When an Amsterdam acquaintance identified a potential European site for Devon Self Storage in 1996, President/COO Kelly Gallacher and Chairman/CEO Ken Nitzberg were skeptical. They sent acquisition and construction executives to The Netherlands to investigate further and were surprised when positive reports were returned. In June 1997, Devon's first overseas facility was opened to the public of Amsterdam. Now, with three facilities operational in each of The Netherlands and France, and another two in Germany, Devon has realized great success with its European venture.Inside Self-Storage recently spoke with Gallacher and Nitzberg, as well as Devon's senior vice president of operations for Europe, Greg Mackay, to learn more about the company's strategy, the challenges they've faced in providing self-storage to an unpenetrated market, and their insight into future expansion.
What challenges have language and communication barriers provided in working in Europe, and how have you bridged those potential gaps? Have you had difficulties communicating the concept of self-storage to the public?
Gallacher: The concept that you have to speak the local language is a bit of a myth. Does it help to know the language? Yes. It also demonstrates that you're trying, and the locals start to have the feeling that you're really there for the long haul, that you're trying to be part of them. It tends to soften any potential resistance.
Within the real estate community, most people know what you're talking about when you refer to self-storage. First of all, everybody speaks one language, and they all know it--and that's "green" or "money" or whatever you want to call it. When someone wants to buy something, it's amazing how they suddenly bring interpreters to the meeting.
The other thing is you need to be here. You cannot manage Europe from the United States. You have to be here for the day-to-day problems and all the different things that happen. And you must have incredibly competent counsel.
Something important for anyone who comes to Europe to learn is you cannot ask a general question and expect a detailed answer. You have to ask every possible question you can think of to get to the answers you need. Europeans are just not forthcoming with information to Americans. And I'm not sure they're forthcoming even with their own countrymen.
Mackay: One of the things I noticed when I arrived in Europe was there was absolutely no understanding or product awareness of self-storage at the consumer level. It didn't translate into any language. And most of the terms you would use to explain it actually only confused the matter.
The advantages of actually being here in Europe far outweigh the effort. Time differences can really foul up the works and, on top of that, whomever you employ wants to see what kind of commitment management is making to the operation. There's already a subtle sentiment that Americans are cocky, brash and think they know everything. You have to bridge that gap quickly, and your managers have to feel like you're in the battle together.
Nitzberg: When you're developing in Europe, a local facilitator is bottom-line critical. Without it, you're dead. It just doesn't work without one. You have to know the local customs, the local laws, the local rules--and the local unwritten laws, customs and rules. If you don't, you will be hurt, and your cost of doing business will rise substantially. You won't be successful unless you have a local presence, wherever you go.
What about securing building and zoning permits--how has that gone in your experience of the different European countries? How can developers make that process run more smoothly?
Gallacher: You have to ask the right questions, you have to get the right engineer, and you have to get a local architect who understands the codes and can explain it to officials to get the project through the system. In my opinion, they are actually more strict in Europe than in the United States, and that's because, since they are unfamiliar with self-storage, they have fears. Those fears are not unfounded, and they're not at all unlike the concerns faced in the United States.
Europeans have become innovative in things we as Americans have not thought of. We can learn from them. For example, in a self-storage facility I visited inVienna, Austria, their use of space was outstanding. They understand how to maximize potential revenue based on rentable area. If I was going to tell you where I think the biggest growth and knowledge is going to come from in Europe, it's going to be understanding the correct unit mix for each city and country.
Nitzberg: It's very similar to the United States in that every jurisdiction has its own style, and it depends on what city, what country and, often, what specific inspector you get. In general--and this is a very crude generality--European building-inspection offices have been fairly easy to work with if you are simply working on the inside of a building, if you're not changing the appearance or footprint. When you start building outside, life can become very complicated because there are no specific building codes that address self-storage. Each country is different, and reactions are based on their customs and habits. We need to be sensitive to these differences and handle them accordingly.
From where do you hire your managers? What are your requirements? What can you tell us about the process of hiring and firing in these countries?
Mackay: In a lot of countries, you hire people through temp agencies. To some degree, that's a primary source, and it's a lot different than it is in the United States. Temporary agencies are really the natural process in a number of industries for people to get employment. You can run ads in the paper, but the hitch is having someone understand what it is they're responding for.
There seems to be a group of people in their early 20s or 30s who are computer-literate, speak English, have a grasp on business in general--and they're a little more in tune to the global aspect of business. Many of them have been to the States. A lot of our managers have come from the hotel industry. There's a good application there because there's customer service involved, reservations involved, computers used for booking and billing, etc.
