How ‘Recession-Proof’ Are We?

By Randy Radtke | Apr 21, 2009

The laundry business is recession-proof. Anyone who’s been around coin laundries for more than a few minutes has probably heard that statement. But how true is it? There’s little debate that our country entered not only a full-blown recession, but bank and other business failures have thrust it into virtually uncharted economic territory. While 100 owners may give you 100 different answers about just how recession-proof their business is, a recent sampling has painted a fairly bright picture.

Meet the Sources

Rather than stick solely with store owners, this article sought out the unique perspective of distributors who also own vended laundries. This group, operating across the United States, spans from those with a few stores, to one of the most prolific owners in the country at more than 100 laundries. Many in this group are of the opinion that coin laundries are not totally recession proof, sort of.

There’s a prevailing opinion among them that those owners who have not kept up with equipment trends, have waited too long to adopt pricing better in tune with their cost structure or have just not taken an active interest in the appearance of their stores, may fail. For this reason, the industry may be at a crossroads, weeding out those less concerned with operating a well-run venture.

Andy Courtney

Principal at Ramco in Shiremanstown, Pa., Andy Courtney has been in the laundry business for 15 years and also owns 15 stores in the Northeast. Courtney said he’s seen evidence of the industry’s recession-proof rally cry firsthand, as his stores’ revenues are all up.

“But that’s not unexpected,” Courtney said. “Even in tough times you can still do well … people always need to wash their clothes,” he added.

The caveat, he said, is that an economic slowdown may also usher in a correction in the laundry business as well, weeding out stores “on the bubble.” Courtney said he’s seen two stores in his area go out of business. And the reason for this phenomenon may be a concept older than the business world itself — survival of the fittest.

Courtney saw the failure of stores in his area as being due to owners not reinvesting in their business.

“If you’re attentive and stay on top of your business … everything will be just fine,” he said of prospering even through a recession. However, owners who have done the opposite, taking customers for granted, being slow to upgrade equipment or raise prices could struggle to stay afloat.

“You can’t be afraid to change equipment or raise prices,” he said. “The big thing we’ve always done is adjust to customers’ demands,” he said of upgrading to larger capacity washer-extractors, offering variable pricing and card payment systems.

The variable pricing in particular, he believes, is important during economic downturns. Customers are then able to decide whether they can live with a warm or cold wash, if it means saving money compared to a hot wash, an option they don’t have when the owner cost averages a flat vend.

Michael Finkelstein

With more than 100 laundries in North Carolina and Virginia, Michael Finkelstein is owner of arguably one of the country’s biggest operations, in addition to owning Associated Services Corp. in Danville, Va. And Finkelstein will not sugar-coat his view of the industry.

“This is probably one of the toughest times ever to go into a new business,” he said, adding specifically of the laundry business “I think you’ll see a lot of people get out.”

His collection of stores offers an extreme contrast in results of late that contributes to his view. In communities where manufacturing or agricultural jobs have dried up at a staggering rate, or factories have closed, these stores have been down as much as 40 percent. Other stores are holding their own and are up roughly 5 percent.

The stores that will perish during this turbulent time, he said will be the ones with “eight machines down” at a given time, not replacing parts, not keeping up with maintenance or putting themselves at a disadvantage with offerings such as free dries.

Still, Finkelstein knows the strengths of the laundry business and isn’t about to worry, he’s active in retooling stores to obtain the highest efficiency to lower operating costs.

“I’m glad I’m in this industry,” he said, adding that the exceptional potential for laundries to expand in the future rests in touting its “green” story.

“It’s one of the greenest ways people can wash,” Finkelstein said, adding that the time savings — a weeks worth of laundry can be washed and dried in an hour and a half — is the other part of the appeal of the business in a fast-paced society.

Despite current economic challenges, there are opportunities as well, particularly when it comes to leasing. Finkelstein said he has “had some success in getting rent reduced.”

Dion Marcionetti

While Dion Marcionetti’s five stores suffered slightly in November and December of last year and early January, from late January to now they have rebounded dramatically.

“I’m very happy with what’s going on,” said Marcionetti, who also owns Laundry Concepts in Addison, Ill. “Our stores are actually up and seem to be growing [between 10 and 12 percent],” he said, adding that in speaking with other owners, week-to-week they may see revenue swings, but overall at the end of the month, numbers are up.

So optimistic is Marcionetti, a 38-year industry veteran, that he believes the industry could be on the cusp of a major growth period. He says laundries are beginning to tap a new customer base that may not be familiar with the advantages of today’s modern business. The result is an image change that could have lasting effects after our present recession. Clients who are using the laundry because they have been forced out of homes or are putting off replacing their home washer and dryer, may continue to visit the laundromat because of the time savings and overall better efficiency compared to home equipment.

That’s why he insists that vended laundry owners who are active in marketing and dedicated to excellent service will be well poised to have continued success.

“Now is the time to put our best face on,” he said, to ensure these customers, who might have avoided vended laundries in the past, continue to come back when economic conditions improve.

He added that the savings in water and utilities these new customers are seeing at home may provide further education that it is less expensive to perform their laundry chore at a coin laundry.

Mike Leake

Owner of one store himself and Larry & Mike’s Laundry Service in Memphis, Tenn., Mike Leake said with current financial conditions one might expect new store development to be stalled, but he’s seeing reason to be optimistic.

