What is On-Demand Storage and Will It Affect the Self Storage Industry?

Public storage buildings have been around for decades, providing a convenient location to store old furniture, items that see only seasonal use, and whatever other junk doesn’t fit in the garage that you just can’t bring yourself to throw away. Beyond those ordinary uses, people downsizing their homes and those needing storage for items that belonged to deceased loved ones create a temporary need to store items and a demand for services to accommodate such needs. A new player in the self-storage industry, on-demand storage promises to be the next tech-driven disruption to an age-old industry.

Facts About the Self-Storage Industry

Self-storage revenue was estimated at $36 billion in 2016, with figures expected to grow through the end of 2017 to a projected $37.5 billion. The self-storage industry has existed for decades, largely in its current form, seeing little change in the way it has operated. When an industry drawing that amount of money fails to innovate, opportunities present themselves, and astute business owners can take advantage of major disruptions.

The demand for storage certainly shows no signs of lessening. By all indicators, there is a great deal of room for growth. While more than 2.5 billion square feet of storage space are already allocated for business, it is estimated that only 9.5% of US households currently rent self-storage units. There is a huge market that is still not using self-storage and might find a modern take on storage to be just the push needed to lead them into the market.

The Current Problem With Self-Storage

The industry has remained largely stagnant. There are very few industries in America that have not been completely transformed by changes in technology or the push to find more efficient methods of doing business. Self-storage companies haven’t seen much need to innovate so far, but new challenges to the industry may change this.

Self-storage companies generally face several hurdles within their business model. Self-storage needs to be conveniently located, but real estate is the single most expensive part of operating a self-storage facility. As a result, the location choices are often in areas that are less than desirable otherwise. Additionally, self-storage units are vulnerable to crime, and the heavy lifting and lost time incurred with accessing and using them deters some consumers.

Cost is one of the biggest problems the self-storage industry faces. Real estate costs continue to rise, especially in large cities where housing costs mean consumers are more in need of storage services. The current self-storage model has no effective way to alleviate the main expense of real estate. As a result, storage rates remain high and rising with an average cost of $87.15 per month nationwide.

What Is On-Demand Storage?

The technology startup mindset is bringing some innovation to the industry. On-demand services such as Lyft and Uber have demonstrated the feasibility of disrupting an age-old industry through a forward-thinking, tech-based solution.

On-demand storage works by providing storage solutions without the customer having to set foot in the storage building itself. A customer uses an app and identifies an item that needs storage. Within 48 hours, a driver arrives, packs the item, and takes it away to storage. The on-demand storage company takes a photo of the item and documents when the customer wants the item back. The user confirms within the app, and the items is later delivered back to the customer’s location.

The services pick up anything you might store, including furniture and other large items. Delivery and packing don’t cost extra; they are part of the cost of service. Costs for the different services can range anywhere from $59 per month to $250 per month.

How Can On-Demand Storage Compete Financially?

Much like cloud computing takes advantage of economies of scale to reduce costs for businesses, on-demand storage makes the most of storage space at a limited cost to the business. Traditional storage facilities must be located near the consumer, which translates to expensive retail costs. Because customers never have to visit the on-demand storage site, enterprises are free to place them well outside the city, where real estate is much cheaper.

Rather than having to divide the storage areas into hundreds of smaller facilities, on-demand storage sites are more like large warehouses. Taking inspiration from product fulfillment storage models like Amazon’s large warehouse facilities, these sites can quickly and easily store an item and retrieve it again when needed. The manpower needed is largely in the pickup and delivery side, which can often be shared with other on-demand shopping and delivery services.

What Are the Prospects for These Types of Services?

The two largest services in this industry are Clutter and Makespace. Clutter recently received $20 million in investment funding just six months after getting $9 million in capital investment. Makespace has raised $30 million this year on top of $17.5 million last year. Venture capitalists like Mark Suster, who have been hesitant to fund other on-demand services, are jumping at the opportunity to invest in on-demand storage businesses.

So far, the two largest companies have stuck with major cities like Los Angeles, New York, and the San Francisco Bay area. Other companies are springing up in Boston, Dallas, and Chicago. While no company to date has been able to become profitable overall, Clutter boasts it is the first company to be profitable on a per-client basis.

The opportunities for expansion in the existing markets they currently service seem very promising, and nationwide growth seems to be on the horizon. If these companies find regional success, they can maintain consistent pricing structures. As overheard costs will be less expensive in smaller cities, the model scales upward. There are even rumors that Makespace may expand into feature areas like enabling customers to sell used items housed directly in their warehouse storage.

While it remains to be seen if these on-demand storage businesses can deliver on the promise to disrupt the self-storage industry nationwide the way Pods did, they looked poised to establish a solid presence in the large metropolitan markets they serve and impact the storage business in 2018.

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