Store operations
The Big Yellow store model is well established. The “typical” store has 60,000 sq ft of net lettable storage area and takes some 3 to 5 years to achieve 75% to 80% plus occupancy in the current macroeconomic environment. Some stores have taken longer than this given they opened just before or during the downturn. The average room size occupied in the portfolio is currently 66 sq ft, an increase from 65 sq ft in the prior year.
The store is open seven days a week and is initially run by three staff, adding a part time member of staff once the store occupancy justifies the need for the extra administrative and sales workload.
Given that the operating costs of these assets are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins. The table below illustrates the average key metrics across the store portfolio for the year ended 31 March 2012:
| Established stores |
Lease-up stores |
|
|---|---|---|
| Number of stores | 32 | 21 |
| Store capacity | 60,656 | 67,476 |
| Sq ft occupied per store at 31 March 2012 | 45,063 | 32,905 |
| % occupancy | 74.3% | 48.8% |
| Revenue per store | £1,369,000 | £975,000 |
| EBITDA per store | £887,000 | £589,000 |
| EBITDA margin | 65% | 60% |
Revenue per available square foot (REVPAF) across the wholly owned portfolio, including the 69,000 sq ft store at Eltham, London, which opened in April 2011, and the 60,000 sq ft store at New Cross, London, which opened in February 2012, increased from the last year by 5.2% to £19.43 (2011: £18.47).
The average store size in the UK market is approximately 40,000 sq ft according to the 2012 Self Storage Association Survey. The upside from filling our larger than average sized stores is, in our view, only possible in large metropolitan markets, where self storage drivers from domestic and business customers are highest.
Of the customers moving into the business in the last year, our surveys indicate approximately 58% are linked to the housing market, of which 18% are customers renting storage space whilst using the rental sector, and 40% moving within the owner occupied sector. During the year 11% of our customers who moved in took storage space as a spare room for decluttering and approximately 22% 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 furniture, are getting married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 9% of our customer demand in the year came from businesses. These proportions of demand are in line with last year.
Our business customers range across a number of industry types, such as retailers, professional service companies, hospitality companies and importers/exporters. These businesses store stock, documents, equipment, or promotional materials all requiring a convenient flexible solution to their storage, either to get started or to free up more expensive space.
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 three 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.
Business customers typically stay longer than domestic customers, and also on average occupy larger rooms. Whilst only representing 9% of new customers during the year, businesses represent 19% of our overall customer numbers, occupying 35% of the space in our stores. The average room size occupied by business customers is 123 sq ft, against 53 sq ft for domestic customers.
The demand from business customers has been relatively robust, as they seek a cost effective, flexible solution to their storage requirements, preferring self storage to the commitment of a long lease.
The split between business and domestic customers for the 53 wholly owned stores is as follows:
| Sq ft occupied at 31 March 2012 |
% | No of customers at 31 March 2012 |
% | % of storage revenue for the year |
|
|---|---|---|---|---|---|
| Business customers | 752,000 | 35% | 6,116 | 19% | 30% |
| Domestic customers | 1,381,000 | 65% | 26,220 | 81% | 70% |
| Total | 2,133,000 | 32,336 | 100% |
The net rent per sq ft for domestic customers is approximately 46% higher than for business customers, reflecting the smaller average unit size occupied for domestic customers.
For the 32 established stores, the average split between business and domestic customers is shown in the table below.
| Domestic | Business | Total | |
|---|---|---|---|
| % of occupied space | 64.9% | 35.1% | 100% |
| Sq ft occupied per store at 31 March | 29,246 | 15,817 | 45,063 |
| Revenue per store for the year | £958,000 | £411,000 | £1,369,000 |
At 31 March 2012 the average length of stay for existing customers was 18.9 months in line with the prior year. For the stores that have been open more than five years, the average length of stay increases to 21.7 months. For all customers, including those who have moved out of the business, the average length of stay has remained at 8.5 months. This translates into a loyal customer base. In our 32 established store portfolio, 37% of our customers by occupied space have been storing with us for over three years. A further 15% of customers in these stores have been in the business for between one and three years.
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 shoppers and online customer reviews, which give an average customer service score of 4.7 out of 5. We have in place a team of Area Managers who have on average worked for Big Yellow for nine years. They develop and support the stores to drive the growth of the business. Adrian Lee, Operations Director, is the Board member responsible for dealing with all customer issues.
The store bonus structure rewards occupancy growth, sales growth and cost control through setting 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 customer-facing branded business it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in a rolling programme of store makeovers, preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £30,000 per store, which is included within cost of sales. This excludes makeovers, which typically take place every four years, at a cost of approximately £15,000 to £20,000 per store.
We have continued to manage the ten freehold stores branded as Armadillo Self Storage alongside our Big Yellow stores using the same operating model. The management contract expires in February 2014 and our key objective within the Armadillo portfolio remains driving occupancy, revenue and cash flow.
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