Growth in store on a cautious market

Although a well established business in Western economies, self storage is a relatively new service in Romania. One year after starting operations locally, Danu Temelie, managing partner of EuroMiniStorage, the first and so far only self-storage facility in the country, talked to BR about how the company is challenging local consumers’ lack of awareness of the service and the insolvency case it overcame.

Simona Bazavan

What is the story of EuroMiniStorage and who owns the company?

EuroMiniStorage was conceived as an idea in 2006, 2007. I had been involved in an archiving business that had operations in five countries in Central and Eastern Europe. After selling the business, I looked for something to do. I had some partners, some Canadians, who were involved in the real estate business in Central Europe and we figured: self storage. This is such a huge industry. By way of comparison, Hollywood, which had one of its best years in 2007, had a USD 9.8 billion turnover globally. Self storage is a USD 23 billion industry in the US.

We saw that Central European self storage worked: it worked in Poland, the Czech Republic, Slovakia, Latvia and Estonia. It is a cross border, cross climate and culture business. If you were able to pinpoint the cultural nuances, you could make the business work. So we thought, there’s a booming real estate market and a vibrant economy; the indicators that would say if self storage were required are there. So we basically took a gamble, bought two pieces of land and invested EUR 4 million of our own equity to build two buildings in Bucharest and Budapest. We bought the land in 2007, built the facilities in 2008 and 2009 and opened them in 2010 – a year that can ironically be called an economic boom time for both countries.

What were your initial targets when you opened at the beginning of last year and what was the situation at the end of 2010?

Our target was to get market penetration, meaning to get people using our services, and this we have achieved. We’ve signed over 500 contracts since the day we opened and we have over 300 customers that are in at this time. We’ve got across the understanding that it is a short term, flexible solution, including security, individual alarms, CCTV, access control, a room that you can rent today for 30 days. The growth has been okay.

What we haven’t achieved was obviously the revenue per unit. We had to reduce prices significantly. From our original business plan we have reduced our achievable rent by over 50 percent. The average price that people pay in Prague or Poland is over double what they pay here. Presently 60 percent of the built units are occupied, which was our initial target. We will fill some of the existing space by the end of this year and our goal is to get as many people as quickly as possible to use it and understand it, to like it, to recommend it and to use it again.

We would like to have about 600 clients by the end of the year. In the next phase we will build another 200-300 smaller units, which have been the most popular, and try to fill them up by the end of the year.

Have people here in Bucharest become accustomed to this kind of service? Are you satisfied with the results so far?

Our biggest obstacle initially was to get people to come here to see the facility. We’ve gotten excellent exposure and people understand what the product is. It is a very long term process in the sense that you don’t always need to target the immediate need. It’s the education, the awareness of the product as an alternative that is essential. Many people are simply driving by and see the building but the internet has been by far the most effective way of educating the customers. The need for storage has always been there – all you have to do is to inform people.

At the beginning of last year you talked about plans to build new units in other locations here in Bucharest. What is the current status of this project?

We are still looking at land. We have identified a few plots. We are still watching how the market is recovering, if there are consistent long term signs of the return of the market. This should become clearer in September, October. This summer will be a test and we’ll see how it goes. We would like to have acquired a piece of land by the end of the year.

How many of your customers are individuals and how many are companies? What is the cost of renting a unit?

It’s almost half and half. It depends on the season and the size of the units. Most of the large units are taken by companies and the smaller units by individuals. For a unit that is around 6 cubic meters we charge EUR 36 a month plus VAT. One of the things that have allowed us to increase the number of customers is that most people come here asking for a larger space than they actually need. So if originally they thought they needed to pay a few hundred Euros to store their things, in reality they only need pay EUR 30-60.

What is your customer profile and what do they usually store?

It’s a real mix. We have young kids that store their motorcycle and their hobby stuff; middle aged people with kids; older people who understand the concept and store valuable things; people who have been transferred out of the country, rent out their apartments and put some of their belongings here; and a lot of people who are renovating. There are also companies who use EuroMiniStorage as their center for distribution. As for what people store, it is nothing out of the ordinary – from furniture to jet-skis and boats. There is a very specific list of what people can’t store but other than that they can store whatever they want. They can also insure the goods and get access to transportation through our partners.

Are Romanian customers different from other Europeans?

Romanians love discounts. They like to have a high price and get it cheaper. Romanians are really into negotiating and need to feel that they have won something. If you tell them that it’s fifty percent off, they want another 10 percent. It’s not always how much it is, but the fact that at the end of the day they got a discount. One of the things here is that people don’t always follow the rules. In Hungary on the other hand, customers just want cheap. They don’t care what the discount is. And they are much more disciplined in how they do things.

But I think that Central Europe in general has a different way of doing business than Western Europe. The initial perception when we opened was that people had a fear of security. When we first started everyone said, “Romanians will never trust it here.” Once you explain to them that there is an alarm on every unit, they buy their own lock and they are the only ones who have a key, there is access control and 24/7 security, it was something that was overcome very quickly.

How do you see the business evolving over the next few years?

One of the things that make this a very challenging business is the long term investment return. It is not a two-three year business where you can fill it and flip it. It takes five to six years to fill this thing up and to get it to 85-90 percent capacity. You need to have multiple locations and you need a very long term vision. Romania is a macroeconomic anomaly. According to the statistics a lot of things should not be happening and yet they do. The country has huge opportunity to become a very successful and vibrant economy.

We’re in this for the long term. I need to continue the growth that we’ve had in the bad times and if it gets a little bit better then I’ll be happy. But we’ve started in the worst possible time possible and we’ve succeeded and I am confident that it will only get better.

What can you tell us about the insolvency case that was filed against EuroMiniStorage last year?

We had an experience of the Romanian legal system that was quite eye opening. The constructor (a Romanian company, Alliance Construct, e.n.) had claims against us – not debts, but claims. We had a huge delay in the delivery of the building so we also had claims against Alliance and we also put them into insolvency. The day we were put into insolvency their claim was EUR 275,000. We had no other outstanding debts and we had more cash in the bank than we owed so by definition we were solvent; indeed we had just secured another EUR 500,000 from our bank to cover operating losses during our growth phase and yet we were still deemed to be insolvent. But we came to an amicable settlement about a month ago and we are now no longer in insolvency.

What was the company’s turnover last year and what is your investment budget for 2011?

Last year we had EUR 180,000 and this year we hope it will more than double. Getting occupancy, getting people to use the service and getting a taste of what it is – that is our number one goal. We’ll have to put in about EUR 500,000 to EUR 600,000 to finish the rest of this building. The money is coming from own sources.

simona.bazavan@business-review.ro

Company profile – EuroMiniStorage

2010 Turnover about EUR 180,000

2011 Investment plans: EUR 500,000 – EUR 600,000 to complete the existing Bucharest storage facility

Customer base: Almost half and half split between companies and individual customers

Rental price: A 6 cubic meters unit goes for EUR 36 a month plus VAT

Location: 42J Theodor Pallady Boulevard