New P2P storage concepts may not be as big a threat as they first appear, says managing director of Kennards Self Storage, Sam Kennard.
There has been some noise recently in Australia about self-storage industry disruption from peer-to-peer storage providers. Unsurprisingly, this noise often corresponds with capital raising efforts and web site launches. Consequently, I am frequently asked about the impact and risk to the industry.
I appreciate that by diminishing the impact, I may appear as the arrogant ignorant incumbent. Some may even see Kennards Self Storage as the likely Kodak of the self-storage sector. Nonetheless, here I go.
Recently one Australian self-storage disruptor start-up, Spacer, has stated an ambition to grow to hold an 8-10% market share of the markets in which it operates. It has also raised capital and successfully acquired a US peer known as Roost.
Spacer was not the first, joining a list of peer-to-peer storage disruptors who attempt to match people with some spare room with people who need more room. In principle, the idea seems sound and should get some traction.
What is old is new again
The idea of people renting out their spare space to others is not new. It has happened informally for decades. Word of mouth often enabled people to share their space with others who needed it.
In the past (well before the internet), The Trading Post (for those too young to know The Trading Post was a weekly newspaper publication that listed stuff for sale, wanted and for rent. It had literally everything you could imagine, even jousting sticks, and was available at every newsagent) had a section of “Garages to Rent/Wanted”.
Now in the digital era, platforms like GumTree have an abundance of garages, sheds and storage spaces listed. This proves there is a market for peer-to-peer storage. What these new peer-to-peer platforms are attempting to do is enhance the consumer experience with a slick tech solution.
A quick Google search and investigation revealed the following P2P self-storage disruptors have emerged (or not) around the world:
How big is the market anyway?
While the latest disruptor aspires for 8-10% market share we should understand the size of the markets.
Courtesy of Urbis Australia, it advises the following estimates of market supply:
From this, we can easily estimate the targeted share of spaces. Growing to 18,000 spaces across these markets is a formidable objective.
All sizzle and no sausage?
I assume the sponsors of these disruptors believe that an easy-to-use platform will expand the market and also entice existing people to migrate from their current renting platforms.
New ideas certainly get attention, and if they can successfully raise money this does pique media interest. Elegant apps and slick websites add some excitement, and even perhaps a look of credibility for a new concept. Everyone loves tech, and it is enticing to believe a fortune can be unlocked (sorry, bad pun) with the right solution and idea.
Interrogating the corporate backgrounds of some websites, the sponsors and founders of the disruptors often make claims about “revolutionising self-storage”, becoming the “airBnB of self-storage”, or have lofty ambitions of market share expectations.
Curiously, I couldn’t find a single founder who actually came from the self-storage sector. Maybe that doesn’t matter, but it does make one wonder if they genuinely appreciate the drivers, behaviours and preferences of self-storage consumers and the market.
Challenges and obstacles
I have a number of observations of the challenges and obstacles the P2P storage operators need to overcome to go from all sizzle to some sausage.
Security and Privacy — storage customers place great value in the privacy and security of their goods. If they use someone’s garage or shed, how much comfort can they have that the owner won’t rifle through their gear or leave the room exposed to security breaches?
A common self-storage byline is “you lock it, you keep the key”, whichpresses the point of complete privacy and certainty enjoyed by self-storage customers.
Potentially, the storer having access to the house if it’s a spare room could be a security issue.
Access, convenience — having free, unrestricted access is very important to storers. This poses two challenges — one from each side of the transaction.
Firstly, the storer may feel uncomfortable coming to someone’s home garage or shed regularly, in the evenings and on weekends to go through their stuff. The established self-storage operators invest heavily in making access flexible, easy and convenient. Secondly, the owner of the space may wish to protect their own privacy and restrict access at certain times.
Tenure of storage — Storage customers are understandably uncertain about the length of time they will store. In addition, almost without fail they store for longer than they intend. Unlike short term rentals like car parking and AirBnB, storage is a long term commitment. In my business, the median length of stay is 36 months.
The storers often move away too. This presents another two reciprocal challenges. Firstly, for the storer, they will want certainty. Certainty that the vendor won’t sell, have their lease terminated, move house or just be asked to leave at any time.
Secondly, for the vendor — what if they want to move home and they have a storer using their garage? What if they simply don’t like it and want their garage back? They will be burdened with the additional complication of getting the storer to vacate. This is often not very easy.
Scale and network — There is an obvious circular challenge for the self-storage P2P aspirants. They need scale (a lot of rooms available) and a diverse footprint to make their platform meaningful, useful and, most importantly, viable. If they manage to attract potential storers on to their platform, and they repeatedly fail to have a space available to satisfy the query the user experience will be poor. They won’t come back.
My instincts are that they will enjoy their best enquiry levels where space is already at a premium, and as such they will probably struggle to get the scale in listings. In my business, there are many high demand markets where I would like to build more spaces, but can’t. Similarly, I doubt they will be able to source space to match the users in the high demand areas. There simply isn’t that much spare space in the inner urban, densely populated areas.
The low barriers to entry for competing platforms to emerge could potentially also dilute their ability to get scale.
Obviously without scale, the model won’t be viable long term. The 10-15% service fee will feel slim as they attempt to fund operating expenses and product development, in particular battling for real estate on Google, which is akin to an arms race.
In closing, scratching below the surface of concept and veneer there are real challenges with regard to consumer preferences and vendor obstacles. How the P2P storage providers overcome these will determine their future.
I don’t see it as being very easy; as such it is reasonable not to harbour great concern about their impact on the self-storage sector.
Kennards Self Storage
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