Oh no! Someone is building a new self-storage center down the street! What's that going to mean for my business?
Chances are excellent that it won't mean anything bad. There are several forces at work when you’re talking about business and competition. Let's take a look at a few.
Top of mind
Have you ever noticed how many similar fast-food restaurants are clumped together? You'll see a McBurger, next to a Royal Burger, next to a Taco Gong, across the street from a sub sandwich shop. Now ask yourself two questions: 1. How many of them go out of business when a new competitor moved in? 2. Did any of their parking lots seem emptier during lunch? Hint: We already know the answers. They are “None” and “No.” Why? Because the proximity of the restaurants creates a “Top of Mind” experience in the community. The close proximity of each restaurant pulls in more customers to each restaurant than any individual restaurant would by itself. You can expect the same results with self-storage. The additional units will create more awareness for your potential customers and you'll find your units filling as fast as ever.
Social proof is the phenomenon where individuals will look around and see what everybody else is doing to help them decide on a course of action. This is why online retailers hound you for product reviews. The more self-storage units available in a community the more using self-storage seems like the best solution as opposed to some of our competing alternatives like purchasing sheds, or (heaven forbid) selling off unneeded items, or (even worse) throwing stuff away. Americans love their stuff, and you need no more proof than to look at the success of the self-storage industry. There seems to be a strong correlation that “If you build it, they will come…”
Is it possible for storage centers to work together? How would you look to a potential customer if you could legitimately recommend that your competition could fill their needs better than you could? You would look like an honest, trustworthy pillar of the community. For instance, let's say you have a potential client request a 5x10 unit. and you just rented your last 5x10 unit two days ago. If you can recommend a 5x10 unit at a different location you gain instant credibility in the eyes of that tenant and are very likely to get excellent “ word-of-mouth” exposure from the tenant you let go down the street instead of trying to sell them a 10x10 unit. That person is very likely to remember that experience and recommend you when they know somebody who needs a 10x10 unit. Everybody wins! Your potential tenant leaves you with a good feeling believing they were fairly treated and not upsold unnecessarily, your competition rents out a locker in a size that you were out of and maybe feels obligated to return the favor (this would be especially true if you called them for your prospective tenant), and you get the best type of advertising possible, positive, word-of-mouth referral, without trying to upsell or deeply discounting a larger unit.
Before the tenant leaves you there is a rather large opportunity cost in moving out of one 10x10 unit into another 10x10 unit just to get a little closer to their home or to save a few dollars a month. The vast majority of your current tenants will not move out for that reason. We all know the amount of stuff that can be packed into even the smallest unit can be quite impressive. It is common for that feature to become an overwhelming obstacle, so much so that the thought of moving it again will keep your tenants for years - even through significant rent increases. Once a tenant has moved into a facility it is very unlikely they will move out without a very compelling reason. Now those tenants who were moving into or out of a home will leave their unit once the home is ready, but those looking for long-term storage will not readily move out unless they are really treated poorly.
A note of caution
A price war is bad for everybody. There is a possibility that the new facility will attempt to draw in tenants by offering their units at a discounted rate. The natural tendency is to meet or beat their price like the car dealers do. This just conditions customers to wait for a deal. The BIG problem with this strategy for storage units is that we only have a fixed number of units to sell. Unlike car dealers who continually have access to more inventory. So once you are stuck with a low-rate you have to raise the rent on a tenant Raising the rent will feel like a loss to them and a loss is felt with more intensity than an equivalent gain (ie. raising the rent $10 is more painful to your customer than giving them a $10 discount would make them feel good). Raising rent will not make for very happy tenants and limit the amount of word-of-mouth referrals that you receive. Think about how you feel when the cable company raises your rates after the 12-month introductory offer. They just expect you to stay. Now, it is true that changing cable companies or satellite providers is a lot easier than cleaning out your 10x20 storage unit and moving it down the street. But referrals are the best kind of marketing. I would rather have the referrals and a waiting list than to dupe tenants in with a low introductory offer then blow up their rent. We recommend competing on service and convenience rather than price.
This is not by any means an exhaustive list. And, of course,, there is a maximum market saturation point where more of any given product will not be consumed. However, we doubt that most markets in the western world are even close to that point, and if your market is close to that point chances of anybody else building new units is pretty slim.