Stora Social Panel - Operating Towards Success

So this one's operating towards success. More of focus I guess on innovation with this one. And I'll start with you Gavin. What makes it a successful storage operator in your mind?

I think one of the nice things about this industry is that we have come through a really good couple of years and I think there's a lot of opportunity for people and we've probably all had, I think we can all probably be quite proud of where we are with our businesses. People have built nice businesses. No matter almost what approach you've taken, it's been a great period of time. So I don't know what sort of makes a good operator. But the way I probably the way I think about it is I think about it from a business model point of view. So I have my own facility business in Northern Ireland and I just think about every stage of the P and L. So like how do I optimize my revenue, how do I optimize my costs, how do I maximize my profit? And there are other elements to that as well. So there's also hardly find sites. How do you finance the business? These are all difficult topics, difficult questions and I don't know, I suppose it's an impossible question to answer in a way because there's lots of different ways to success and lots of different ways to failure. But I think if I look forward 10 years, the people I would bet will succeed will be the people who work out a way to build a fantastic business model from the P and L point of view and really optimize that and find really good ways and the efficient ways to finance the growth of the business and try and solve the other big, big challenges is finding good sites.

Just before Emily and Terry chip in, if you wouldn't mind just introducing yourselves as well, please, Terry, if you can start.

Sure. Thanks Mark. My name is Terry Bagley. I'm the President of Industry and Partner Relations for Janus International Basin, obviously with my accent in the United States. Happy to be here with you today. I've been touring a number of areas in Europe ahead of coming here and there's actually great business, great self storage business going on here in Europe. Excited to see that. So I'm happy to join these guys on the panel today and share a little bit of my experience. To answer your question, maybe I'll take a different tack than Gavin did and focus on it. Owner, operator, success. From a tenant perspective I think that. And from a business perspective as well, I think that the key elements here are the process of acquiring customers with your Internet marketing the onboarding experience that you're providing your customers. What we've learned in the United States, and this was driven home with the pandemic, is you need to be able to provide customers the ability to access your facilities and onboard themselves, you know, electronically via a smartphone. That's you need to be able to do, allow them to do business and transact with you wherever they are, whenever they want. And then it's more about taking care of the customer and taking care of your business. So we talked about yield management earlier or revenue management. That's a key element that you need to be thinking about. In the United States, the self storage REITs are reporting that their average occupancy is 95%. You know, the previous normal was 85%. They are too full and so, and they're pushing rates, they're pushing rates hard. And the dynamics are really interesting in terms of what's happening out there. So they're looking to add capacity as fast as they can because they're not getting the turnover that they used to get. So they need to add capacity in order to take care of the customer demand that's out there. And then I think the other thing is, from a customer's perspective is helping them through automation and technology, understand what's going on at their unit, what's going on at their facility, who's using their facility, digital key shares. So how easy it is for them to share access to the facility in their unit with someone else. And then lastly in the customer experience process in using your facility and ultimately moving out is don't forget about reputation management because that is becoming more and more important as people are looking to use self storage. They're going to be looking to see what type of reputation you have as an owner operator. So if you do those things successfully, I believe you are a successful owner operator.

Emily, you've got quite an interesting business model.

Yeah.

So I'm Emily, I'm the growth director at LoveSpace, which we run capital marketing and the product development team. LoveSpace is a bit different to our first self storage business. We offer storage and collection and delivery. We do that in a few different ways. One is on a per item basis, so we can collect just a few boxes and then we take it away and we actually store it with lots of partners as we're a platform business. More recently we opened some micro sites where customers can drop their stuff off. We've got units in five locations right now across London. So our idea of what successful operation looks like is actually a bit different. To your average self storage facility. Because we're thinking about logistics as well as the actual storing itself. And a big part of that to touch on Terry's point is that customer experience. So for us, success is having customers who have their problem solved, very importantly, who are then going to tell their friends and use them again over and over again throughout their lifetime. And having that room to grow and that opportunity to innovate. I'm not going to say much more than that because obviously these guys have basically answered the question. And I think in the panel before actually you had loads of amazing ideas about the importance of referral and actually building the profile of self storage in your community, which I think is also a huge marker of success.

Yeah, I think you've got quite a niche, niche business model generally. I mean, do you think that's something self storage operators need to look at more in terms of focusing on a niche set of customers?

For example.

