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Are you feeling pressure from big box stores and their aggressively-low street rates?
How do you keep up with a national chain that offers the same storage units for cheaper than you’re able to sustain at your facility?
Should you be doing it, too?
Knowing how to deal with these national storage brands and their discounts can be a struggle. This post will explore whether or not you should be following their lead and some alternatives that can help set you apart!
REITs—the big national storage chains, also known as real estate investment trusts—are notorious for their low street rates.
They discount their street rates to unsustainable levels, and that makes it extremely attractive for new customers to choose one of their locations over local competitors.
One question many operators eventually ask is this: Should I be following their lead?
Unfortunately (or maybe fortunately), the answer is a bit more complex than a simple yes or no. There are many things that make these REITs different from other storage facilities. From corporate management to their lack of ties to the communities they serve, these big box stores operate very differently on almost every level other than the way tenants actually use them.
Let’s take a look at some considerations to help you decide what to do—and even an alternative idea or two.
Before deciding whether or not you want to follow suit and drop your street rates to compete, there are some things you need to consider about these big national brands.
It’s not as simple as just matching their prices.
Here are 3 factors for you to keep in mind when making your choice:
It’s not like REITs are choosing to lose money. They’re definitely making money.
What this concept means is that they don’t need to squeeze every possible dollar out of their investment every single month. Because they have many locations bringing in plenty of revenue, and because of their strong financial backing, they can make choices that leave potential income on the table in the short term but lead to long-term gains.
Not having higher street rates won’t mean they default on a loan or can’t pay their managers.
They can make this strategic move and brute-force their way through a market because of their size. If you attempt to go head-to-head with a REIT on pricing strategy but don’t also have the finances to back up the battle, you’re opting into a loss from the start.
You raise rates, don’t you?
If you’re not raising rates periodically, the chances are that your customers love you, but you’re probably losing out on money.
Everyone has different philosophies on how often rates should be raised, but most people would agree they should go up at least once a year. That sounds reasonable, right?
What about multiple times a year?
REITs are well-known among industry insiders for their rate increases. Some raise them as much as three times in the customer’s first year, and some may even be more aggressive depending on the market conditions.
Someone in our office recently rented a unit from one of the REITs. Within three months, their rate had doubled from $75 to $148. Get them in low, raise them high as soon as possible—that's REIT pricing.
It's not a strategy that can work for every facility, but if you want to set your street rates as low as they do, this is something you need to be prepared to do to follow in their footsteps.
Think about it. What national retailers do you reluctantly shop from?
How many people stop at Walmart but would openly talk about how much they dislike the company if given the opportunity?
How many people are willing to go to an Olive Garden or Starbucks even though they may crack jokes about the companies?
The reason is simple: the fact these are massive companies that operate nationally (or even internationally) means they both have a spotlight on them to make sure they behave and also have clearly been doing something right with their product or service.
It doesn’t mean we love them. It doesn’t mean we wouldn’t rather go somewhere local.
It does mean we recognize the branding, and we are able to feel just a little bit more at ease by default when doing business with them. By comparison, people are usually a bit more skeptical of an unknown business—even a local one—until they’ve seen proof that it’s legitimate.
How often do you check the reviews for a McDonald’s before choosing to pull into the drive-through? Probably never. But what if it was a local restaurant with a drive-through and you had never heard of them before?
Most people are probably pulling up Google to see what’s up before they make that stop.
Not everyone has the stomach for constant rate raising. It’s also not going to go over as well for every facility as it is for a big national brand.
Nationally-recognizable chains live in a weird state of having both consumers’ trust and distrust. We are usually reasonably sure we know what we’ll get from a big chain and that we won’t have anything shady or exceptionally out of the ordinary happen. However, we also tend to see them as not working towards our best interests and—depending on the market—as outsiders.
Meanwhile, local businesses have to work harder to earn the community’s trust because they don’t have a wealth of successful service examples to pull from.
The benefit you have as a local storage facility is that, once you’ve earned that trust, many people are more loyal and more willing to spread word of your business than if you were a large REIT.
Because of these factors, you need to be more careful about your community ties as a small operator of a storage facility.
Dropping rates to extreme lows only to hammer customers with rate increases every three months might help you keep pace with REITs at first, but it’s also likely to degrade your relationship with your customers. It also means you’ll need to interface with angry customers, something that the executives at these large companies don’t have to do after they issue rate increase policies.
