Operational and Marketing Review
Overview
We now have a portfolio of 74 open and trading Big Yellow stores, with a further ten development sites including one extension opportunity. The current maximum lettable area of the 74 stores is 4.6 million sq ft. When fully built out the portfolio will provide approximately 5.3 million sq ft of flexible storage space.
In addition we part-own and manage 22 Armadillo stores which are principally located in northern UK towns and cities, and operate from a platform of 1.0 million sq ft.
Growth in new self storage centre openings, excluding container operators, over the last six years has averaged 1% to 2% of total capacity per annum, down significantly from the previous decade. Additionally, in our core markets in London and the South East, high land values driven by competing uses such as residential, and complex planning rules, are making the creation of new supply very difficult for all operators. We believe that we are in a relatively strong position given the strength of our balance sheet and our proven property development expertise, together with our ability to access funding to exploit the right opportunities.
Operations
The Big Yellow store model is well established. The “typical” store has 60,000 sq ft of MLA and takes some three to four years to achieve 85% plus occupancy. The average room size occupied in the portfolio is currently 68 sq ft, in line with last year. The store is open seven days a week and is initially run by three staff, with a part time member of staff added once the store occupancy justifies the need for the extra administrative and sales workload.
The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. We measure customer service standards through a programme of mystery shopping and online customer reviews, which are externally managed. Over the year, we have achieved an average net promoter score of 80.
We have a team of nine area managers in place who have on average worked for Big Yellow for 13 years. They develop and support the stores to drive the growth of the business.
The store bonus structure rewards occupancy performance, sales growth and cost control through quarterly targets based on occupancy and store profitability, including the contribution from ancillary sales of insurance and packing materials. Information on bonus build up is circulated monthly and stores are consulted in preparing their own targets and budgets each quarter, leading to improved visibility, a better understanding of sales lines and control of operating costs.
We believe, that as a consumer-facing branded business, it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £35,000 per store, which is included within cost of sales. This excludes our rolling programme of store makeovers, which typically take place every five years, at a cost of approximately £20,000 per store. Over the last five years we have invested £12 million in the upkeep and maintenance of our stores, all of which has been expensed in the income statement.
Demand
Demand for self storage is largely driven by need, with security, convenience, quality of product, service and location being key drivers. Awareness remains relatively low compared to commoditised products, such as hotel rooms or airline seats, albeit it is increasing slowly year on year with increased supply, marketing spend and customer use.
We are confident that Big Yellow benefits disproportionately from this improving market for our product, due to our market-leading brand and operating platform with our focus on London, the South East and large metropolitan cities. Our digital platform now accounts for 88% of our prospects, of which over half come through our mobile site.
Customers renting storage space whilst moving within the rental or owner occupied sectors represent 42% of move-ins during the year (2017: 43%). 11% of our customers who moved in took storage space as a spare room for decluttering (2017: 11%). 35% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited possessions, are getting married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements (2017: 34%). The balance of 12% of our customer demand during the year came from businesses (2017: 12%).
There is a growing trend towards self-employment and smaller business start-ups in the UK, dynamics that are positive for self storage. Additionally, businesses in the UK are increasingly seeking flexible office and storage space rather than longer inflexible leases. The deindustrialisation of big cities with the conversion of commercial space into residential and other uses, is also a driver for demand from the SME market seeking flexible warehouse space.
During the year, the Group commissioned an external survey to assess the impact the average Big Yellow store generates for its local economy. 35% of the Group’s space is occupied by business customers, and the average store is home to 105 different businesses who between them employ 300 people as a direct result of their occupation. 60% of the businesses that occupy our stores are start-ups who have never rented space anywhere else before. For over half of the businesses, this is the only space they rent, for others this complements their other space. The report estimated that across Big Yellow over 23,000 jobs are created working for over 7,700 businesses. In addition, average local Gross Value Added generated by Big Yellow’s business customers in each store is approximately £17 million per annum, or over £1 billion nationally.
Of our occupied space today, customers who are longer stay lifestyle users, decluttering into small rooms as an extension to their accommodation, occupy 10% to 15%; 50% to 55% are using it for less than 12 months largely event driven, which could be inheritance, moving in the owner occupied or rental sector, home improvements, travelling; and the balance of 35% are businesses.
We have a dedicated national accounts team for business customers who wish to occupy space in multiple stores. These accounts are billed and managed centrally. We have four full time members of staff working on growing and managing our national account customers. The national accounts team can arrange storage at short notice at any location for our customers. In smaller towns where we do not have representation, we have negotiated sub-contract arrangements with other operators who meet certain operating standards.
Marketing and ecommerce
Our marketing strategy focuses on driving enquiries and customer satisfaction through our digital platforms.
For the last 12 years, we have commissioned a YouGov survey to help us monitor our brand awareness. In our most recent survey conducted in April 2018, we used a statistically robust sample size of 1,000 respondents in London and 2,003 for the rest of the UK. The survey has shown our prompted awareness to be at 71% in London, over two and a half times higher than our nearest competitor and 46% for the rest of the UK, over three times higher than our nearest competitor.
