Streamlining Operations

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Now’s The Time To Prepare Operational Playbook For Uncertainty Ahead

Self-storage has enjoyed an exceptional run in recent years with record high occupancies, rising rental rates, and stellar property valuations. But the good times can turn around quickly, especially in an era of rising interest rates and with leaders in Washington, D.C., who are proposing major economic overhauls. On top of that, more storage facilities are opening their doors, creating a new wave of competition.

According to REIS, a commercial real estate information company, self-storage occupancies fell below 90 percent during the fourth quarter of 2016, even while most of the real estate investment trusts (REITs) reported same store occupancies in Q4 over 90 percent. While the REIS report largely reflects seasonality in the industry, some self-storage professionals have observed a leveling off or even decline in occupancies in recent months.

To prepare for any uncertainties ahead, storage owners need to put plans in place to streamline their operations in 2017 and beyond. A well thought out operational playbook will help guide businesses during good times and bad, much the way winning football teams prepare plays for third down and long situations and two-minute drills.

What will you do the next time occupancies fall by a point or the Fed increases rates? David Decker, senior director of operations for Utah-based Extra Space Storage, advises having a strategy in place that prepares the business for virtually any situation.

“You’ve got to have an operational playbook to make that decision now and stick to it,” Decker says. “You’ve got to define it and always live by it. I’m sure we will have days like we had in the past where occupancies drop, but if we stick to the model, things will work out.”

The alternative is to make panic decisions, which Decker says will usually turn out to be wrong. Extra Space has stuck to a plan in good times and bad that has yielded positive results.

“I’ve seen some highs and some lows, and the great thing with Extra Space is we always stuck to our model and, regardless of what the stock price was, we continued to get the growth we were expecting,” Decker says. “We don’t have mass layoffs and mass hires and cut off acquisitions. We stick to the plan and make minor adjustments.”

M. Anne Ballard, president of marketing, training, and developmental services for Universal Storage Group (USG) in Atlanta, doesn’t see the sky falling yet, however, it’s incumbent upon owners to be prepared for times when the economy goes sideways.

“There are going to be a few more years of strong five percent-plus annual increases and improved rental rates, even with new supply coming online before we see a market shift to either overbuilding or market changes,” Ballard says. “Get organized right now, because if you wait it will be too late.”

A Smorgasbord Of Options

In evaluating a business for streamlining, an owner can choose from a smorgasbord of options. “There are so many opportunities in self-storage for doing things marginally better and the results can be big,” Decker says. The first place to look critically may be on the human side of the equation.

“The biggest value is doing whatever it takes to keep managers focused on doing what they do best and is most profitable for the company, which is renting units and converting new leads into rentals,” Decker says. “It’s a balance of looking at everything they have to do during the day and deciding what we need to take off their plates or make simpler.”

One area more operators are scrutinizing is the time managers spend on collection calls. These calls are valuable to the business, but can they be done using other resources?

“Can you automate it? Can you find a third-party vendor that has a software system that can do it for you? Can you develop something in house?” Decker asks, adding that Extra Space is looking into automated text and email reminders to simplify the collection process.

Auto dialers for collections calls are one method some operators utilize to make this task more economical, according to Ballard.

“Both OpenTech Alliance and Storage Collections offer text and voice mails to your past-due customers,” Ballard says. “This is a great way to get that time-consuming task done but does not replace managers making calls to follow up. Cost is nominal each month.”

Should the manager be spending valuable time cleaning out units and wiping windows? Temporary labor or a janitorial company might be a better alternative. Ann Parham, owner of Joshua Management in Bulverde, Texas, brings in a part-time worker once or twice a week to help with cleaning or renting units. She also employs a handyman to make any repairs the manager can’t handle.

“The biggest cost you have is personnel,” Parham says. “Am I utilizing my people properly, especially if things start to slow down?”

Parham notes that from 2008 to 2012, during the economic downturn, many owners cut back on their personnel because there weren’t as many customers coming into the stores. “It used to be that you had two managers all the time and people have backed off of that,” Parham says. “One person tended to be able to handle quite a bit. With the onset of websites and being able to rent online, sometimes that’s the easiest place to cut, personnel.”

