Who Are Our Customers
WHO ARE OUR CUSTOMERS?
by Mike Parham, as seen in Mini Storage Messenger.
For several decades now, it seems that most self storage properties were developed based on a principal that “if you build it they will come.” Unfortunately, those days of simply finding land and hiring a metal building contractor are long gone. Our industry just “pole vaulted” into the new millennium with its fastest growth ever. Wall Street has proclaimed “Self Storage” as the best real estate investment for the first two quarters this of year and added to the flood of new “want-to-be” developers. And all of them possessing that same old philosophy: “Self storage is easy money.” Unfortunately, all this new industry attention comes at a time when the greater part of our nation’s major markets are either over build, or are quickly getting there.
So, what does all this mean and how are you going to compete in today’s market? It means it’s time to get back to basics, to understand that it’s the consumer that drives our business. It’s understanding their “likes and dislikes,” their habits, and their lifestyles. It’s recognizing what they perceive as convenient, safe and a “good deal.” It’s knowing everything that makes them happy, valued customers. And it’s this knowledge that will determine the success of tomorrow’s self storage developers!
CUSTOMER PROFILE
The best way to profile your customers is by gathering entry and exit surveys from the customers visiting your facility. Special incentives, gifts or discounts, for instance, will help to persuade the customer to spend the two minutes necessary to complete a questionnaire. This same survey has been conducted by Noah’s Ark Development for over 20 years. The following sample results should be very close to a standard profile for the typical self storage customer:
- Sex – 84% of all customers are women. Men do over 95% of the moving.
- Age – 88% of all customers are between 21 and 55 years of age.
- Income – 78% of all customers have an income between the lower-middle to the upper-middle income bracket.
- Reasons for leasing – 54% of he clients are moving, 32 % are cleaning out a basement or garage, and 14% just need temporary storage.
- Reasons for leasing from you – #1 Security (62%), #2 Convenience (15%), #3 Street Appeal (8%), #4 Cleanliness (6%), #5 Referrals (5%) Yellow Pages (4%).
- Home Owner Occupied vs. Home Renter Occupied – a market with owner occupancy of 65% or higher will require a unit mix average of 120-125 square feet per unit. Markets with owner occupancy less than 65% will require small units with a 110 -115 square feet per unit average.
- Median Income – as the median income:
- Increases
1) Climate control unit demands increase and vise versa.
2) Demand for larger unit mixes increases (120-130 sf/unit)
3) Length of stay increases by 3 months
b. Decreases
1) Non-climate control unit demands increase.
2) Demand for smaller unit mixes increases (110-115 sf/unit)
3) Length of stay decreases to an average of 6 months.
4) Delinquencies increases to as high as 10%.
- Residential vs. Commercial Customers – a facility’s average occupancy by residential customers is between 75% and 80%. Commercial customers represent 20 -25% of a facility’s occupancy.
- Commercial Customers – the average turnover is 18 months.
- #1 Customer Draw – 85% of all residential and commercial customers come from drive by traffic. Visibility is the single most important customer draw!
The above customer profile has changed very little over the last twenty years and it does dispel several self storage myths. You will notice above that the Yellow Pages account for only a small segment of the customer draw, especially when all of the area facilities are in retail locations with excellent visibility. This is a tremendous change from the industry’s beginning when there were very few facilities and the yellow pages was the only means to find one. But with today’s locations, properly placed facilities have the same exposure as McDonalds. Nobody goes to the yellow pages to eat at McDonalds. They see a location and when they get hungry, they stop by. The same holds true for self storage. Don’t spend thousands of dollars in Yellow Page ads unless you are out in the boon docks.
MARKET PROFILES
Just as the customers are profiled, so are the different market types that they live in. Self storage has three different self storage market types, each representing the different lifestyles of the customer based on demographic statistics within the normal radius defining that market.
Primary Market
The most predominate market in the industry is the “Primary Market.” It includes the largest metro areas in the U.S., with each of metro areas containing numerous primary markets broken down in 1, 2 and 3 three mile radiuses. This market’s typical demographics within a three mile radius are as follows:
1. Population is equal to or exceeds 100,000 people
2. Median Age is higher than 38 years old
3. Owner vs. Renter Housing is almost 50% - 50%
4. Traffic Time to Work - 15 to 20 minutes
From this demographic definition of a primary market, you can easily see that this market has a high density which, in turn, always leads to a stressful lifestyle for the population. Since owner and renter housing are almost equal, this indicates more cars leading to more traffic. With traffic time driving to work being between 15 and 20 minutes, the population is spending that amount time just to travel only 3 miles! This increased and stressful traffic situation will lead the population to determine a traffic pattern which provides a “path of least resistance.” It is within this traffic pattern that the residence will do everything. Whether it is shopping, the cleaners, food, restaurants, doctors, pharmacies…whatever, it’s done on their particular traffic pattern. Why? Because it’s easier, safer and over time, the pattern becomes familiar. With an older population, this becomes an essential part of their lives.
So, what is the key to success in this type of market? Yellow pages won’t help. Mail-out won’t help either. The key is to figure out the market’s customer flow; determining the traffic patterns of the different residential areas to that market’s commercial and business districts. Once you’ve done this, you have insured long term success with any properly placed facility within those traffic patterns.
