Quarterly Economic Report Indicates an Accelerated Growth Phase for the Self-Service Laundry Industry

Florida multi-store owner Tom Rhodes doesn’t mind talking about the time he purchased a rundown laundromat for $25,000, with thoughts of rehabbing the business.

He also isn’t shy about admitting that it was a huge mistake.

Rhodes bought the store in May 2008, and one month later, the housing bubble in Florida burst, and the Great Recession was off and running.

“Our income fell 40 percent within a few months,” Rhodes related in a PlanetLaundry article. “From the time we took over the store to when our lease ran out six years later, we suffered net operating losses on that one store to the tune of $100,000. I don’t know about you, but I could have done a lot of other things with that money than watch it go down the drain.”

ITR-Economics_logo_624x226px.jpgRhodes’ error wasn’t so much in the actual idea of purchasing and turning around a neglected store – rather, it was in the timing of this move.

“As a small-business owner, my only information on how the economy was doing came from the TV and radio,” he noted. “I wish I’d had an economic prognosticator who could have told me, ‘Hey, Tom, don’t buy this laundromat now. We’re getting ready to go into a recession. Wait a few years, and then the owner will probably give you the store.’”

With laundry operators like Mr. Rhodes in mind, the Coin Laundry Association commissioned economist Dr. Alan Beaulieu and his firm, ITR Economics, to provide CLA members with quarterly economic reports. Dr. Beaulieu is one of the nation’s leading economists and has been a popular speaker at the association’s Excellence in Laundry conference. Moreover, since 1990, he has consulted with companies and industries throughout the U.S., Europe and Asia on how to forecast, plan and increase their profits based on business cycle trend analysis.

What’s included in the reports available through the CLA?

The ITR Quarterly Economic Report examines conditions of the general economy, as well as offering a specific analysis of the laundry and drycleaning industry in the U.S. It provides an update as to where the self-service laundry industry is within the current business cycle and how that relates to the overall U.S. economy. What’s more, the report includes management objectives specific to the self-service laundry industry.

The ITR Report for the third quarter is now available to CLA members. Here’s a look at some of the key economic data and forecasting included within this report:

Multi-unit housing starts – U.S. multi-unit housing starts increased 5.1 percent in the 12 months through July over the year-ago level. Decreasing permits may pull down on growth in starts at the end of 2016, but growth will pick up again through mid-2018. Take advantage of the current growth in starts and prepare for accelerating growth in 2017. This growth, which is largely comprised of apartment complexes, will lead to increased demand for laundromats.

Consumer expectations – Consumer expectations have fallen 2.4 percent in the 12 months through July from last year and moved into Phase D of the business cycle, indicating recession. This means that consumers are not as confident in the economy as they were at the start of the year. However, rising wage growth and strong retail sales suggest that consumers are still willing to spend, despite lower confidence.

Total personal consumption expenditures – U.S. total personal consumption expenditures rose 3.4 percent in the 12 months through June, compared to the year-ago level. The increase in expenditures and growth of disposable income suggest that consumers have money and they are willing to spend it. A strong consumer and rising expenditures will support vended laundry owners through the end of the year.

Non-defense capital goods new orders – New orders have fallen 3.6 percent in the 12 months through July, compared to last year. A tentative rising trend has taken hold in July, which should help improve the industrial economy in late 2016 and early 2017. New orders are a measure of business-to-business activity, and a rising trend indicates businesses are more willing to invest, which is good news for self-service laundry owners.

Home appliances production – Average U.S. home appliances production (excluding electronics) during the 12 months through July rose 5.1 percent from the year-ago level. Production is in Phase B of the business cycle, indicating accelerating growth, which is expected to continue into the second half of 2017. The consumer is driving the U.S. economy.

All in all, the third-quarter report points out that the majority of the laundry industry’s markets and economic indicators are in Phase B of the business cycle, which again, according to ITR Economics, is a phase of accelerating growth – signaling growth in laundry sales in the coming year.

Here’s an overview of the self-service laundry market from the current ITR report:

While the industrial side of the economy is poised for growth in late 2016 and early 2017, it is currently relatively weak. A strong consumer continues to be the backbone of the overall economy and will be a driver of growth through the end of the year. An improving labor market and rising wages, combined with solid growth in retail sales and personal disposable income indicate that the consumer is healthy.

U.S. personal consumption expenditures on laundry and drycleaning services increased by 4.4 percent in the 12 months through July to $12.681 billion. Growth in expenditures is expected to accelerate through the end of 2016, and the expenditures are expected to rise through 2018. This bodes well for [laundry owners], as this suggests rising activity at [self-service laundry] facilities through 2018.

U.S. textiles and products production, a six-month leading indicator to expenditures, are suggesting that the expenditures will rise through at least early 2018.

Consumers are gaining spending power with disposable income up 3 percent in the 12 months through July, compared to the year-ago level. The rise in disposable income supports our expectations that growth in U.S. laundry and drycleaning expenditures will persist moving into 2017.

Be prepared for increased activity through 2018. Make sure that there are enough machines available to avoid capacity constraints and that facilities are optimized to attract customers.

The report also suggests a number of management objectives for owners in Phase B of the business cycle. They include:

• Ensuring quality control to keep pace with increasing volume.

• Investing in workforce development – hiring, training and retention.

• Maximizing profit margins through differentiation.

• Communicating competitive advantages and building your brand.

• Researching rates in your area and increasing vend prices accordingly.

• Spinning off unprofitable stores.

“Before you assume that our industry is unique and doesn’t track with the general U.S. economy, think again,” Rhodes suggested. “When we overlaid my company’s sales with charts for personal consumption and industrial production, our sales moved in tandem, almost perfectly. Ignore this data at your own peril.”

Coin Laundry Association members can access these quarterly reports by visiting the online store at coinlaundry.org. These reports are available at no cost to the association’s Laundry Premier members. All other CLA members can buy individual reports for $45 each. This economic information is not available to non-members.

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