By Lonnie Wells, WEBSCO Properties

The current recession causes storage owners to consider how they can increase income and/or reduce operating expenses. While these thoughts are certainly productive, the time may be right to consider just how effective their overall operating strategy is.

Self storage operating strategies can be broken into the following 3 categories:

1. Expense Minimization
2. Middle-of-the-Road
3. The Nordstrom Model

The “Expense Minimization” operating strategy is quite common, especially with older storage properties. With this strategy the owner places a very high priority on spending as little as possible. However, operating expenses and income are inexorably linked together. Older properties usually do not have an array of modern amenities and it is not unusual for owners to feel that to compete, their prices have to be low. Employing a low price strategy means that the owner is forced to minimize expenses for no other reason than there is just not enough income to go around. Unfortunately, this operating strategy has several fatal flaws. The first flaw is that the property is already priced at the bottom of the market, there is no margin of error in tough economic terms. Lowering prices in response to a recession simply reduces cash flow even further. A second fatal flaw is that minimizing expenses usually leads to deferred maintenance. Not having sufficient funds to maintain the property is only exacerbated in tough economic times. A property operated by minimizing expenses usually does not make a good first impression.

Adopting a “Middle-of-the-Road” operating strategy is a step up from the “Expense Minimization” operating strategy. With this strategy the owner attempts to hire competent managers, makes an effort to keep the property in good condition and moves his storage rental rates to the middle of the local market. Unfortunately, in a prolonged economic downturn the shortcomings of this strategy become apparent. When the economy slows down, a property is best served by a great sales staff, not just an average one. Potential customers become more picky and can choose between multiple properties, all of which are offering “move-in” specials. The “Middle-of-the-Road” property tends to get lost in the shuffle since, by definition, it has no special market defining characteristics.

The third possible operating strategy is considered the best strategy, which is why I named it the “Nordstrom Model” after the high end clothing retail chain. While my taste in clothes runs more towards J.C. Penney’s, I prefer the “Nordstrom Model” when it comes to operating storage facilities. In this strategy every facet of the storage operation is directed toward being the best. The owner strives to hire the very best managers with superior sales skills. He also makes a concerted effort to maintain the property in top condition. The service offered at this property is excellent and rental rates are kept near the top of the local storage market.

1. The “Nordstrom Operating Model” has several advantages which include:
2. Much higher profit margins
3. Better property upkeep
4. Smoother running property
5. Recession resiliency

The Nordstrom model allows the storage owner flexibility during a difficult economic recession. Since the property has been properly maintained, the owner can divert some regular maintenance funds and increase advertising. In this model, rental rates are already at the top of the market, so a small reduction in prices will not hurt much. The managers are top notch with superior sales skills, and are best equipped to cope when it becomes harder to rent. During a recession the cash flow at all properties gets squeezed. It is much better to continuously operate a property at the top of the market with ample cash flow than to operate at the bottom of the market with marginal cash flow. During a recession, the owner that gets hurt the least is the owner that has been operating at the top utilizing a “Nordstrom” operating strategy. This operating strategy, unlike the first two, gives the owner the most options, yields higher cash flow and is recession resilient. Storage operators should take time to reflect on their own operating strategy and determine if their current strategy is the best one or if it needs to be upgraded.