Secondary Markets
The secondary market represents the suburban areas around a primary market or a smaller city with a population less than 750,000 but greater than 100,000. Just as the primary market, it is characterized by the lifestyles of those live within; but as you will see, the lifestyles have been greatly affect due to difference in living conditions. Because of following demographics, which are typical for this market, 1, 3 and 5 mile radiuses are used. This market’s typical demographics within a five mile radius are:
1. Population is between 50,000 to 65,000
2. Median Age is between 32 and 34 years of age
3. Owner vs. Renter Housing is between 70% / 30% and 90% / 10%
4. Traffic Time to Work - 30 minutes to an hour
From these demographics, it’s clear to see that a secondary market fits to a “T” an average American suburban scenario. A low density, younger population, living in starter or move-up homes with 2 to 4 children, soccer fields, a neighborhood pool with clubhouse, bunko parties, forth of July picnics and a safe neighborhood…all ingredients for middle class America. Mom and Dad believe that their family is saver in the suburbs. Commuting 60 minutes to work is no problem as long as that security is in place.
What this describes is a growth market with boundaries well past the primary market’s three miles. With the populace driving these distances, traffic patterns become less important as they are for primary markets, but it is still recommended to identify traffic patterns. Now, however, two patterns need to be identified. The first pattern is that “path of least resistance” to work; the second is those commercial areas close to home. Most often, the first traffic pattern includes the second commercial pattern close to home. When that occurs, the best site locations are most often on the “going home” side of the pattern (a customer will still patronize a dry cleaner that is 10 miles from her residence, but happens to be on her route between work and home. She will not drive to a cleaner one mile in the opposite direction from her home or office) and closest to the biggest commercial traffic generator. If, both patterns don’t fit, then usually, the best locations are closest to home in a commercial area. Why? Because individuals in a secondary market are accustomed to driving longer, and because women are the primary leasers.
Rural Markets
Rural markets are completely different from the other two markets. Distance and drive time are not an issue and traffic patterns are no longer of any importance. The population leases from facilities up to 15 miles from a residence or place of work, hence, a 15 mile radius is used. The demographics of a rural market within a 15 miles radius are as follows:
1. Population is between 20,000 and 30,000
2. Median Age could range from 35 to 48 year old
3. Owners vs. Renter Housing – renter housing doesn’t exist
4. Traffic Time to Work – has no bearing at all
The rural market is best described as “RURAL.” Everyone that lives there knows everyone there in their market. Most business is handled over coffee at the diner or following church services on Sunday. Those living in agricultural areas have very little demand for storage. For the few that live in the rural city, their needs are usually for large units. In most case, it is not economically feasible since the demand is so small. There are many rural self storage properties, however most are characterized by no offices, no driveways, no security systems and are usually less than 10,000 square feet. They adequately provide for the needs of their communities but rarely have an exit strategy other than selling it locally. There is now a flood of people retiring in rural markets, a trend that can easily make a difference in the future. Right now, the best way to succeed in a rural market is to develop as close as possible to the market’s leading and best traffic generator. That’s where you’re leases are going to come from.
MARKET CONDITIONS
Even though the above customer profiles and market demographics don’t change from one market to another, existing market conditions can greatly affect ones ability to be successful in that market. Several examples are:
1. Availability of land – you can’t build a typical self storage facility in Manhattan, NY, without buying an existing building and converting it.
2. Saturation – if the market is over built, the odds are that any additional facilities will suffer the affects of the market being over built.
3. Jurisdictional Requirements – impact fees may be too high to allow a project to be economically feasible. Or, the approvals themselves might take several years to obtain.
4. Rents – existing rents may be too low to justify developing.
5. Zoning – a jurisdiction’s zoning ordinances don’t allow storage complexes or may create ridiculous criteria that make the property unfeasible to develop.
The list of market factors that are hazardous to developing self storage is so great and varying from one market to another, that the subject could comprise and article in itself. However, due diligence research is the key to sniffing out these perilous conditions.
SUMMARY
The key to success for tomorrow’s self storage developer is a complete understanding of his customer and the market in which his customer lives. Sometimes the best way to understand is to take the “developer hat” off and a make yourself the customer. Ask yourself questions. “Why is that lady turning left out of her driveway?” “What is the most convenient way to get to work?” “Would I use the dry cleaner closest to my home, or one that is on my way to work?” On and on, question yourself. Know that your questions are the same questions asked by your potential customers. And the answers?
They will make the difference between your success and failure.
Good Hunting!
Mike Parham has been in the self storage industry for over 25 years. He is the founder and president of Noah’s Ark Development which does third party development for a variety of REITs and other major self storage operators. To date, Noah’s Ark Development has developed 42 properties or 3.2 million square feet. In addition, Mike is the developer and general partner for the Noah’s Ark Self Storage chain.
Mr. Parham is also the majority owner and CEO of NDS, a 20 year general contractor specializing in design and construction for the self storage industry. NDS Construction’s experience includes over 160 properties and 7.3+ million square feet nationwide to date.
The newly launched Parham Group allies Maverick Investments, Noah’s Ark Development, NDS Construction, Cross Metal Buildings and Joshua Management. The Parham Group companies offer all the resources necessary for the experienced operator or the “first time” developer.