Can I still. Ok, so we actually started out being very, very niche and I would say we're still quite niche. Our specialty, 80% or more of our customers are students, which is brilliant. We've been able to grow really rapidly because of that. But we don't have the constraint of an amount of space. We've got thematically infinite space if you can find infinite partners who will store our stuff. So that's a positive. The negative of that is you have this one segment you're relying on when something like the global pandemic happens, things get disrupted very quickly or one of the huge benefits of self storage. And I think why it's been great over the last few years, diversity of the people that are using it. Ultimately though, and what I've learned over quite a few physical storage spaces is your average self storage facility is serving a niche audience. It's the local community. It's those people within a certain mile radius, a half an hour drive. So I think to whittle that down any further, you have to do an awful lot of work on your marketing to reach that niche.

And maybe if I can add to that, I think that you rightly articulated that the business is really a local business. That was discussed earlier in the US we refer to it as a 3 to 5 mile business. So you need to really understand what the demographics are in your 3 to 5 mile space for that particular facility so you understand who those customers are. There are ways that you can differentiate your operation, your facility and also determine who your customers are. We have facilities around the country in the United States where they kind of self Limit their customer set. They do that by in one sense only allowing for auto pay, for example. So their customers that they have can only rent with them if they've got a credit card or a debit card account. So they're essentially they have a banking relationship. For many that's perfectly fine. For others there are areas where their customer set might include what we call non banked or underbanked customers. They tend to be more difficult customers. They tend to be the ones that end up not paying sometimes. And so you have to take into account those demographics in terms of determining who you want to have as your customer set. So and certainly there's some more niche models than that, whether it's wine storage or other types of niche storage. But I think for the most part you need to determine what your demographics are and then what you want to offer. As an owner operator.

Yeah, I think just one thing I would add first of all, I think it's quite connected to the first question. So ultimately the operators, I totally agree with what you were saying. It's customer first. If you can provide the right product to the customer, you as an operator will succeed. I think when it comes to the idea of a niche, things are interesting because if you look at ryanair Coming along 25 years ago and sort of picking the. It's kind of a niche which is we just have people book online and going to provide a slimmed down service of a flight, but we'll provide a little, much cheaper price. They picked that niche and came along and disrupted the airline industry and you know, it's pretty mainstream. But you still, not everyone will fly with Flying air because it's a certain type of travel experience. It's different to, you know, sitting on a British Airways and business class. I think some of the operators I talk to, I know there are some people building chains where they have decided we are not going to even have a phone number. If people have a problem, they can get in touch via the website, they can come to our gate, they can scan a QR code and they can move in immediately. And yeah, it'll be 25, 35, 40% of people might not just both accept that, but Eric, with that, it's a choice and it's a niche. I think that's where the focus can be good. The focus can also be, like you said about the onboard, it can be. Well actually we want to build our salesforce business around people who want to come down and have a coffee and money to go around and that can work very well too. So I think it's important to kind of pick your customer and design your product around them.

And you spoke about automation earlier, obviously bounds get onto the subject of automation. It's a big thing at the moment. We've got see the Jan Spokey system. Terry knows probably more than most about that. But the way you see it, I suppose, do you think automation is going to be the next or the new big thing to get the self storage industry exploding in terms of growth?

Well, quite frankly, the industry is exploding regardless. But I think that certainly automation is, is a key element and certainly aiding in that. When we talk about 95% occupancy in the United States and remember we've got somewhere between 55 and 60,000 self storage facilities in the United States. So there's a self storage facility, literally if you're in an urban area around the corner or just down the block. But I think some of the key things that you need to think about today, especially if you're getting in the business is, you know, the demographics for a lot of you are changing. Right now. You have more millennials and Gen Xers that are going to be renting storage. They expect to be able to rent whenever and whenever they want to run storage and they typically don't want to interface with you. So it's definitely a changing dynamic. And while we're in heavy times right now, whether you're here in Europe or in the United States, now, quite frankly, I believe is the time to make those investments because your demographics are changing or going to change over time and they want to transact with you via smartphone. And quite frankly, they don't really, many of them don't want to show up and talk to you. They just want to move their stuff in when they want to move it in and set things up on autopay and access their unit when they want. And again, they want to be able to do that via their smartphone. They don't want to have to remember a gate code or have to come to the retail center or retail storefront at a particular time so they can get into the facility and get into their unit.

