Originally – Sep 16, 2014
Technically, the Great Recession lasted from December 2007 to June 2009. That’s what the economists and history books will tell you.
However, some laundry professionals might have a slightly different timeline.
It began with the bursting of an $8 trillion housing bubble. The resulting loss of wealth led to sharp cutbacks in consumer spending. This loss of consumption, combined with the financial market chaos triggered by the bursting of the bubble, also led to a collapse in business investment. As consumer spending and business investment dried up, massive job loss followed.
As a result of the Great Recession, the United States shed more than 7.5 million jobs, causing its unemployment rate to double. Further, American households lost roughly $16 trillion of net worth as a result of the stock market plunge.
In October 2010, 16 months after the official end of the recession, the economy still had 5.4 percent fewer jobs than it did before the downturn began.
Thus, the Great Recession brought the worst of both worlds: extraordinarily severe job loss, combined with an extremely sluggish recovery – a recovery that, for many, continues today and has helped shape what some might call the “new normal.”
“It changed the landscape,” said George Morgan of Best Laundry Brokers in Grass Valley, Calif. “In many markets, the recession has not gone away. It’s still lingering in sections of California, Nevada, Arizona, Florida… those states were just hammered.
“People were washing less, so volumes dropped,” he continued. “As a result, equity dropped, the values of the laundries dropped and a lot of the marginal stores that were just getting by failed. There are fewer laundries now. That’s permanent.”
Morgan said he witnessed perhaps a 15 percent to 20 percent drop in store values.
“Where I could have easily sold a decent laundry for maybe five times net and 20 percent return, now post-recession I’m lucky to get four,” he admitted.
In the hard-hit Southwest, Coin & Professional Equipment Co., based in Phoenix, has seen many laundry owners determined to compete on price, not quality, according to CPEC’s Mark Svancara.
“Most laundromat owners have not forgotten the fear of losing their business during the recession and are hesitant to invest in new equipment and infrastructure, like they were willing to do before the recession,” Svancara said. “Owners are determined to keep their expenses low by not investing in new equipment, so that if the economy were to contract again, they would be able to survive on less business by having fewer expenses. And many store owners look to used equipment when they need to replace a machine. A permanent effect of the recession seems to be keeping business expenses at a minimum.
“Also, during the recession, many competing distributors and equipment manufacturers lowered prices on equipment to attract business,” he added. “We are six years into the economic recovery, and margins are the same as they were in 2008. Distributors are fearful to raise prices on equipment for fear of losing a sale, and customers still expect the low prices offered six years ago.”
Alex Kane of Equipment Marketers in Cherry Hill, N.J., has seen a similar reaction in the markets his company serves.
“With the constant reminder that we are still not fully out of the Great Recession, owners have an increased reluctance to raise vend prices, an already difficult business decision for most,” Kane said. “This, in turn, lowers the profit margin for the owner.”
As a distributor, Equipment Marketers witnessed store owners either postponing the replacement of old equipment or extending repairs on their aging units.
“The aging of laundry equipment is, however, an act of attrition – and it continued throughout this period,” Kane explained. “Eventually, sales grew but they have not returned to the levels where they were before the Great Recession.
“Perhaps it is a cynical point of view, but we are not assuming that things are ever going to get better. Business deals are more competitive than ever, and pricing – and, therefore, margins – has been reduced.”
However, Kane added that today’s owners are indeed getting more value for their dollar than ever in this respect. They also are benefitting from increased sales, service and installation support included with the laundry equipment purchase, since every sale is increasingly important.
“It is a much more competitive environment,” agreed Russ Arbuckle of Wholesale Commercial Laundry Equipment SE, based in Southside, Ala. “As such, we need to work harder at selling our company and product line, without resorting to a strictly price-driven sale.”
Arbuckle added that, like many distributors since 2008, parts sales and service certainly increased during the Great Recession, while opportunities to sell new equipment dropped.