Some operators, especially those with multiple facilities, have found self-service kiosks can save on manpower and add revenue by automating the leasing process. Other less expensive options also are on the market.

Technology Achieves Efficiency And Boosts Revenue

New technology products are developed every week to automate and manage everyday tasks. The question always is, which technologies are right for my business and at what price?

In addition to automated collections calls, Ballard lists a number of products that have helped USG’s properties streamline operations. These include Customer Relationship Management (CRM) as part of an operating system, call centers, Dropbox or other file sharing services, and using EasyCode from PTI Security Systems to allow customers gate access via their cell phones. Some income-enhancing products include automated rate management, pay-per click (PPC) advertising, online rentals and payments, and pay-with-rent customer storage insurance.

Decker recommends products that allow customers to take care of their own needs such as task management systems that can be used with smart devices and Bluetooth access to their units. Owners can utilize technology for remote monitoring of security, digital document signage and storage, off-shoring call center functions or property management, online auctions, and email postage for certified mail.

Guy Middlebrooks, vice president of third-party management for Pennsylvania-based CubeSmart, says new technologies can be used to reduce the time it takes to rent a unit and gather customer information prior to their visit to the property. These technologies not only create efficiencies for the operator, but result in happy customers as well.

“Online rentals, paperless leasing, and pre-gathering of customer information are all ways to reduce costs while improving the experience,” Middlebrooks says.

The REITs and other large operators have the most powerful and effective revenue management systems in the storage industry, giving them formidable tools to optimize rates virtually on the fly. Technology has given smaller operators an opportunity to emulate their big brothers and even compete with them.

“The computer tells you which customers to send rate increases to each month and which street rates need improvement,” Ballard says. “This can add double-digit increases to your cash flow. Gone are the days of once-a-year increases.”

These technologies are available and cost effective, but a number of smaller operators fail to take advantage of them.

“There are way too many operators that are doing things as efficient as they know how but they don’t realize for a small fee they can take advantage of someone else’s system and make even more money,” Decker says.

Ballard sees a great divide between sophisticated operations and older facilities featuring fewer amenities and very little technology. “Most large operators have been using these for years and it has added significant income to their bottom line and greatly increased the efficiency of on-site staff, whereas [I see] little of this in the group of privately owned one- or two-location owners.”

Report Overload

Software packages generate numerous reports that can help owners pinpoint areas for action, however, they also can inundate managers with too many details. To avoid becoming overwhelmed, store managers need to focus on the most meaningful reports to remain productive.

“You can give every detail to the store manager and 90 percent of it gets lost because it’s either too much information and they get overloaded, or they focus on the wrong thing,” Decker says. “We’ve boiled down the data and taken a lot of reporting off their plates, especially at the store level. We’re providing critical metrics that a person needs to make a decision and nothing more.”

Regular one-on-one conversations with store managers help to maintain focus on what’s important for the company. “The owner or corporate manager needs to know which reports are helpful, and then you need to sit down with your manager monthly or weekly and let them look at it,” Parham says.

She tends to focus on occupancy levels and collections, but the underlying value lies in taking appropriate action based on the information contained in the reports.

“We take our ZIP code report and download it onto Google Maps so we can see exactly where our customers are coming from, and then we know where we need to hit as far as our marketing is concerned,” Parham reports.

USG has identified 12 SiteLink reports that illustrate to managers and clients how the information relates to the bottom line as well as marketing efforts. “Each operator has to train his or her team to understand and utilize the reports that are meaningful to them,” Ballard says. “If managers and owners would invest just one hour at the end of the month to reviewing these reports, they would be able to better manage the store and the income flow.”

She suggests looking at the current management summary compared to the same day last year to determine if income and occupancy have improved. Also, review the rate change history by number of days since the last increase to see which customers are due for at least an annual increase. Unit reports reveal which sizes are 90 percent-plus occupied and are candidates for hikes in the street or asking rent.

