With all this talk of economic doom and gloom what does this really mean for the self storage operator and what should you be doing now to position your business for a downturn in economic conditions?
Lets be clear, self storage is not recession proof, in fact there are almost no industries that are. Self storage, like any other industry that relies on consumer spending, will be affected by a downturn in the economy. There are already signs that in some areas enquiry levels have dropped and some centres have had negative net move ins over a three-month period for the first time. However, self storage does have some advantages over other industries. If people are forced to downsize their houses they are likely to use self storage to store their excess stuff ‘until things pick up and we can move back to a bigger place’. Businesses will be looking at their expenses and self storage is a flexible storage option where they only pay for what they need, rather than renting a warehouse that may not always be full, or office space that can be used more productively for staff or other income generation. There are definite advantages for self storage, but do not become complacent about the potential effects of a downturn in the economy, it will pose significant challenges to the self storage industry and to ignore this could prove the downfall of your business.
There are several things that you can be doing now to prepare your business for any economic storm it may need to survive. The first is basic debtor management. For most people self storage is not a necessity, if there is a shortage of cash around then it will be the self storage bill that is left unpaid rather than the power or telephone bills. When times are tough bad debts and late payments increase everywhere, but particularly in those industries where people think they can get away with it with limited impact on their daily lives. It is extremely important to manage your debtors. Begin the process as soon as you can, don’t wait until they are months behind to start the sell up process or aggressively chase the debt.
Look at your current Storers list, do you already have some continual late payers, if so, are they likely to only get worse in the future? Is there opportunity to move them on and get new, hopefully more prompt paying customers. Move customers onto a direct bank transfer arrangement, this is the most secure way to receive your money, it will only be refused if the bank account does not have enough funds in it, and the bills will be paid automatically without the Storer doing anything, or having to think about their bills. Credit card authorizations are also good, but these are more prone to payment rejections due to either insufficient funds, cards expiring, over extension of credit limits or simply cancellation by the customer or bank. Make sure someone in your business is actively managing your debtors and ensuring they do not get out of control very quickly.
Remember in most cases when goods are eventually sold up the business fails to recoup much of the costs owed to them. As soon as one of your storers falls behind on their payments, not only is your cash flow effected, but you are also likely to lose money in the long-term on a unit that could be earning you income, but instead is tied up pending sale or payment.
Marketing is another area you should be looking at. Are you critically evaluating your marketing programs? Should you be changing your target markets in a changing economic environment? Are there potential opportunities that the economy is bringing to your area? Marketing is probably the largest variable expense that a self storage business has. Most of the other expenses are relatively fixed, being tied in to basic utilities and staffing costs. While savings can be made in these areas and you should definitely be looking at your expenses as a whole, the marketing budget is probably the one area that you could potentially make significant savings while maintaining profits and service levels.
Evaluate your marketing in terms of the value of the customers that the program brings in vs. the cost of the program. Try to think along the lines of, if this ad costs me $9000 per year, then that is about three 3×3 units for 12 months, does the ad actually generate that much business. Don’t get caught up in occupancy figures, it’s not about how full your centre is, it’s about how much money it is earning. If a marketing program is costing you the prices of 10 units a year, but only delivering 6 then you are better off losing the program and the 6 customers, and spending the money on something else that is actually earning you money. Have a think about where you are targeting your marketing, the SSAA demand study gives you some great information about who is more likely to be using storage. Obvious markets are people living in flats or units and people with higher income levels. Analyse the demand study in detail and then apply it to your local market so that you are targeting those people more likely to be using your product rather than broad, scatter base marketing.
Finally look after your existing customers. It’s always easier to maintain an existing customer than find a new one and important to make sure that they are happy with your service (particularly with your commercial customers). Sent them a treat or incentive to move onto a direct payment plan. Try to find out information about your customers and send them Birthday wishes, or other festive messages. Maybe have a competition for all your existing storers and for every year a person has stored you get an extra chance to win. Little personalised things like this can really affect a persons feelings particularly if things are a bit rough and they are surrounded by bad news; a positive message can make their day.
Some people will argue that you should not be reminding your customers that they even have a storage unit, as this might prompt them to come and get their stuff. Chances are that if you have customers like this, then they will be moving out soon anyway; they are usually the first to go when the money gets tight. Most of your customers have a genuine need for your product and are not willing or able to come down and clean out their units at short notice. Don’t be afraid to contact them and remind them what a fantastic business you run. Not only will it help retain your customers, it will also get them talking to other people about how great you are and potentially generate new customers for you. Referrals are a huge source of new customers for self storage yet this is an area that most businesses generally really fail to capitalise on.
While an economic downturn can pose challenges for self storage businesses, it is certainly not all gloom and doom; self storage is positioned better than many other industries to ride out a storm. However it is important not to be complacent. Prepare your business now for the future and ensure you come out the other side ready to capitalise on the inevitable economic recovery.