In Florida, Craig Dakauskas of Commercial & Coin Laundry Equipment Co., based in Gulf Breeze, sees today’s post-recession laundry operations as much enhanced since the economic disaster.
“As a whole, I would say these stores are better run,” Dakauskas stated. “Investors are taking advantage of the technology out there – more energy-efficient products, management systems, cashless payment systems, custom-tailored software solutions, social media, websites and more. With so many tools available to research and make better business decisions, how can they not be better run?”
In the post-recession environment, Yankee Equipment Systems, based in Barrington, N.H., has seen more rehab projects than pre-recession.
“These are full-store, large-scale projects by professional operators,” Yankee’s Ted Ristaino noted. “New stores tend to have smaller footprints as well, and ROI enters into the discussion more than ever as inflation begins to pick up.”
For Dion Marcionetti at Laundry Concepts in Addison, Ill., he’s building less new stores per year; however, they are “much bigger and service more populated areas.”
“Similar to other industries, the recession did have an impact on the self-service laundry market; however, I don’t believe that any impact will have a lasting effect,” said Chris Brick, regional sales manager for Maytag Commercial Laundry, speaking directly to the plight of the laundry owner. “For example, prospective store owners who once had a hard time finding financing as a result of the credit crunch are now finding lending restrictions to be less strict.”
Also referring specifically to the store owner’s post-downturn experience, Laundrylux CEO Neal Milch is among those who see the Great Recession’s impact as temporary.
“No permanent effects,” Milch said. “There is much greater impact from periodic anti-immigration political movements or legislation that can cause an exodus of Hispanic customers.”
Continental Girbau’s Mike Floyd is of a similar mind.
“The recession caused a temporary delay in the buying cycle,” he explained. “Owners became nervous about spending and didn’t purchase new equipment. Now, the industry is experiencing a higher percentage of replacement equipment sales.”
Silver Linings
Of course, the Great Recession wasn’t all doom and gloom, many will argue. Some silver linings include:
Increased alternative financing options. Due to the fact that banks essentially stopped lending for laundries during the recession, alternative non-banking lenders began to pop up.
“I’m dealing with a number of them now, and they’re working out very well,” Morgan said. “They’re comfortable with the fact that laundries are all-cash businesses. We didn’t have this plethora of alternative non-bank lenders that we do now. It’s created a whole new architecture out there of different types of lenders outside the normal box.”
Reassessment of risk. Many store owners began to take a more realistic view of their laundry operations, according to Ristaino.
“Since we have a high fixed-cost industry, many pulled back from unrealistic projects that were risky in good times, but too risky in recessionary times,” he said.
More renters. The number of renter households grew by almost 4 million people from 2005 going forward, which offered a larger customer base to all store owners, according to Dakauskas.
“I don’t remember a time when such growth occurred in the renter market.” he said.
“The most apparent long-term effect of the recession is the lower vacancy rates in renter household communities, which has increased the volume of frequent self-service laundry customers across many U.S. markets,” agreed Todd Rice, director of financial services for Alliance Laundry Systems.
Rice added that today’s tougher mortgage standards should continue to keep renter vacancies low, thus driving more customers and income through self-service laundries.
More savvy potential investors. According to Arbuckle, one positive side-effect of the recession was a greater number of investors unwilling to take the risks associated with traditional financial markets.
“They want more control of the investment capital and direct input into the return on investment,” he explained. “This means more savvy investors who are willing to build larger and better-equipped stores, including card-operated laundries; more and larger machines within the stores; and a much more modern image for these stores. And this should translate into the overall improvement of the image of the coin laundry industry.”
Better store locations available. During the recession, landlords became more aggressive and willing to negotiate. Rents decreased, plummeting in some markets.
“They had to re-evaluate what types of businesses they were willing to lease to,” Dakauskas explained. “They asked themselves which businesses had the least amount of risk and could weather the downturn. And, with our industry’s proven track record, it made perfect sense to many of them to offer prime space to our investors.”