For unprompted brand awareness, our recall in London is 46%, six and a half times higher than our nearest competitor and for the rest of the UK it is 23%, nearly eight times higher than our nearest competitor. The UK Self Storage Association (“SSA”) has also conducted a brand awareness survey with similar results. According to their YouGov survey conducted in January 2018, Big Yellow’s unprompted brand awareness across the UK is seven times higher than our nearest competitor. These surveys continue to prove we are the UK’s brand leader in self storage.
The Big Yellow website, whether accessed by desktop, tablet or smartphone, delivers the largest share of our prospects, accounting for 88% of all sales leads across the year ended 31 March 2018. Telephone is the first point of contact for 8% of our prospects and walk in enquiries, where we have had no previous contact with a prospect, represent 4%.
We have the largest online market share of web visits to self storage company websites in the UK. Across the year ended 31 March 2018, our online market share of web visits ranged from 28% to 34%. Our nearest competitor ranged from 18% to 24% online market share for the same period (source: Connexity Hitwise 35 largest UK self storage operators).
We monitor and improve the website user journeys on an ongoing basis. We are committed to making the experience as easy, intuitive and informative as possible for our customers. Both the mobile specific website, which itself accounted for 53% of our web visits in the year, and our desktop site are designed with helpful and time saving online tools such as Check-in Online, online FAQs, video store tours, online chat, BoxShop and a Click and Collect service for packing materials. These all help the customer to make an informed choice about their self storage requirements.
Online customer reviews
Consistent with our strategy of putting the customer at the heart of our business, our online customer reviews generate real-time feedback from customers as well as providing positive word of mouth referral to our web visitors. Through our ‘Big Impressions’ customer feedback programme, we ask our new customers to rate our service. With the users’ permission, we then publish these independent reviews on the Big Yellow website. There are currently over 23,000 of these customer reviews published averaging 4.8 out of 5.
The Big Impressions programme also generates customer feedback on their experience when they move out of a Big Yellow store and also from those prospects who decided not to store with us. This programme reinforces best practice of customer service at our stores where customer reviews and mystery shop results are transparently accessible at all levels.
We also gain real-time customer insight from over 3,800 Google Reviews averaging 4.5 out of 5 and 1,100 TrustPilot Reviews currently averaging 9.5 out of 10.
We regularly monitor any mentions of Big Yellow within all customer reviews, on social media, external blogs, news sites and across the web generally. We use this insight to monitor our brand and continually improve our service offering.
Driving online traffic
Self storage is a consumer facing business and the development of strong, sustainable brands is multi-layered and requires a consistency of product, customer service and interaction at all touch points, particularly online, which represents 88% of our total enquiries.
Search engines are the most important acquisition tool for us, accounting for the majority of traffic to our website. We continue to invest in search engine optimisation (“SEO”) techniques both on and off the site. This helps us to maintain high positions for the most popular and most searched for self storage related search terms in the organic listings on Google. Of the top 100 self storage search terms, 47 feature brands, representing approximately 50% of the search traffic (source: Connexity Hitwise, 12 weeks ended 12 May 2018). This clearly indicates, that although self storage is a relatively immature industry with 70% to 75% of customers using it for the first time, brand is important in driving higher levels of prospects and customer referrals, leading to improved operational performance. We have demonstrated this through significant improvements in performance of existing storage centres following their acquisition, rebranding and assimilation into our business.
The sponsored search listings remain the largest source of paid for traffic and we ensure our prominence in these listings is balanced with effective landing pages to maximise website conversion.
Efficiencies in online spend are continuing into the year ending 31 March 2019, ensuring the return on investment is maximised from all of our different online traffic sources. Online marketing budgets will continue to remain focussed on the media with the best return on investment.
Social media
Social media continues to be complementary to our existing marketing channels. Our activity is most focussed on Twitter and Facebook, not only monitoring and answering queries regarding self storage, but also publishing our own creative posts, advice, news and CSR initiatives.
The Big Yellow YouTube channel is used to showcase our stores to web prospects through a video store tour. We use both domestic and business versions to help prospects experience the quality of the product without the need for them to visit the store in person. Our online blog is updated regularly with tips and advice for homeowners and businesses, as well as summaries of our charitable and CSR initiatives. We have also developed our LinkedIn profile to help promote Big Yellow as an inviting and engaging place to work and as a direct recruitment channel.
PR
We have been developing regional PR stories throughout the year to help raise the awareness of Big Yellow and the benefits of self storage across the UK. We have been highlighting newsworthy stories of charitable endeavours from Big Yellow staff or the support we provide to the local charities through offering free storage.
Budget
During the year the Group spent approximately £4.7 million on marketing (4% of total store revenue). We have increased the budget for the year ahead to £5.3 million with a focus on delivering and converting more prospects to our stores from our digital channels.
Cyber security
The Group receives specialist advice and consultancy in respect of cyber security and we have dedicated in-house monitoring. We continue to invest in and review our security systems and we limit the retention of customer data to the minimum requirement. Some of the changes include more frequent penetration testing of internet facing systems, adding components such as anti-ransomware as well as the maintenance and replacement of components (such as firewalls) to the latest technology and specification. Policies and procedures are under regular review and benchmarked against industry best practice by our consultants. These policies also include defend, detect and response policies. We have aligned our policies and procedures to ensure our compliance with the new EU General Data Protection Regulation (“GDPR”) which comes into effect on 25 May 2018.