“We’re getting more than the normal number of calls from people interested in the business,” he said, adding that evidence he’s seen shows it may be an excellent time to enter the vended laundry market.

One laundry Larry & Mike’s Laundry Service constructed for a customer opened in February. Projections forecast that, after the usual ramp-up, the store had the potential to do $3,500 a week. In early March, the store had already hit $3,000 a week.

Leake is putting money behind his view of potential industry growth by looking to develop additional locations for himself. He sees a mix of a construction slow down aiding lower bid prices from contractors and more negotiable leasing costs as two examples that help paint a bright picture for vended laundries.

He echoes Marcionetti’s comments that new customers visiting laundromats of late may not be the typical demographic. These customers, coming from more upper middle class neighborhoods, are putting off major appliance purchases in favor of the coin laundry.

“People are coming from more affluent areas,” he said. “We are now looking at locations on the border with more affluent areas,” Leake added.

Leake also has noticed another trend of late – that of more store owners calling looking for used equipment. This is something he’s less enthused about. While owners may think they’re getting a deal by buying 7- or 8-year-old models, in most cases it doesn’t deliver the efficiency they need and ends up costing them more than buying new in the long run. Customer service must be the priority, he said.

“People will find you when you do it right,” Leake said. “New stores with new equipment and with room are doing well … old, small stores, people are walking out of.”

Stan Bradley

Revenues at Stan Bradley’s eight stores in South Carolina have remained constant, year over year, bolstering his optimistic view of the industry.

“We haven’t seen any drop-off of gross receipts,” said Bradley, a 40-year veteran of the industry and owner of Laundry Systems of the Carolinas. His experience has proven that vended laundries are indeed a recession-resistant investment.

“I still say there are very few businesses you can get into that will show a 25 to 30 percent return on investment,” Bradley said, adding that as a distributor, they are installing six to seven new laundry projects and doesn’t see a slowdown on the horizon. New investors seeking the safety and large returns the business offers are leading the charge.

His confidence in the business is a result of the level of success his customers have had. Only one time in his four-decade career has he had to take back equipment from a new investor, who failed to stay ahead on payments.

“Most of our customers have more than one store … the main reason we’re in business is not to sell equipment, it’s to make the customer profitable,” he said.

Available financing, Bradley believes is the key to the laundry industry growing through an ailing economy.

“If investors can get financing, we’ll continue to see a growth pattern,” he said, adding that newcomers will replace owners who “fade out” because they failed to upgrade to energy and water efficient equipment or raise prices.

John Schemmel

“Our stores are doing pretty well,” said John Schemmel, president of Dongieux’s Inc. in Jackson, Miss. and owner of a dozen stores in the surrounding area.

New store development at present may be slow, but Schemmel is getting more questions about the business he says has “held up good” through rough economic times.

Schemmel, however, may be directing new investors down a different path away from new site construction. He believes identifying sites that Courtney described as “on the bubble” is the way to go.

He agrees with his peers that this could be a time of transition and newcomers will have the greatest success finding the “mom and pop” stores with owners interested in getting out of the business.

Rehabilitating existing properties enables investors to avoid the often exorbitant impact fees of municipalities that may be a huge hurdle to startup. In addition, the store has already been established over the years. It’s now just a matter of replacing equipment and jumpstarting the location through active marketing.

Schemmel recommends new investors do their homework before entering the vended laundry business. And with many other businesses failing, owners may be in an advantageous position to negotiate a long-term lease. He said to push for a 20- to 25-year lease. However, with real estate prices also sinking, buying may a better option.

“If you can buy a location at a decent price, get it,” Schemmel said.

Bob Schwartz

Bob Schwartz, owner of Super Suds Management, which operates 20 locations in Virginia, is a firm believer in this recession-resistant business and sees change on the horizon.

“I think the future is very good … the image of our industry is changing,” Schwartz said, adding that there’s a clear transition from mom and pop stores to a more professionally operated investment.

Schwartz believes the same strengths — cash business, attractive ROI, no receivables — that lured him away from a job on Wall Street will attract investors with a similar background. And he’s offering them the benefits of the business without them having to operate it themselves.

Super Suds Management develops stores for investors and operates them, while sharing in the profits.

“It’s no different than the hotel business,” he said of the similar investment partnership. The advent of card payment systems and advanced machine audit programs keeps all parties apprised of revenue to ensure accurate accounting

In this new approach to the vended laundry business, investors reap the benefits of not just an experienced distributor finding a location, but an experienced owner dedicated to maximizing profits.

Schwartz doesn’t see the current economic climate as a hindering growth in our industry, but rather a tremendous opportunity with many investors looking for safer returns.

“The timing is very good for it,” he said.

Most all those interviewed see the current recession as an opportunity. For those already in the business, it’s an opportunity to review their operation to determine if it’s the type of environment that new customers will come back to. Others may see it as a chance to take a closer look at the expense side of operations. Have they given up profits by being slow to raise vend prices as their costs have risen? Perhaps an equipment upgrade is more attractive with tax incentives extended as part of stimulus measures.

For the new investor, the vended laundry business itself may be the opportunity, because its recession-resistant structure has proven to be just that. While other sectors may be struggling, most vended laundries continue to shine through the dark clouds of the economy. And most who commented for this piece will tell you, the stores that shine the brightest in their own markets will see the brightest future for years to come.