Enhancement of existing operations. “As the recession wound down, progressive owners went on the offensive to increase vend prices, and to expand and modernize machinery offerings realizing tax advantages and utility savings,” Ristaino said. “The utility savings continue to this day. Many owners also used this time to restructure their leases and other costs associated with their laundries. Some used this time to expand their services or tighten up their operations.”
On the Firing Line…
So, how did self-service laundry owners weather the extended economic slide? Here is what some store operators with different size operations and located in different sections of the country had to say about their experience:
Josh Prager
JP Investment Strategies
Sunrise, Fla.
The Great Recession was a humbling experience for me. I had this feeling of invincibility before the recession. I felt my stores were doing great and business would never decline, as long as I maintained my equipment and overall store appearance.
Of course, this all changed when the recession hit. Propane prices were rising, water rates were increasing – doubling in some cities – and the electric company was raising rates. And, on top of all of this, I was down 22 percent in gross income.
Regular customers were starting to visit my stores every other week, rather than weekly. And those who owned washers and dryers and used my coin laundries for convenience stopped coming in. Everything was spiraling out of control, and I knew I had to do everything possible to maintain my business.
Because some newer laundries in my area were overleveraged with debt, they couldn’t handle the utility rate increases and, therefore, ended up closing the doors. This was a valuable lesson for me – less debt and more cash flow is the way to go.
My competitors closing their doors enabled me to find deals on equipment and supplies. As a result, I was able to replace my dingy, old folding tables with shiny newer ones for pennies on the dollar. Also, I was able to find great deals on used equipment, which saved me thousands of dollars. Laundry carts, soap machines, vended soap, trash cans, seating, vending machines, changers and even signage are some of the other items I was able to purchase from closed-down stores.
I was able to spruce up my stores for little money. Then, I started passing these savings on to my fellow laundry owners by selling off the items I didn’t need from these now closed laundries. And, today, I have turned this into a full-fledged business called Laundry Owners Warehouse.
Michael Finkelstein
Associated Services Corp.
Baltimore, Md.
The recession impacted our business – both negatively and positively.
Negatively, in some of the towns in which we operate, businesses closed. For example, Circuit City was a huge employer in Richmond, Va., so that was a big closure for us. And there were other business closings in both Virginia and North Carolina. Businesses contracted, and a lot of industries left.
Also, many of the immigrants, who came to the U.S. to work in the construction industry, left when the building sector dried up. That impacted a number of towns.
As a result of those two factors, we elected to pull out of some locations, because there just weren’t enough people to support them.
On a positive note, in light of all of these vacancies, it allowed us to renegotiate our leases at some of our locations. So, we were able to reduce our rent, which allowed us to exist and compete and even thrive in a lot of those towns.
Another positive effect of the recession was the fact we were able to work with our bank, relative to getting favorable rates and having access to funding in order to expand and remodel. Due in essence to the stringent loan qualifications caused by the economic downturn, we – because we were creditworthy – had access to capital to do those types of things.
Also, when some laundries went out, we were able to purchase and remodel them. It enabled us to get laundries in some decent towns in North Carolina and Virginia that we hadn’t been in.
Today, as a result of the Great Recession, I think laundry owners are a little more cost-conscious. In tough times, you hunker down; you’re more conservative in your investment strategies. If that store location you’re looking at is a bit iffy, you’ll probably pass on it, as opposed to five or six years ago when you would have rolled the dice.
I absolutely think that today’s laundries are better-run operations. As a byproduct of the recession, there were a lot of people who left the workforce, many not of their own choosing. In our case, we were able to hire some extremely competent people who have upgraded our whole operation, bringing in additional skill sets. For instance, the new maintenance person also may be a licensed plumber or electrician, or have HVAC experience.
Sometimes it’s how you react to a negative circumstance that helps you become better. In tough situations, you have to look for the long-term upside.
I’ve learned that, in the laundry business, if you’re hitting steady singles you’re doing well; you’re rarely going to hit a homerun in this business. However, if you’re doing the basics and growing steadily, you’ll succeed.
