In the previous article, we took a close look at the user experience of Mini Storage Darak, Korea's No. 1 self-storage operator. This time, we want to examine how self-storage, which began in the 1960s, has been changing in the global environment and what the current level of technology adoption is.

It would be good to consider whether self-storage will remain a traditional brick-and-mortar or mom-and-pop business, or whether it will help drive a paradigm shift in the real estate market through technology adoption.

<Mini Storage Darak mobile integration technology / Source: Second Syndrome>

Mom-and-pop Business?

As mentioned in the second article, [What Stage Is the Korean Self-Storage Market In?], traditional self-storage is a business based on land and buildings, that is, real estate.

A representative example is when a real estate development company with strong capital carries out large-scale development. Or, like Korean retirees who once opened chicken restaurants with their retirement funds, some retirees open facilities in the suburbs for their later years using the money they saved when they were younger. As a result, rather than applying technology represented by digitalization, it was naturally based offline and evaluated by the value of the land or building.

Did you know that self-storage sometimes appears in Hollywood blockbuster films too? At the beginning of Avengers: Endgame, Ant-Man discovers an important clue that can help bring back the vanished heroes inside a self-storage facility. At that time, self-storage was portrayed as a dusty, old image (this is U-STORE-IT, one of the large self-storage facilities in the United States). If you watch the movie carefully, you can see that the self-storage in the background felt like an abandoned, old warehouse.

<Self-storage in the movie / Source: Avengers Endgame >

Out of curiosity, I went there myself. Just as in Japan, I wanted to see firsthand what self-storage looks like in the United States, the birthplace of self-storage. While visiting a tech conference in Las Vegas, I took time to visit a nearby self-storage facility. I found Public Storage, the world's No. 1 company by market capitalization, and since there were more than 10 facilities in Las Vegas alone, I visited the one in the Winchester area.

It was a typical suburban American self-storage facility and an outdoor-style, single-story building. The first thing I experienced after arriving was that I couldn't get inside because the manager had gone out to lunch. Together with another woman who had also come at the wrong time, like us, I was able to meet the manager after lunch, and to use the facility I had to submit a copy of my ID. It felt just like a government office in Korea.

What was even more surprising was that, despite being in a hot desert region, most of the units did not have air conditioning! In addition, you had to buy a small padlock separately for the locking mechanism, and a unit of about 2m x 3m in width and length cost about 120,000 won per month. The only place where I could find traces of technology was the vehicle gate, where the door opened when a prearranged access code was entered as a vehicle came in.

<Public Storage in Las Vegas, Nevada / Source: Second Syndrome>

Digitization Efforts by Capital-Rich Companies

As introduced in a previous article, Public Storage (PSA) is a large company with annual revenue of more than 3 trillion won, operating more than 3,300 facilities, and if you move its market capitalization into Korea's KOSPI, it could be in the top five. Even though it is the facility of such a huge company, the fact that it is still operated in a conventional way showed us two things. One is that demand for self-storage is so strong that people are willing to tolerate the inconveniences of analog methods; the other is that America's long history, ironically, hinders digitization.

That is because with 3,300 facilities and, by rough estimate, more than 300 units per facility, digitizing everything at once would involve enormous costs. Whereas Mini Storage Darak, from the outset in 2016, set offline-online integration as its basic concept, U.S. facilities that began in the 1960s now face the difficult task of digital conversion.

Since it's such a big company, you might ask whether it would be better just to hire people, as in Las Vegas. But according to Public Storage's 2023 data, the total number of employees is 6,200. That works out to about 1.9 employees per facility. Mini Storage Darak currently has 112 sites nationwide and a total of 38 employees, so it operates the whole business with 0.34 employees per facility.

The gap widens even further when it comes to the number of employees operating the facilities: Public Storage has 5,380, while Darak, which has automation technology, currently has only 2. Even taking into account the difference in the number of facilities, you can see how much automation technology can improve operational efficiency. And crucially, Public Storage genuinely wants to digitize. The word that appears without fail in the company's annual report each year is digitalization.

If Public Storage were to adopt Mini Storage Darak's technology, it could cut labor costs by about 85%, so there doesn't seem to be any reason to avoid such technology. It's slow, but because it has plenty of capital, it is also actually moving little by little toward digitization.

<Excerpt from Public Storage annual report / Source: Public Storage>

What If Real Estate-Based Self-Storage and Technology Are Combined?

Let's look at a somewhat different case. Life Storage, the No. 3 company, also started from a real estate perspective like Public Storage but did not hesitate to adopt technology (the company has since been acquired by Extra Space, the No. 2 company). Life Storage appears to have been more serious than other companies about combining self-storage and technology. Large self-storage operators like Life Storage mostly run vehicles for transportation, and beyond providing infrastructure for storage and transport to individuals, they focused on the possibility of inventory warehouses for businesses.

Because the U.S. is so large, there was a time when Amazon Prime, which promised two-day delivery, felt like a surprise even as same-day delivery was taking hold in Korea. Then, in the world of retail sales where every second counts, how can you solve the problem when goods are needed faster than two days? Wouldn't it be possible by stocking distributed inventory across a vast land? Perhaps Life Storage thought along these lines. That's because a self-storage company created a warehouse management system (WMS), applied an RFID system, provided inventory management services, and even operated last-mile transportation.

<Life Storage warehouse management system / Source: Life Storage>

Just by taking items in and out of self-storage, inventory can be managed—this was a very fresh breeze in the industry at the time. It was also proactive in technology investment, introducing itself as a Storage Technology Company, and as a result it expanded self-storage into a B2B business rather than B2C. This company, which had more than 1,100 sites, was acquired by Extra Space Storage for about 1.6 trillion won, and now it can no longer be found as a standalone article. However, it became a clear example of the changes that can occur when technology is introduced into self-storage, and it had a big impact on emerging companies.

Digitization Is a Latent Opportunity in the Global Self-Storage Market

As we have seen, the self-storage industry also appears to be actively considering technology adoption. As labor and raw material costs rise, operating expenses will continue to increase, so unless these costs are hedged through technology adoption, the high profitability of self-storage is also expected to gradually decline.

In China, where the self-storage market has recently been growing rapidly, a number of startups that clearly understand this point have emerged. Like Mini Storage Darak, they are building their operating systems with technology at the core from the beginning. They allow users to apply for facility use and receive access directly in WeChat, a messenger familiar to Chinese people, and they enable facilities to be controlled via mobile with offline and online linked together. In addition, a Singapore company called Storefriendly is trying to lead the trend by applying logistics robots, which were seen at Amazon, to self-storage.

As such, as technology adoption becomes more active in the global self-storage market worth 74 trillion won, opportunities for Korean proptech companies are expected to grow. In the next article, we will look at the case of Mini Storage Darak, which is developing its own self-storage technology in Korea, and examine whether, despite being a historical latecomer, it has the potential to stand out in the global market.

<Storefriendly's self-storage robot / Source: Storefriendly>