The whole personnel thing here is totally different in that people have contracts--they're either temporary or permanent. And the rights of the employee and the rights of the employer are very different. The employee is highly protected in Europe. The employer has virtually no rights. It's one of those things you have to be very much postured for. But there's also a different attitude on behalf of employees here. Many of them look at this as a career move, whereas in the States it's just a job.
Because it's such a new industry, it's difficult to train managers on everything they need to know. It's an ongoing process. I really stress using local people. We still use our systems, but put them in a local vernacular. We do joint training once a year where we bring all of our managers together, and that takes some coordination. Sales are conducted differently. In Holland, it's a point-of-sales transaction. When a customer comes in, he knows what he wants, he signs up and it's done. In Germany, they spend a great deal of time understanding the legalese of the contract, even though it's only for 30 days. And in France, they think about it, they ponder it. So everyone has a different purchasing tendency, and it can be very challenging in respect to finding what motivates the employees in different countries.
Nitzberg: Employee and labor issues are totally different in Europe. Terminating someone is more difficult and can be more expensive because of labor laws. For this reason, you have to be very careful when hiring.
Gallacher: One of the things in France you have to be aware of is they have unions for everything. There's not a union for self-storage right now; so your employees may request to be classified with a certain title for payroll purposes, and you think, "Sure, no problem." What you've just done--possibly--is allowed them to be part of a union, which could give them a whole host of rights you didn't bargain on.
What is the state of self-storage financing in Europe?
Gallacher: The self-storage industry is starting to be validated. Right now, it's very difficult to find long-term loans on self-storage because the European lenders do not like to loan on leases shorter than five years. In fact, we tried to educate everybody with a comparison between self-storage and hotels, because hotels wake up every morning with a zero percent occupancy--we at least wake up with a 30-day lease. But it is a well-known fact that a lot of the banks do not loan on hotels. The financing for self-storage is not readily available. You're going to have to have capital to get into the business. That is one of the most important factors.
What marketing techniques have worked best in markets largely unfamiliar with the product?
Nitzberg: We budgeted very heavily for advertising during the first two years--$10,000 a month. We normally budget about $3,000 a month in the United States, which is essentially the Yellow Pages ad plus a little extra. In Europe, we budgeted $10,000 and tried everything--newpapers, TV, radio, billboards, etc. But it was not aimed at differentiating ourselves from the competition, because there was none. It was more to educate the population as to what self-storage is, how you use it and that we exist.
At our last count, there were 17 facilities in The Netherlands. Our facility leased up OK--on budget, but slow. We were scared to death. But then it hit about 30 or 40 percent, and the line just went vertical. By the end of the first year, we had hit enough occupancy that we cut everything back, and now all we do is the Yellow Pages and the signage on the building.
Mackay: What we did was come up with a billboard that goes on all of our properties as well as in parts of the city that shows units open, with people standing in front of them. They're each accessing they're particular unit. If a building sits vacant for a while and then you come and put a new coat of paint and some signage on it, people don't know what's going on inside. We try to take the inside activity and express it on the outside in very simple form, so people can understand what it is we do. That has paid some significant dividends for us. Then what we have done is taken that same billboard and made it the primary focal point of our Yellow Pages ad. We've also transposed it on trams, buses and some Ford trucks we use.
We actually provide a moving service for customers coming to the property. We have one of our managers drive a truck to the customers' location. They have an hour to load it, we drive it back, and they have an hour to unload it. It's rather cheap advertising for us because it's driving all through town and then when it's parked, people see it. Wherever we go, we've got our name and identity piece out in front of the public.
Do you have any final insight on your experience, or on European self-storage development in general?
Mackay: Self-storage in Europe is an industry in its infancy, so there's not a lot of inertia working for it. People ask if we're concerned about competition, but actually, we welcome competition because it helps get the word out more quickly.
Gallacher: An interesting point is that what most people really want to know about developing self-storage in Europe is not how to do it, but how not to do it. That's what ends up being the biggest focus for everybody. Nobody wants to repeat someone else's mistakes.
Nitzberg: If you're going to develop in Europe, here is some basic advice: Make sure you have local presence of some kind; make sure you have a lot more time and money than you've ever budgeted, because it will take longer, cost more and go slower; finally, I've invested in a really good brand of sleeping pill, because I made nine trips to Europe last year, and it's a long flight.