Richard Bassin
Foxy Lady Laundry
Miami, Fla.
There’s no question that South Florida is still reeling from the Great Recession. I’ve been in this business since 2004, so I came in during the high times – when everybody was doing great and customers were spending their disposable income without any difficulty.
In 2007, at the very top of everything going well, I sold the business – but the buyer backed out at the last minute. Three weeks later, he changed his mind and agreed to buy my store – but then I backed out.
At that point, I was doing more business than I’d ever done before, and I received the best price I could ever get, but I stayed in the business. I will never get that price again for this business, but that’s the recession.
With the downturn, people to this day have changed their attitudes toward everything. They don’t have the disposable income they had before, and this is playing out not only in our business but every business across the country.
Today, because of the recession, we’ve become a more well-rounded business. We have a barbeque stand that rents out a portion of our parking lot. We’ve opened an internet café and a tax service. We’ve added more televisions and opened up other diversified attractions.
Now, people come to us for reasons other than the laundromat. We’ve made the business a place to come… a destination.
Rob Maes
Express Laundries
Houston, Texas
We opened our two new laundries at the same time in April 2009 – at arguably the absolute peak of the Great Recession, at least in terms of the unemployment rate. In fact, during our first few weeks, there was one day when we took in only $60, and I honestly had doubts as to whether we would make it.
To survive, we had to market our stores more than expected, which led to an even higher cash “burn” rate. In essence, we were “doubling down” on our business model. To help improve cash flow, we ramped up our wash-dry-fold business, especially with commercial accounts, by offering free pickup and delivery.
We made a lot of mistakes in those early days, but we also were forced to learn a great deal, which has made us a much better business today. The analogy I use – especially when trying to explain to my family why I missed yet another dinner – is that we are like a fish swimming upstream.
I never would have decided to open two brand new laundries at the same time, just after a major hurricane devastated our city and while also being on the precipice of the Great Recession. However, our plans and commitments were already in motion, and we had to make the best of our situation.
Thankfully, five years later, our business is still growing and – thanks to what we learned during the Great Recession – plans are in place to keep growing. If we had opened our laundries during a “normal” economy, we would no doubt be drifting downstream – unaware of the many opportunities around us.
John Henderson
Liberty Laundries
Tulsa, Okla.
The Great Recession arrived in Oklahoma a little later than the rest of the country. However, for my business, it really was a non-event. We had one year – 2009 – when our gross was down a bit, but we were still profitable.
In fact, in late 2009, we made the decision to build our second laundromat after finding a killer location. It was completed in late 2010, and every year thereafter we have seen very healthy growth at both locations.
We’ve recently opened our third self-service laundry, which is doing well. Like most new investors hear from their distributor, laundromats seem to be “recession-resistant” businesses – at least that has been our experience.
Bruce Walker
Wash It Kwik
Denton, Texas
I felt very little negative impact from the recession. In fact, I had a hard time finding a parking spot at Walmart and often had to wait in line to go out to eat.
For us, it was business as usual – work hard, be creative, engage the marketplace and pray like crazy. We purchased more than $100,000 in new equipment and were able to pay cash for everything. We upgraded our washers, installed a new boiler system, upgraded our POS system, added a bill breaker and replaced two air conditioning units. And our business grew by more than 15 percent.
Right now, we’re having our best year ever. In fact, the last three months have all set records.
God has blessed us immensely, because we didn’t just survive, we thrived. Laundry owners need to stop being paralyzed by fear of all the negative things that could happen and embrace the potential success that might bring them record-setting profits.
I would advise owners to run their businesses as close to debt-free as possible, and to keep it that way. This will be a huge competitive advantage that will pay dividends for generations to come. Also, be generous; we have given more this year than we ever thought possible and have been richly blessed because of it.
Andy Merendino
Suds Yer Duds
Carneys Point, N.J.
