answer is roof repairs! If youcannot afford to enlarge your office, at least make sure the desks are clean,there are not hand- written or photocopied signs, and that everything theprospect sees is spotless. If your area code has changed, spend the $20 to makeyour business cards correct--don't scratch out the old number and write in thenew. And remember: This is a place of business. Your manager may live on-site,but the office is for business only--no pets, children, TVs or loud music.

Declining Occupancy

Is there more competition in your area, or is that just an excuse? Do youkeep regular market-intelligence reports on the competition? Do you know theirrates, or do you speculate? When was the last time you conducted a thorough rentsurvey? Do you know how to estimate your competitor's occupancy? What sizecategories have more vacancy than others? Have you recently removed or addedpartitions between some units to create more popular sizes? (If not, youabsolutely should.)

Learn more about your competition. Do you need to add wireless, individualdoor alarms to help your facility compete? Are you regularly adjusting pricingto create some vacancy and keep rents moving upward? Are you testing rental-rateresistance with higher "street" rents? Think economic occupancy, notphysical occupancy. You can't spend physical occupancy, but you can takeeconomic occupancy to the bank. Are you keeping copious traffic reports? Are youmaking use of mystery shoppers and then evaluating, with employees, the resultsand making suggestions? Do you have good incentive plans for full-rate newleases?

Reluctance to Increase Rents

I will admit it may be too late for this step. "When the going is good,the good get going" or "Make hay while the sun is shining" mighthave been good titles for this section. Increasing rental rates is the purestform of beauty in self-storage operations. It is the primary reason manyinvestors get into self-storage.

If you have unit sizes that are full (in demand) and you are referringtenants to your competition, you are basically running a Yellow Pages ad forhim. One of the greatest mistakes you can make is to answer a tenant inquiry bysaying, "I just don't have any of those units available." If you arealready at the high end of rental rates among your competitors, raise yourrents! If you are full in a size category and are turning away potentialrevenue, you might as well start mailing checks to your competition.

You can always lower the rents later, but once you have lost the customer andhe goes elsewhere, the opportunity to get him back is gone. Think about sittingon an airplane: Your seat cost $250 because you booked in advance. Look at thesame seat in the row behind you. That traveler may have bought his ticket at theairport today and paid three or four times as much for the same seat. Revenuemanagement is a common business practice. We used to call it supply and demand.

Examine your rental rates and occupancy on a weekly basis and adjust ratesaccordingly. If you need a consultant to do this, then hire one. (Some industryprofessionals will even do this for a small fee and a percentage of theincreased earnings. You win and the consultant wins.) Discount those sizes thathave high vacancy with temporary "specials."

Declining Productivity

There is no excuse for having a newspaper on the management desk or a TV inthe office. There should be no time for your manager to read a book or watch TVwhile at work. If you are willing to pay people to sit around and read for theirown benefit, please contact me immediately! If you are giving away money, I wantto get in line.

Start a daily checklist of custodial duties. Put tasks such as painting theoffice, striping the parking lot, changing the flowers and washing the doors andbuildings on a monthly rotation. Weekly duties should include washing down thesidewalk, and removing all items from the desks and counters and cleaning with asolvent. The office should smell clean and be clean.

When was the last time the carpets were shampooed or the tile grout cleaned?Are you cleaning the front door and sweeping the sidewalk daily? Is every windowwashed weekly? And what about the computer? Have you looked at the monitor andkeyboard lately? Are they as clean as new? I am certain if you walk yourproperty, you can develop a checklist that will require your employee to hustle.

Decreased Marketing Efforts

Outbound sales calls will create demand. You have to make the phone ring tomake the cash register ring. If your staff is not getting off the property tocreate traffic, it is only a matter of time before your competitor reads thisarticle and takes it to heart. The sales call is a high-rejection, high-energyactivity. It must be made by enthusiastic, knowledgeable sales counselors whoare looking to solve your prospects' space problems.

An employee who has to be forced to make sales calls is one who does notreally care if you succeed. That is a bold statement, but a true one.Professional managers who read this article and have become lax in their salesactivities will be calling their supervisors and owners to get counter coverageso they can make calls. If you get resistance from your employees about makingsales calls, you have problems. As competition gets tougher and the economyweakens, you'll have bigger problems.

Create a incentive program to motivate your manager to make outside salescalls. Make sure you have the office covered so competent help will assistprospects as they arrive. Make certain your salesperson has up-to-date brochuresand some kind of "cha-chi." Do not send him out in the field withdirty or unshined shoes, an untucked shirt, etc. He is a representative of yourbusiness, and he is making a first impression.

Make certain your salesperson knows his mission. Specifically focus on unitsizes or amenities. Role play with him to counter common objections. Start across referral program. Make sure he has a supply of brochures and printed"storage tips." Prepare a special discount for the sales call, forexample, 25 percent off the customer's first box and supply purchase with a newrental. How much money can you make if they take you up on that offer? Whatabout an offer such as "free automatic debit to your checking account forthe monthly rent" as a special promotion?

Let's get up out of the Lazy Boy and make things happen. Did you know thereare even some benefits to a recession--some hidden opportunities? Think aboutit: The Federal Reserves' cure to a recession is the lowering of interest rates.This may be the perfect time to refinance your property. Perhaps talk ofrecession has made you think about taking out money for improvements such aspainting or repaving, or even adding that climate-controlled building you werethinking about. If nothing else, reading this article should have stimulated youto take a morein-depth look at your operations and motivations.

R.K. Kliebenstein is the president of Coast-To-Coast Storage, whichspecializes in financing and consulting services to the self-storage industry.For more information, call 561.367.9241; e-mail [email protected].