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Commoditization

Commoditization – the act of treating something as a mere commodity.

I was speaking to senior member of the leadership of a major parking operator the other day and of course held forth on my issue with the Parking Experience and the industry’s need to make parking something people want to do, not have to do. He agreed completely with one caveat.

“Don’t forget that many asset managers are forcing the commoditization of parking. For instance, we will run a location for $400 a month, plus expenses. It will generate perhaps over a million to the owner. An asset manager who wants to lower expenses will cancel our contract and take in another operator who will do it for $50 less. Where is the money going to come from to enhance the Parking Experience?”

He has a point. I have been writing about this issue for years. Owners may understand that they want the best for their tenants, but the asset manager, the building manager, is also tasked with keeping expenses at a minimum, and one area to scrimp is parking. Turn it into a commodity that is purchased solely on price. How do we fight against that?

In previous blogs Brandy, George, and Brian spoke of customer service and treating the customer ‘right.’ How can you do that when your boss, in this case an asset manager, is only concerned about lowering expenses? They don’t seem to be concerned at all about maximizing revenue. They treat parking like an elevator or restroom. You gotta have em. There are 20 seminars at BOMA on how to reduce your costs with new roofs, or air conditioning, or elevator upgrades. But how many do you find concerning parking? One or two?

Shopping centers are finding that they need great parking operations to attract customers, but office buildings often don’t have the same issues. If you are going to see your doctor or lawyer or investment advisor, you have to park there. You do so and pay the fee. That’s how it works. If the parking is crummy, so be it. At a shopping center if the parking is crummy, you drive to the one down the street.

The parking operators fight this every day. Keep the costs down. Remove expensive staff. If possible, remove all staff. Have one manager for four buildings. Pay minimum wage. Take out every other light blub to save electricity. The list is endless.

Compared to the building rent, parking revenue is a small number. It doesn’t seem to get anyone’s attention. If an operator wants to keep a location, they have to keep expenses down.

It’s a difficult conundrum.

JVH

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4 Responses to Commoditization

  1. rta says:

    “………..need to make parking something people want to do, not have to do.”

    People do not go anywhere to park, they park because they are going somewhere. What we as an industry need to do is make these property managers and venue owners understand that the parking experience is the first and last impression of wherever that customer’s destination happens to be. I’ve seen more examples than I can count of properties sinking millions in to renovations of lobby areas and landscaping in an attempt to make their property more attractive, while at the same time do everything possible to reduce the expenses of the associated parking.

    We as an industry have no one to blame but ourselves for this trend, for years we’ve been beating each other up in various bid responses and marketing calls telling prospective clients how we can do everything for far less money than their current parking management. We have devalued our own industry. I’ve been on both sides of the RFP process many times, and with very, very rare exceptions the basic sales pitch is ALWAYS “more for less”.

    The mantra of our business is “There is no such thing as free parking”, but we keep selling our services for less and less. All any property has to do to lower their parking operations expense is put out an RFP, it’s almost guaranteed every proposal you get will be for less money than what you’re currently paying.

    We need to sell Clients on the value of the parking experience, and the difference in the value between a good and bad experience.

  2. John clancy says:

    I worked for a parking operator for 10 years; at the time we had a mix of highly profitable airport leases coming to the end of their 30 year terms, and all these $400 month “management agreements” that incentivized us to run reimbursable expenses through internal services, but the end cost to the customer always had to be justified. When I left to go work for a company that built custom machines for the semi conductor industry, my cost cutting mindset did not transfer over; at one point, the CEO had to counsel me, he said “our customers are not paupers, they can afford to pay us for what we do.”

    Parking is a tough business, very penny wise, very pound foolish. I knew a few (just a few) very talented managers that could spot and correct issues with operations that made immediate, dramatic differences in revenue generated; they were never really rewarded, the management fee was still fixed, and parking still didn’t amount to all that much, compared to other income streams in the building.

  3. rta says:

    This is an excellent description of what I see in parking operations all over the country; “….very penny wise, very pound foolish.”

    The tricky thing about parking is that it is a HUGE business generating billions of $’s, but in and of itself it isn’t what’s generating the $’s. The demand, and in turn the amount of $’s that can be generated are reliant on outside forces. If you run parking for a large office tower and they lose their anchor tenant, you lose money. If you operate a lot next to a beach access point and you have a string of days with bad weather, you lose money. If you operate a mixed use facility serving retail, restaurants, office and hotel and any one or two of those suffer a setback, you lose money.

    When demand drops the first thing you do as a parking manager is try to attract more business or lower costs. How do we do that? We typically tend to go after customers at other nearby parking facilities, or we cut back on everything and end up putting ourselves in the “more for less” mindset that ends up hurting us in the long term.

    Parking requires patient money, just like long term players in real estate or the stock market. There are going to be ups and downs and there are going to be very bad days, but over time the trend is upward. I’ve been pushed into “contingency” mode many times over the years, both as a facility operator/manager and as an asset manager overseeing facilities for owners. I’ve also been involved with properties where a downturn in business was looked at as a sign that we needed to improve our operations and become more efficient, and at the same time strive to deliver an even better product to try and attract new demand. In the end the ones that made an investment versus a cut are the ones that fare much better over time.

    Just my 2 cents.

  4. I’ve worked in the parking industry for 30 years, primarily retail, hospitality, healthcare and commercial, and it appears there is a race to the bottom with management fees. I’ve lost bids where we submitted a $30/month fee for a 3 location RFP ($90/month) and lost. With minimum wage and burden fees on the rise, coupled with PARCS equipment and software upgrade costs, these asset managers are just looking at the bottom line and the obvious solution for them is to reduce management fees or send it out to bid. Frustrating to say the least. I recently did an analysis on how much is being paid to staff attendants (who are typically trying to game the system) along with the cost for PARCS capex and preventive maintenance fees, software fees, PCI compliance fees, service call fees, parts fees, all of which increase in costs over time, and I realized, why not go gateless? Let’s face it, an automated PARCS still requires an attendant who is basically there waiting for the equipment to go down (or causing it to go down 😉 ) and then trying to professionally deal with frustrated customers. In a gateless environment, the parker enters, pays by phone using their license as the credential, then they go on their way with zero friction. A patrol officer can use LPR devices to check plates throughout the facility for payment validity and enforce a culture of compliance with citations or immobilization devices. Based on my analysis, the cost in PARCS and minimal labor, over a 10 year period with a “one in, one out, one paystation”, is going to cost close to two-million dollars. I think Asset Managers should be looking closer at these two expense line items and not so much at management fees. Gateless is the future and a much more user friendly operation which will drive business to these frictionless garages, spiking revenue. As we say, why penalize the 98% of parkers who are monthly subscription holders and honest transient patrons, to catch the 2% who are going to try to game/hustle/scam the system? My unbiased two-cents….

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