Over the years, I’ve owned several small businesses. In 2006, I bought a small, rundown laundry with an apartment, and I refurbished it. Next, I saw a need locally, so I purchased a building in my hometown and opened Suds Yer Duds in March 2007. I invested my life savings and borrowed twice that amount.
When the recession and banking crisis hit, I was unprepared for the drastic changes it would bring. For years, I could go to my local bank and get my borrowing needs met without a problem. Now, even though I paid all of my bills on time and stayed in the black, the banks were scrutinizing balance sheets and assets like never before, even on existing loans that were always current.
Refinancing became impossible, due to the drastic reduction in real estate values and the evaporation of substantial equity in the several properties I owned – which still exists today. Yet, I was fortunate to have a positive cash flow and hoped to ride it out.
However, new competition opened, which forced me to hold prices down for several years.
I spent two years trying to reduce expenses. I refinanced at a 2 percent lower rate, negotiated a better rate on my business insurance, locked in a good rate contract on my natural gas costs, and trimmed payroll and repair costs by doing more work myself.
I also talk to my customers a lot to see why they come in. During the recession, I realized some new business, due to broken home machines that people couldn’t afford to fix or replace. Also, some people with all-electric homes discovered that they could save money by coming to me and using our big machines.
Since the recession, rather than expanding or looking to buy another business, I’ve been forced into a holding pattern of micro-managing my two laundries and 10 apartments, to maximize what I can get from them. It’s been working out so far, but the economy in my area is not improving.
Richard Johnson
Northside Laundry
Springdale, Ark.
Most of my customers are Hispanic, and a lot of them were construction labor. So, when the Great Recession hit and the housing market crashed, they all moved on all at once. For us, it was about a 30 percent drop in business in three months.
To survive, we just kept doing what we always did – trying to be the best store we could be. And, to be honest, some other laundries in the area didn’t make it; so, for us, there was less competition.
Coming out of the recession, I haven’t taken anything for granted. The things we are doing at our business are tried and tested, and they work. I think we survived the recession because we have a better-run operation – not the other way around. And we have a better-run operation partly because we have applied the lessons of other successful laundry owners that we have read about in this magazine.
Is There Really a New Normal?
Some say definitely “yes,” while others think probably not. And, your particular perspective likely depends at least partially on your specific business operation, as well as your location.
For laundry broker George Morgan, “Buyers are more cautious; they take longer to make that buying decision. We’ve had to bend over backward to make deals work, both equipment and brokerage. We’ve had to lower our margins on equipment. It’s much tougher now.
“As for store owners, they’re no longer as dependent on the Hispanic and transient labor markets,” he added. “They’re branching off and trying other ancillary income sources to enhance the bottom line, more than they did before. They’re being more creative.”
“The ‘new normal’ is that vended laundry owners are more highly educated than ever before,” Floyd added. “They are looking for a relatively simple business that produces a good return. There are probably more investors coming from corporate or business backgrounds as well, which will likely lead to a more professional industry in the future.”
For Laundrylux’s Neal Milch, the “new normal” is simply the “old normal” in disguise.
“It’s still about location, location, location,” he explained. “A well-managed, properly marketed store with the correct equipment mix for the demographics will do fine.”
“The ‘new normal’ is a back-to-the-future view of our industry,” Ristaino concurred. “Control fixed costs with solid long-term leases and equipment financing. Own your real estate, if feasible. Modernize equipment to reduce variable costs of utilities. Increase vend prices, where appropriate. Expand services to increase market share. Merely collecting the money once a week and ignoring the basics of successful store operations is a thing of the past.”
Whether you subscribe to the notion of a “new normal,” an “old normal” or a “nouveau vieux normal,” one watchword that seems to apply universally to the post-recession business world is uncertainty.
“Business owners today must be prepared for the effects that international unrest will have on our economy, our own federal and state governments ability or inability to move our economy and society forward, new legislation that may come at any time that will have a financial impact on business and so on,” said CPEC’s Svancara. “The ‘new normal’ is be prepared for anything.”
And that’s solid advice for everyone.
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