After all, if you’re doing the same thing these big box stores are with rate increases, customers have very little reason—at least in their minds—to choose your local storage facility over a brand that has proven itself across the country.
If you’ve decided that deceptively low street rates and aggressive rate hikes aren’t the way for you, you’re in luck; I’ve got a few ideas for you.
Here are some alternative ideas for keeping up with the big storage chains:
Community engagement can be used as a form of marketing that strengthens your ties to the community while also raising awareness about your business.
There are many people who are more likely to work with a local business than a national chain, but these people often still want to know they can trust the local, less-recognizable name. Make this happen by supporting the community with charity projects, local sports and events sponsorships, and other community engagement ideas!
You can also use discounts without mirroring what the REITs do.
Just because you discount your street rates doesn’t mean you’re following suit with the big box store down the road. You can offer discounts in ways that cause less damage to your brand and still draw in new customers.
These big brands, for example, don’t usually list anywhere on their site that a customer will see rate increases within the next few months. If you offer a discounted move in, you just need to make it clear to customers that the discount is temporary and display what the true monthly rate is.
Use web rates and value-based pricing to your advantage.
Many customers rent online. You can entice them to rent by displaying a higher rate for walk-ins with a discounted online-rental rate. This web rate lets the customer know they’re getting a deal without hurting the perceived value of your business.
Speaking of value, value-based pricing lets you empower your customers to make the best choice for their needs. Check out our full breakdown of what value-based pricing is here. For now, know that value-based pricing basically means you’re assigning higher rates for storage units that are better-located or better-equipped, similar to how you charge more for a larger unit.
If the scenario is right, consider running Google Ads.
Google Ads aren’t right for everyone, and it takes a bit of critical thinking to know if it’s worth spending the money. But if you’re feeling the heat from REITs, you may benefit from putting a little bit of money towards Google Ads.
If you choose to do this, you may also want to do the math on its benefits after a little bit of running the ads. For example, if you spend $200 a month on ads, you get one lead a month from it, and they pay less than $200 a month? It wasn’t worth it.
Finally, winning the customer service war will set your facility apart
In fact, this part of the plan is basically necessary. As we’ve already talked about, large national storage brands have a certain level of trust by default—but they don’t have love. On the other hand, a small business has to work a little bit harder to earn that trust but can build a stronger relationship with a customer once they do.
The customer’s experience is a big part of this, and customer service is what makes that experience awesome.
Because REITs are corporate-managed, they fall into the same trap every large national chain has: the people that benefit the most from the company’s success aren’t the ones acting as the company’s face.
With your local storage business, you can spend the extra time and energy to shine.
Go above and beyond for your customers. If it makes sense, be lenient in ways a big box store can’t (or won’t). Prove to your customers that you actually care about your ties to them and to the community and that storing with you is more than a business transaction.
One of the only ways you're going to be able to compete is with good marketing.
Whether you plan to run Google Ads, sponsor local charities, or spend your marketing dollars in any other way, you should be spending them.
And if you're still spending the same amount now on marketing that you have been since 2018 or before, you're already left behind. REITs like Public Storage and Extra Space Storage are spending as much as double per location on marketing than they were in 2018!
Take Public Storage as an example. They spent an average of $3,177.37 on marketing per location in the first quarter of 2018. Same-store growth between 2018 and Q1 2023 was over 100%—more than double! They spent an average of $6,635.43 per location on marketing in the first quarter of 2023. That comes out to about $2,211.81 per location per month.
If you want to compete in a big-brand-filled market, marketing has to be a major priority. Don't spend 2015 money to fight a 2023 battle.
Beating these real estate giants isn’t easy.
They have an incredible amount of funding behind them. Their websites carry a lot more weight on Google search. They have entire teams of people just dedicated to improving their business model or doing research on the market to minimize their losses and maximize their gains.
Thankfully, you’ve also got some advantages. And we can sum those advantages up into one statement:
Your storage business is local and has the space to care.
That care might be in how you sponsor local charities. It might be how to interact with other local businesses. It could be how your business helps people in times of need or the way you remember a person’s name and story.
Or, it could be as simple as the fact that you don’t want to bait people in with low prices and then start raising the rates as much as they can tolerate over the next few months.
You’re not a REIT. You don’t need to win the storage game on the national scale; you only need to win your market, and only enough to keep your occupancy where you want it!
Want to see more interesting self storage information and guides? Check out some of these posts:
At StoragePug, we build self storage websites that make it easy for new customers to find you and easy for them to rent from you.