For us, it's very linked. To your point, automation is allowing us to reach people we wouldn't otherwise reach who are sort of tech enthusiastic and don't really want to call us or visit a site. We're using automated units. We've got five, as I mentioned, they're micro sites. The idea behind that is that to your point, that wherever and whenever someone wants to use storage, they can so by Using a very small unit, one 40 square foot unit or even 115 square foot unit, we can put that down in a really, really central location. Of course you would never man that because that's one unit, it's tiny. Automation allows us to have lots of those small sites. Exactly. When people want to use them, we can then go afterwards and collect their stuff. And that one 15 square foot unit could be used effectively every day by a different person, local store, off site. So for us, automation is really going to allow us to get that growth that we're looking for and it's a really important innovation to us. And as you mentioned, you know that demographic is changing. We're finding that our demographic is under 45. I already mentioned loads of students, but aside from that, the under 45 is obviously quite different to the profile of your traditional self storage user. But that will change over time. And people are more and more comfortable with using automation because they've had to be because of the pandemic. And I think the more of us that use it, the more people will get used to it and the more we'll be comfortable with it.

I think it's important to remember that when we talk about automation, not just talking about people getting into sites easily, we're talking about automation of processes as well as operators, just streamlining everything. And I guess under that subject, where do you see the industry going in 10 years time? Is it going to be completely unmanned sites everywhere sooner or later? Is the store manager going to become redundant? Effectively your thoughts on that, Gavin?

I think it's a really, really interesting topic to think about. Can 10 years time does big yellow unified staff of their store? I don't know, maybe they do. I know some people who in the industry for 20 or 30 years and had a massive amount of success think they won't think that even these big companies in 10 years time will be forced to get down to half a.

Staff member.

Because automation will enable it and shareholders will demand it of the business. But I don't know, I think it's a really interesting topic. I'd be interested to hear your thoughts on it, to be honest. Where do you think?

Well, if I can add, I think, you know, if you look back in time and self storage industries only been around 40 and 50 years, it's like what was disruptive previously. Probably the best example we have is the yellow pages. There were owner operators that swore by and named their facilities, you know, appropriately with a number of A's in front of their self storage name in order to be first in the Yellow Pages and look where you know that is today, right? I mean, when I came into the industry 20 years ago, they were still touting the Yellow Pages and how important that was. There's just literally no relevance to Yellow Pages anymore. It's all about Internet marketing. So if we, if we look out 10 years from now, there will be disruptive elements that will come into the industry. I'm not sure we can predict all of them. I mean, there were those that thought valet storage, for example, was going to make a serious dent to self storage. Didn't really happen. There were those that thought mobile storage was going to make a serious dentist. Self storage really didn't happen. They're kind of ancillary niche businesses, but they didn't impact self storage the way, you know, Yellow Pages going away has. So I think, you know, we have to look at that. My prediction is that we'll still have manned facilities 10 years from now, but I believe they will be the minority. I think that innovation and technology will drive most operators to go to what I refer to as a remotely managed operation. So you're moving your resources and your labor into a call center or some other type of deployed scenario and you're upping the really the kind of level of those sites, what were previously site managers, so that they're much more capable, they're more salesy, they're more marketing savvy, they understand technology, they can help those customers that might be struggling with the onboarding process, but that's where we'll go. And so that the majority of the self storage facilities in 10 years from now will be in this model that I'm calling remotely managed, using the automation tools that we have. And I think they'll be also driven there because again, we're in heady times. But there will be more and more competition. Europe will be much more built out in 10 years from now. And so you'll have to compete not only to acquire the customer, but also in terms of the performance of your facility and ultimately what you're dropping to the bottom line. And a remotely managed facility can provide a great level of customer experience while dropping the operating expenses, especially labor, out of or partially out of the equation.

These guys have had some really articulate responses. My response is, I do not know what we found with our customers. Even though I'm going to construte myself now. We consider them to be tech savvy, we want to self serve, and lots of them do. We still find that they're desperate to Talk to us. It's a segment. They're always talked to us often first time. Florence, to the previous point, you've got no idea what I should be booking now. There are tools that can help them with that, but some people need a bit of reassurance. We was trying to settle. We just took our mobile phone, our phone off the site and conversion went down because we were completely wrong. Customers zero torches after all. And I don't know whether there's a comfort in having a man's site that aligns with that or not. Naturally it's not really my experience but I can see more and more sites being all. Obviously the cost benefits and the efficiency benefits are huge. So I don't see why we wouldn't. But to your point, there's lots of other automation that we could be doing and lots of other ways we can deploy that team that could add even more value to the customer experience. So I can only see upside really. I think it will just depend on if we can convince customers that it's what they want to.

Well, maybe to add to that. I think you really ought to. Something is that there's definitely a customer set that can transact with you and they don't need to talk to anybody. But there are customers today they're probably more skewed towards the older customers that just want to have even if it's just a confidence booster that they've done the onboarding process correctly or maybe, you know, they don't have the opportunity to use Calcimates solution to determine what size of unit they need and so they're not sure about how big of a unit they need. They just want to talk to somebody. And so that's where the remote managed opportunity comes in or call center comes in where they can do that, they can get their questions answered and so forth. But I think a lot of customers, especially as they get more familiar with self storage and we see this in the United States, they don't need to interact with you on the phone, they can just do it all digitally.

