Strike “Ancillary” From
Your Vocabulary!

By Rob Kaminski

You’re always told that you need to focus on your core business: renting storage space. The mindset is that all added income is surplus. But in labeling other revenue streams as “ancillary sales,” could you be ensuring that this income source remains underdeveloped?

Ancillary is defined as “subordinate.” Yet, if you examine ancillary sales more closely, you’ll see that they can represent your greatest opportunity for new profit and growth, especially in a facility with high economic occupancy. Retail sales can be a low-investment way to sweeten your bottom line. How do you develop this potential goldmine? The key is to look at ancillary sales the way a retailer would; to capitalize fully on this opportunity, you must “think retail.”

Retailers compare margins.
There’s no question that a self storage business’s greatest cash flow comes from leasing units, not retail sales. Still,  a comparison of profitability can be revealing. Industry data says the average annual gross revenue per primary facility is $441,200—a gross annual revenue of $10.26 per square foot. This is a good return on investment. By comparison, an 8-by-6-foot area of retail space in your office can generate $10,000 in profits annually, delivering over $200 per square foot! And many self storage retail areas generate $20,000 per year or more.

You may be thinking that $20,000 is small potatoes—only about five percent of the average gross revenues of $441,200. But if the rule of thumb is that a real estate property should sell for six times its annual earnings, that $20,000 in additional retail sales would translate into $120,000 in increased value of your facility.

Retailers think retail.
There was a time when gas stations sold gasoline and little else. These business owners truly focused on their core business: selling gasoline. Today, according to Convenience Store News Industry Report, fuel sales still constitute 69.6 percent of gross sales while other retail sales contribute 30.4 percent to the gross of these businesses. But—get this—that 30.4 percent in retail sales makes up 64.2 percent of their total profits!

To offset low margins on fuel, service station chains started to think retail. They contemplated the needs of customers who pulled into their stations and asked, “What can we sell them besides gasoline?” Might morning gas customers want a cup of coffee? Later, they added a donut, and then a breakfast sandwich. Today, many gas stations are really mini-marts with fuel service.

Retailers think customers’ needs.
Why should the evolution of gas stations be of interest to self storage management? Because, in many ways, our industry is where gas stations were 30 to 40 years ago. Early on, self storage managers saw the opportunity to sell boxes, tape, and packing materials to their renters. It made sense because so many of their customers were moving. Later, they began to offer tenant insurance. Self storage operators now sell over $65 million in insurance annually.

Many of the same owners guessed that people who were moving might need to rent trucks. And today, it is estimated that self storage businesses do in excess of $100 million in truck rentals every year. When the first self storage owners tried truck rentals, some predicted that if customers could get even a slightly lower rate from the full-time truck rental outfits, it would kill sales. Well, they were wrong.

They didn’t take into how frazzled many customers are during these times. After renting a unit, buying insurance, and buying boxes and tape—not to mention facing the move ahead—maybe the customer is ready for a shortcut. A trip-saver. A little convenience. Thus, cost is not always the biggest issue.

Retailers know their competition.
Some industry old-timers complain that they can’t buy locks cheaply enough to compete with Wal-Mart®. Truth be told—none of us can. Thank goodness, Wal-Mart isn’t the competition. One thing retailers understand is that customers make buying decisions after they have weighed price versus perceived value.

Consider convenience stores. You’re late for an important meeting. You have a headache and you need an aspirin. You pull into a 7-11®, buy the little tin of aspirins, and you’re back on the road in under four minutes. You may have paid more for a dozen aspirins than you would for 24 in a drugstore or for 100 at Wal-Mart. But chances are, you don’t feel ripped off. You made a buying decision weighing price versus value.

The convenience store owner knows he’s charging more than the pharmacies and big box stores but doesn’t compare his pricing to those stores. Why? Because they are not his competitors. They can offer lower prices and better product selection, but not his level of convenience.

