Originally posted Dec.issue/2012
Eight Trends and Issues Sure to Impact Your Business Life in 2013
“I don’t set trends. I just find out what they are and exploit them.”
– Dick Clark
Yes, your small-business world can change quickly. And, yes, outside forces and new technologies can – and will – affect what your self-service laundry will look like in the future.
This doesn’t mean you have to respond in a knee-jerk, whiplash fashion to every passing business fad. However, you can’t keep your head in the sand while major changes are occurring. After all, today’s trends become tomorrow’s realities.
Hopefully, the list below will give you a better idea as to what next year’s laundry industry trends will be.
Of course, exploiting this information is strictly up to you.
Confidence on the Rise
For many in the laundry industry, 2012 represented a rebound from the recessionary years.
“I think this is the year that the confidence level grew among laundry owners,” said Coin Laundry Association President and CEO Brian Wallace. “I think they saw that the business they’re in was able to withstand a tough economy, and I think most people came out of that with an affirmed confidence that they’re in the right business. And this confidence built – and was manifested in new store construction bouncing back, more equipment replacement projects and owners adding additional stores.”
“We are optimistic about the business climate moving into 2013,” said Bill Bittner, vice president of North American sales for Alliance Laundry Systems. “Throughout this year, we have seen an increased interest from first-time investors. Also, the cost of money is cheap, making retooling or upgrading equipment more attractive to existing store owners. Our sales pipeline in finance is as robust as I have seen it in years, with the number of new credit applications a strong economic indicator. We are anticipating continued growth in 2013 and are investing in a plant expansion to meet that increased demand.”
The past few years also provided somewhat of an industry shakeout, according to Bryan Maxwell of Western State Design in Hayward, Calif.
“The economy took its toll on marginal owners in 2011, and many stores eventually went out of business,” he said. “Now, those same stores have successfully been replaced and re-equipped by good operators who are now running profitable new stores.
“There are still some areas where the economy continues to struggle; however, there are a number of areas that have recovered and store owners are doing much better,” Maxwell continued. “As a result, the number of owners who are upgrading and replacing equipment is on the rise.”
Florida Coin Laundry Association President Josh Prager also has seen an increase in equipment replacement among his fellow store owners.
“More and more owners are replacing equipment,” Prager stated. “The equipment manufacturers have been focusing on energy efficiency over the past few years because of the unpredictability of gas and water rates. Installing new equipment can save store owners thousands of dollars.
“Over the past few years, we have been seeing less stores built from scratch and more rehabs,” he added. “I think this trend will continue in 2013 because of the high cost of new construction and the impact fees the municipalities charge.
Mike Pfister, who heads the Delaware Valley Coin Laundry Association, is currently seeing the highest confidence in this business in 15 years.
“We’ve never had so many new-store potentials attending our affiliate meetings,” Pfister noted. “We had more than 60 people at our last meeting and more than a dozen people who are seriously looking into the business – they’re looking at the stock market and CD rates, and what they’re going to get if they put their retirement buyout into those vehicles, and the laundry business seems to be the most popular serious option.
“I have never gotten so many phone calls from potential investors. I received 57 phone calls last month from people asking 101 questions about the business – and that never ever happened before.”
Perhaps one aspect of this rising industry confidence (at least in some markets) is the increased interest many laundry owners are showing in alternative payment systems and option – which range from traditional card systems and credit card acceptance to hybrids and central pay systems, as well as dollar coins and tokens.
“By offering customers choices, you win,” said Joel Jorgensen, vice president of sales and customer services at Continental Girbau. “Why not let them have a choice in how they pay? Many laundries are working to make this possible by offering avenues for coin, credit or debit card payment systems. Store owners are saying it works because customers like the choice.”
“Owners who embrace coin-only systems will be at a disadvantage,” Bittner added. “Customers want the option of using cards, and stores that offer a choice will have a competitive advantage. Owners also can develop a pre-load card where they add value. This allows them to build customer loyalty through awards and discounts, as well as track customer activity and capture information to generate a database for direct mail opportunities.”
Pfister – who admitted that 40 percent of his sales are non-cash transactions – estimated that approximately three-quarters of every new store he has seen is offering some sort of alternative payment system.
Although he sees providing alternative payment options as the way to go in the future, Keith Griffin – who owns the Super Suds laundry chain, based in Beebe, Ark. – pointed out that today’s payment technology may require longer to take hold in certain parts of the country, especially in rural and Southern markets.
Newer, Bigger, Better
As several new equipment offerings hit the market in 2012, all laundry equipment manufacturers will be challenged in the coming years to continuously keep up with the energy guidelines mandated by the government, while continuing to produce machines that meet customers’ performance expectations.