One of the most important things for us as a store is that you as operators are as successful as possible. So I'll ask Gavin first in terms of tools, what tools do you think operators need additionally now for software perspective and also generally business wise?

I think as I touched on earlier, I think the important things going forward will be revenue optimization tools. I think that's something that just hasn't existed until or still doesn't exist in South Storage really on a widespread basis. I think that's going to become really important over the next three to five years. I think that's something that's missing currently. I think the tools that I think are really interesting for operators, as an operator myself come down to anything that can kind of speed things up from a customer perspective, give the customers a better experience. Ultimately that leads to better conversion rates. So things like making sure people can do IP checks online if that's what they want to do, or they can do them in person, meeting people can sign contracts online giving customers everything they need to just have a really, really great experience. And really when I think about, I just think about conversion. How do we maximize the conversion of customers from a software perspective then I think there probably are some other tools that we mentioned. One of the products that Mark put up earlier was they're launching or in the middle of launching is a telephone service that I'm about to use on my facility business. I think that's something else that there are products like that that can help a lot of operators. If you are trying to run a really efficient business and maybe you have, maybe you're taking the phone calls yourself, but you also want to go and find more sites. I think there are important tools like being able to have a really high quality call center, taking self storage customer phone calls. I think that's an interesting part of the regular trial and there's probably tons and tons of stuff around that area too. Just about helping people to really comes down to trying to run as efficient in businesses and also making sure that the customer experience is optimized as far as possible. Because really at the end of the day it comes down to customer first, making sure the customer is having a great experience.

Yeah. And I guess I would add in terms of the holes that I see out there, actually that was a good point about call centers. We had talked, I think last when you were in Las Vegas about the fact that there are I think four or five call center providers in the United States, specifically the self storage industry. But until recently there hasn't been any that at least I was aware of in Europe. But I think there's probably globally. There's probably three areas that I can think of that we need. We have holes that need to be filled. The first one is we can talk about automation and how you can generate more revenue with it and you certainly can. We can talk about the cost savings that come from it. But if you look at what the US self storage REITs look at, they really think the data that's being collected via automation Tools is the most valuable thing there is for them. They can learn much more. They already know a lot about their self storage customers, way more than you think. But they always want to know more about them. For example, with the Noki Smart entry solution you can do digital key shares so you can share with your spouse or your kids or your co workers or whatever. One of the things that we've helped them figure out is the more digital key shares a tenant does, the stickier they are as a customer and the longer they're going to stay as a customer. So that gives you the opportunity then to target them because they're getting a lot of value out of your facility for your yield management tools or your revenue management tools. And I guess so data, data is really important, but analyzing that data is one of the missing holes I guess is what I would and business analytics tools. While they're available to the self storage industry and they're being used to some degree, especially by the bigger self storage operators, they need to be made available and used by the smaller and medium sized operators as well. And so that's something that I think the property management software guys need to provide. The second thing Davin touched on, which is yield management or revenue management, the expectation from my perspective is again, those like Stora need to over time deliver better and better yield management tools so that you can identify who your customers are, how much they're using your facility and then you know, make them essentially targets for your yield optimization. You want to switch me again? And then the other one that I think is missing is we need to. As operators, you need to understand your customers better. So if you look at what a lot of the big companies around the world are using to track their customers, they're using CRM tools, right? Salesforce.com is probably the one that most people know and that is being used in self storage, especially in the United States. Extra space storage, the second largest re uses salesforce.com I think again whether it's a bolt on ultimately the property management software guys need to provide better CRM tools so that you know who your customers are, you know what they like, you know what needs they have, what services they need to provide, how long they've been a customer, are they a repeat customer. All of that is going to make you be able to better service your tenants in the long run. So those would be the three holes that I see right now.

Do you want to add anything?

I'm not sure what there is left to say, to be honest, but a slightly different angle I completely agree with both of these guys. That idea of having software that manages your processes to give your customers a seamless experience to make your life easier, extremely important. And knowing your customer and that measurement side is really important. With my marketing hat on, all I think about is measurement, measurement, measurement and where can we improve, where are the gaps and where can we continue to optimise? I had an interesting chat with someone the other day. I think potentially quite an interesting tool would be data about your customers before their customers. I was speaking to someone who said they could sort of, I could advertise to their customers and they would know when they're moving house before they're landlord would that's an amazing tool. That's brilliant. How do you find someone who's moving houses or they're searching for renewables and storage services tools that I think can help us do that. To the earlier point about raising the profile of self storage and putting in front of people but also helping you acquire new customers, I think really important, really exciting.