Your retail situation is often similar to that of the convenience store. Your frazzled customer is facing a work-filled day of rushing. Do you really think that a two- or even a four-dollar difference in the cost of a lock would turn him off? Maybe a little convenience is what he really wants.

So, who is your retail competitor? It’s not the other self storage place. The customer already chose you. And it’s not the big box discounter unless they’re right next door. Your only real competitor is your own retailing know-how. How much more can you charge for that lock? Retailers have a term: “whatever the traffic will bear.” That means what you charge may depend on the convenience you offer.

Retailers price by value, not cost.
Convenience is why a customer buying a lock for his unit might also pick up other locks for home. It is also why customers who have to clean the old apartment to get back their security deposits would rent a carpet cleaner. Could they rent one at the supermarket? Sure. But you get the sale because you’re more convenient.

And convenience doesn’t just apply on move-in or move-out day. Convenience is why the customer who stores with you might return to buy storage bags, furniture moving tools, envelopes, and shipping boxes. Selling shipping boxes led some self storage owners into the parcel shipping business. It made sense and it made money. Convenience offsets cost and can lead to new revenue streams for your facility.

Retailers act retail.
“Acting retail” means behaving as retailers do. Retailers are committed to selling. Their ads, their commercials, their exterior and interior signage … even employees’ uniforms are all designed to communicate one message. If they advertise a 48-hour sale, you can bet they’ll have signs inside and out that say “48-hour sale.”

Good retailers train all employees to sell. Ask a Menard’s stock boy where the roofing nails are and he’ll stop what he’s doing to lead you there. Well-trained employees know their products and give customers the information they need to make buying decisions.

Retailers look like retailers.
If the word “ancillary” can impact your retail sales, the word “office” as it is used in self storage can as well. Sure, at one time, self storage places all had small, strictly functional offices where the leases were signed. But “office” conjures up images of somewhat forbidding situations. Offices are where you deal with loan officers, lawyers, and IRS agents.

Now, picture yourself in a store. Isn’t that where “the customer is always right?” Stores are friendly, familiar places. Offices are not. If you want your customers to feel more at ease when they are renting storage space, the look of a store might work better than the look of an office.

Retail stores do their planning with “plan-o-grams,” which dictate what products to stock and where they should be displayed in relation to one another. Put simply, “must buy” items are usually “planned purchases.” Sales of “impulse purchase” items improve when placed near these essential items. Few people may plan to buy markers or carton cutters, but if you “suggest them” with your plan-o-gram, they’ll buy them.

Retailers control costs by controlling inventory.
Self storage people are very good at negotiating prices. There is one area, however, that they often overlook in their efforts to control costs: inventory control. Perhaps it’s because of that “ancillary” label that’s been stuck on retail sales—a lot of them haven’t applied their experience to this area.

How else can we explain why an otherwise smart investor will, in order to save 10 cents per item, place an order equal to nine months of sales? Surely, any savvy money manager would calculate the cost of tying up that much capital versus the savings in purchase price. Retailers do this all the time.

Retailers use their customer lists.
Many owners haven’t discovered the gold mine their customer list—present and past customers—represents. Look at these customers as a retailer would. Here is a group of people who live nearby, know where you’re located, and probably like you. A good retailer would ask themselves, “So, what else could I sell them?” They’d periodically do mailings to their entire customer list to promote what they sell.

Retailers also work with their suppliers on promotions up to six months in advance. So should you. Retailers wouldn’t hesitate to reach beyond their customer base when they had a particularly appealing sale to promote. They’d run ads in the local papers to encourage walk-ins.

The Bottom Line
Self storage professionals have proved to be unmatched in growing their rental businesses. As occupancy levels reach maximum, then, retail may be another way to add to the bottom line. To do well at it, self storage professionals will have to adopt the practices of successful retailers—and never, ever refer to any sales as “ancillary” sales.

Rob Kaminski is Vice President and General Manager of Supply Source One, a division of Schwarz Supply Source, one of the nationãs leaders in retail supplies.