One equipment trend that seems to be a constant year in and year out is the fact that bigger continues to be better in the eyes of the laundromat customer.
“I just opened a new laundry that featured a couple of 80-pound washers and four 60-pound washers, along with 50-pound and 80-pound dryers,” said Bill Gilbert of SLM Corp. in Belton, S.C. “And they are the hottest items in the laundry. Customers are realizing the savings of combining the smaller loads. This store owner is also using the universal dollar coin/quarter acceptors on the larger machines, and after being open two weeks, his customers’ usage convinced him to add the coin drops on all of his machines.”
“Customers are replacing smaller washers with larger washers, which increase their revenue per square foot, and they’re coupling the washers with larger 45- or 50-pound stack dryers,” concurred Bob Eisenberg, president of Qualclean Equipment LLC, based in Blue Bell, Pa. “There also are more high-speed, soft-mount commercial washers being introduced to the laundromat business that are designed to save energy, save water and improve customer flow.”
Clearly, the major players within the industry’s manufacturing segment are not resting on their laurels.
“This is a strong sign of confidence and of a stronger industry,” Wallace said. “If this industry was flagging, you’re not going to see a dozen or more manufacturers reinvesting technology, retooling their manufacturing and coming out with new products. Certainly, it’s a good indication that the manufacturers feel there is a strong market not only today but in the foreseeable future.”
Credit Market Eases
The issue of lack of credit received a lot of attention during the recession, whether in the context of home mortgages or commercial lending to small businesses having dried up. However, the credit markets have opened up. And, with interest rates low right now, many investors are taking advantage of it.
“While the credit market is not what it was prior to the global financial crisis, we are seeing a more relaxed credit approval market than in the most recent past,” observed Tony Regan, senior vice president of sales and marketing for American Dryer Corp. “There has been a pent-up demand for replacement equipment since the credit crunch made these purchases more difficult. Now that the purse strings are loosening up, both replacement business and new laundry construction is beginning to spike. That said, financing remains the greatest concern.”
Griffin is seeing a credit market that is sound yet conservative, especially when compared to the pre-recession market in 2007, which was “really loose.”
“A good, well-run store in a good location is viable and will get financed,” he said.
“Your boutique lenders are getting very aggressive, and they’re having banner years from what I understand,” Pfister said. “They’re writing paper, and it’s good paper. There’s a lot of money idle out there.”
In his marketplace, Gilbert has yet to see much movement on the part of conventional lenders. “Thank goodness that the manufacturer’s finance companies are helping, because the banks are definitely not doing their part,” he noted.
“Even during the so-called ‘dark days,’ the industry finance programs – either sponsored by or owned by the equipment manufacturers – continued to lend throughout the recession and continued to make capital available, providing the fuel for growth even during a downturn,” Wallace agreed. “I visited with the industry finance companies during those years, and not only was money still flowing but overall the loans performed well.”
He added that, in many cases where a default did occur, it was often another aspect of that entrepreneur’s business life that led to the default – perhaps a struggling construction business or a real estate firm. Rarely was it a coin laundry on its own that failed.
“I’ve always felt the industry finance companies were an important part of the engine that runs our industry, to have that capital available to fuel the growth,” Wallace explained. “And I think they proved themselves during a tough economy.”
Water and Sewer Costs
Clearly, natural gas costs are trading at a fraction of what they were earlier in the 2000s. However, this drop in costs has been counteracted by a major increase in water/sewer rates and impact fees in most areas.
“The water and sewer tap fees are one of the biggest deterrents to developing new laundries,” Gilbert explained. “The average fee is around $3,600 per washer here, and normally it has to be paid prior to the water meter being set. For a 32-washer store, this adds $115,200 to a customer’s investment. Need I say more?”
Pfister noted that his water rates have gone up 20 percent in the last three years, and have doubled in the last 12 years.
“I think water and sewer rates are going to go up permanently,” Wallace predicted. “Frankly, I think it’s a challenge every laundry owner will continue to face as long as they’re in the laundry business.”
The situation is being driven by three major factors.
First of all, many sections of the country face the issue of supply scarcity, whether based on drought or population demand.
Secondly, there are major costs related to wastewater treatment, and today almost every town is being required to reinvest in enhanced wastewater treatment, due to Clean Water Act. These are unfunded federal mandates, and the costs are being shouldered by the local ratepayers – especially (and often disproportionately) the commercial ratepayers.
The final factor is the matter of aging infrastructure – simply put: old, leaky pipes. In fact, in some of the major Northeastern cities, the water pipes are literally 100 years old.
As a result, the American Water Works Association has estimated it will cost as much as $1 trillion repair, update and expand the nation’s current wastewater infrastructure. And, again, they’re looking at local small-business owners to pay the bill.