Ballard’s 12 Favorite Reports presentations can be found online at the Self Storage Association and Inside Self Storage websites.

Income Boosters

Any business can benefit from additional sources of income, especially when there is a minimal amount of time and capital required to produce them.

With a small investment in employee training, operators can generate a significant revenue stream from a tenant insurance program. A pay-with-rent program allows the customer to have thousands of dollars’ worth of protection for a small premium, which is paid monthly along with the rent.

“The insurance companies like MiniCo will help get you licensed if needed and deploy the program and you receive an admin fee which goes right to your bottom line,” Ballard says. “We have stores that upon takeover by us went from zero percent participation in customer storage insurance to 100 percent of customers enrolled within just a few months.”

Sales of products such as boxes and other packing supplies can add up significantly without taking a lot of the manager’s time. Even if space for these products is limited, a good salesperson can have customers ordering supplies with regularity.

“I am constantly amazed that someone who has a 50 square-foot office is able to sell just as many retail items as someone that has a 300 square-foot office with big displays. The display doesn’t sell the item, it’s the salesperson,” Decker says. “When you properly incentivize your salesperson and get the right person in that place, they can move products whether you can display it or not.”

CubeSmart’s Middlebrooks agrees. “The store level teammate is the key to having strong ancillary sales,” he says. “The size of the display and limited office space does not have to be a limitation. It is all about training, focusing, and incentivizing.”

Joshua Management rewards its managers with a 10 percent bonus for all retail sales. “It has to be part of the leasing process,” Parham says. “It’s training the manager as part of the leasing process to bring up ancillary products. You offer it to them and make sure they know this is what we have and we’re cheaper than the retailer down the street.”

Providing achievable sales goals and tracking merchandise sales helps the employees put an emphasis on ancillary sales. “If you break it down to its lowest common denominator, i.e., sales per lease, managers can understand and buy into the program easily,” Ballard says. “For example, let’s target $25 of merchandise sales to each move-in and then track what they achieve. In no time at all they can increase the goal. Awareness creates improvement.”

Employee Buy-In

Before embarking on any new cost-cutting or income-producing program, it’s vitally import to solicit managers’ input and employee buy-in before implementing new streamlining strategies. The largest REITs to even single facility owners embrace employee input as part of the company culture.

“CubeSmart strongly believes that the district manager and store level teammates should have a strong say in everything that we do,” Middlebrooks says. “Their support and buy-in is extremely important. Gathering input, testing our processes and initiatives, and focus groups are all part of our culture.”

Buy-in is an important ingredient at other REITs as well. “With any operations optimization or streamlining of operations, the most critical part is making sure that you’re doing the right thing for the right people,” Extra Space’s Decker says. “It’s easy to look from the outside in and say we really don’t need to spend money there and you can build models to prove it. What you need to know is how does this affect the people that are pushing the buttons? You’ve got to give them the tools, systems, and process to help them rent units.”

Decker says Extra Space spends a lot of time gathering grassroots information from the field and building channels where employees can submit ideas, which their peers can vote on.

“We have people within our group that look at an idea, look at the feasibility, cost, and payback,” says Decker. “Execution is huge in doing it right and communicating it to make sure everybody knows what’s happening and why.”

This is the time to develop that operational playbook to prepare for uncertainty and opportunity ahead. Talk to peers and vendors, research the possibilities, and solicit staff input to determine which measures can achieve the best results and eventually become a permanent part of doing business. But never lose sight of the tenants’ needs, and be sure to maintain customer focus.

“Existing customers rarely leave one facility to move into another facility, provided they are pleased with the service levels, cleanliness, and overall condition of the current location,” Middlebrooks says. “That is why building relationships with your customers through a high level of customer service is so important. When new development competition is coming, it is not a good time to be cutting corners, costs, and service levels. This is when you should be at your best.”

David Lucas is a freelance writer based in Phoenix, Arizona. He is a frequent contributor to all of MiniCo’s publications.

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