I think just going back to what Terry said, big thing, big conversations we're having with store is all about data analytics and using that data to best serve our customer base. I think revenue management, dynamic pricing, everything like that is going to be the next big thing for us. When that will be, we're not sure but it's a key priority for us to help operators. I'm just going to finish by asking you what do you think the biggest risks are to the success of operators? I mean obviously self storage industry is very, very robust. I'm sure everyone would agree but with the big economical downturn, we're excited to experience cost of living, everything going up dramatically. How do you think it's going to hold up?

Well, I think from the economy point of view, I think it's going to be interesting. From what I understand, self storage industry has been pretty robust through different economic cycles in the past. And whether we've had an economic cycle that's going to be the same as this one with the kind of similar traits around the increase in cost of living and how that might affect self storage, I think there's an unknown there. So I think it'll be interesting to see how the self storage industry does it through that period of time. And I would like to think that it would be pretty robust. I mean I'm my facility business, we're opening two new sites this year. We're still investing and expecting to build business. So if I thought it was going to be really bad, I would be doing that in terms of other risks, I don't know. I think as it becomes more competitive, we'll all have a harder time acquiring customers. Acquisition costs might go up. We already see that with Google Ads and paying more and more for a customer. I think that'll be something that can be interesting over time to see where, where that ends up. But yeah, those would be the two things.

Maybe I can add. I think from a reassurance standpoint you guys are all looking at what is a really spectacular business and you have to remember that, and maybe those that are new to it, that this is an event driven business. And if we look back in time, let's say to the Great Recession for example, while there was a hit to the self storage industry in terms of somewhat reduction in occupancy levels and for some rates the business did fine because the events that drive people to use self storage occur regardless of whether you were in good times or bad times. There might be some subtle differences between performance. So from that perspective it's a great business to be in. I do think we've just finished a period of time where and maybe it will continue on for some period where it's high watermark. It's the times that every one of the self storage REIT CEOs characterize it as this is the best our business has ever been. It's so robust. To me that's great, but it also means to me it's a signal that I need to be fortifying my business and thinking about what's going to be disruptive and what things I should be investing in and investing whether it's additional capacity or upgrading my facilities or changing my unit mixes because I have units that aren't renting and I've got others that I have, I don't have any supply, so. And I have demand for. So I think those are the two things that I would pass on is we're in a great business. I mean if you look back again at the Great Recession, the only thing that happened really is, you know, that was kind of catastrophic, at least of our businesses at the time is the capital dried up. And so those that were building self storage facilities at the time, they continued to complete them, but nobody was building new facilities for a period of two or three years until capital opened up again. And so we shifted our business to basically to survive to the retrofit business because facilities were starting to age out at that point. You don't have that as a big issue here in Europe today, but 10 years from now you'll have facilities that are 30 years old and they'll need a facelift and they'll need new doors and other things like that. But, you know, take the opportunity when those of you that are operating today, when things are really good, to reinvest in your business so you're ready for, you know, whatever might be coming down the road.

Yeah, I agree completely in terms of. There's no doubt about it, it's all looking pretty good. And I think if we've survived a global pandemic and things are still looking pretty good, then we can feel pretty confident we're in a good position. But there's always competition out there. Looking at the SSA UK report, shout out to you guys, there was a couple of interesting things in there, interesting things we've seen year on year about unprompted brand awareness. We're a really fragmented industry. There are loads of different self storage brands across the uk. Uk, there's room for someone to come out and be at the forefront of that and even maybe to space with bigger players. Bigger anymore. 20% of prompted brand awareness. That's gettable, I guess, the right genius marketing and investment. I think that's, you know, an achievable thing. The other side of that is I also read this year that we're seeing that sort of average customer aging and those under 40s decreasing, which I think is worth thinking about. Now, I know we haven't disrupted self storage, particularly with our storage collection delivery, but there are more players like us out there, people who are offering storage collection delivery, people who are offering really, really convenient locations for urban populations, people like mobile pod storage like easystorage, that are now on the market and they're obviously getting customers from somewhere. Are they the people who are taking those under 40s, will that change the profile of self storage in their mind going forward or not? I don't know, but I think that's something to be mindful of.

Thank you. I think on that positive outlook, the future self authority was positive. I think we'll wrap it up. Thanks very much to all our panelists today.