“In June, we held a presentation at the Golden State Coin Laundry Association meeting on water and sewer rates,” Maxwell said. “I was shocked when I began to research the issue. The water/sewer infrastructure in the U.S. is in crisis. It’s falling apart, and repairs, maintenance and upgrades have been severely underfunded for many years. As a result, virtually every water/sewer district we looked at had planned rate increases of at least 50 percent over the next five years, and many of them had already approved increases by as much as 100 percent.
“Before doing our research, I thought the rate increases were just money grabs by greedy politicians, but after researching it, it really is a crisis. Our industry must be prepared for this. I think it may be one of the biggest threats to the profitability of our industry in long time. It’s a big deal.”
Many small-business owners are concerned about healthcare reform, especially as we head into 2013 and – more importantly – 2014, when some of the major aspects of healthcare reform are schedule to take effect.
“Although the majority of laundry owners will fall below the 50-employee minimum in terms of the healthcare mandates, keep in mind that this will still impact your employees,” Wallace noted. “Even if you’re not obligated to provide coverage, your employees may be obligated to purchase coverage. This impacts the financial strain they may be under, and it may impact what they’re going to be looking for from you, the employer.”
Your market’s demographics will always be crucial to the health of your business, and most likely they will always be changing – hence, they will always be trending.
In the short term, the U.S. is experiencing some interesting changes in immigration trends. For instance, the number of unauthorized immigrants from Mexico has declined sharply, with the outflow back to their native country outpacing the inflow of new Hispanic immigrants into the U.S.
“Building has come to a halt, and that labor is not coming in like it used to,” said Pfister, whose customer base is about 40 percent Hispanic. “We’re seeing a large reduction in some of that base because of immigration issues, but I think the numbers will go back up once the economy turns around.”
The other major demographic group laundry owners traditionally pay attention to are renters. From the onset of the recession, apartment vacancies were at an all-time high; however, today those vacancy rates are at record lows in many markets. So, those apartments emptied out, and then they filled up again – but they may have filled up again with different residents.
These new renters still may very well be laundromat customers, but they may feature a different demographic profile than just a few years ago.
“One of the reminders the recession gave us is that the laundry business may be recession-resistant, but it’s still very much a neighborhood business,” Wallace pointed out. “As goes your neighborhood, so goes your laundry. At the end of the day, all that really matters is what’s happening in your neighborhood.”
The Edge of the ‘Cliff’
Tax provisions that are set to expire at the end of 2012 amount to what policymakers are calling the “Fiscal Cliff,” with almost $500 billion in tax increases set to take effect January 1, 2013.
Research by the National Federation of Independent Business shows that the cliff could result in devastating long-term effects for the U.S. economy, including:
• GDP shrinking 1.3 percent
• 710,000 fewer jobs
• Capital investment contracting 2.4 percent
• After-tax wages declining 1.8 percent
Many laundry owners are understandably concerned about issues such as estate tax and individual income tax rates. Also, both the current Section 179 tax deduction limits and Bonus Depreciation rates are set to sunset at the end of 2012. Clearly, whether Congress will act in those areas before the end of the year is something to which store owners should be paying close attention.
A Mixed Bag in 2013
All in all, there are some great opportunities to acquire laundry locations that have been run down, breathe new life into them and realize a great ROI.
“Real estate is still at an all-time low in many markets, making buying an existing location attractive,” Bittner said. “With finance rates also at their lowest, 2013 will be the perfect time to invest.
“As for hurdles in 2013, it really depends on what happens at the federal level,” he countered. “Taxes and immigration could have an impact, as will increasing water and sewer costs. Owners will need to exercise additional scrutiny and conduct due diligence when selecting a site.”
For Wallace, one of the unplanned outcomes of the recession was an increased confidence among today’s laundry industry professionals.
“While we took a gut punch with the economy, we came out strong on the other end,” he said. “We’re seeing a rebound in store construction and equipment replacement. I think 2013 will see a further acceleration of that trend, as owners are reassured that they’re in the right business.”
“Maybe I’m naive or overly optimistic, but I think the future of our industry looks brighter than ever for operators who utilize the best practices in our industry,” explained John Henderson, who operates two Liberty Laundry locations in Tulsa and Broken Arrow, Okla. “No matter what the economy may be doing, customers appreciate a well-appointed, comfortable, functional place to do their laundry.”
“I think the brightest outlook for self-service laundry owners is to look for ways to make your own store better,” Prager added. “Utility prices will adjust, rent will go up, employee salaries will rise, and new competition will enter your market no matter what – you have no control over this. As owners, we need to stay on our game to defend against these things and to keep building our customer loyalty.”