New Jersey Laundry Owner Comes Clean

By Bob Nieman | May 13, 2009

Howard Schoenberger has owned Morristown Laundromat in Morristown, N.J., for almost seven years. It is his only self-service laundry.

How did you get involved in the coin laundry business?

I’ve got a bachelor’s degree in chemical engineering and a master’s degree in business administration. I worked in plant operations at a chemical plant for about a half-dozen years and then worked in management consulting in the chemical and plastics industries for about 15 years.

One morning, I woke up and said, “I’m tired of traveling and dealing with clients that are each worth $200,000 or more, and you have to bend over backwards for each one of them.”

I was looking for something that was local, where I could use some of the skills that I had acquired – being very mechanically inclined and having worked in industrial customer satisfaction. I thought I could apply those skills to small customers just as well, so I picked a business that I thought I could understand well.

The coin laundry business seemed nice, because you don’t have inventory. It’s fairly simply in that regard. That’s how I got into it.

Ironically, before I started looking at getting into the business, I had never been in a coin laundry in my life.

What are the keys to a successful self-service laundry?

I think a lot of it is like the real estate business: location, location, location. That’s key.

Of course, another key is providing the service that the customers in your marketplace value. Some stores have a lot of amenities, but they may not necessarily meet the needs of the customers. As a result, you’re not going to get any value for that.

You have to provide what customers value. I do a fairly large wash-dry-fold business, in addition to self-service laundry. Basically, I’ve got two business in one store – I’ve got one for people who’ve got more time than money, and one for people who’ve got more money than time. And there are probably only a handful of customers who use both services.

What are the hot-button issues in your market?

There is a problem with overbuilding. There are just too many stores going in. I don’t fault the distributors, per se. They’re in business to make money, and the way they do that is by selling equipment.

A lot of people have decided to get out of the corporate environment, and they’re looking at options like coin laundries. The distributor is not going to turn them down, because he knows that, if he does, that potential store owner will just go to Distributor B anyway.

This is customer demand-driven. People think that it’s a good business. And it can be, unless it gets overbuilt, like any other business.

Supply and demand have to balance themselves out. In any given market, there is only so much laundry. The fact that someone else builds another laundromat doesn’t mean people are going to generate more dirty clothing. There is only a finite need, and it occurs at finite intervals.

I know owners who have seen three or four stores go into the same area. These operators are killing each other. They’re competing on price. The only ones who benefit are the customers. And they don’t benefit for the long term, because, ultimately, these stores are going to go out of business. In the end, no one’s going to be able to reinvest if they can’t make a fair return.

The other big issue is definitely utility costs. That’s a killer. We’ve seen some huge swings. Right now versus a year ago, gas prices are probably half of what they were, but they’re probably not going to stay at that point. Water and sewer keep going up and up. And in New Jersey, especially where I am, rents and taxes are killers.

What trends are you noticing in your market?

The trend I see is bigger and bigger stores. A lot of people just want to say, “Gee, I have the biggest store in the area.”

But I’d rather have half the size of the biggest store and run at 80 percent of capacity, than to have the biggest store and run at 20 percent of capacity.

In square footage, my store is tiny, but I probably have the highest density of equipment of anyone in the industry. I’ve got a good location.

There’s a new store that was built about two or three years ago that’s about a quarter of a mile from me; it’s more than double the size of my store but it probably does half the business. Again, it comes back to location. I’ve got a huge parking lot in the strip mall I’m in, and that other store has almost no parking. I’m on the main drag, which is good for both segments of the business. They’re in an area that is only good for one segment of the business.

That’s what I’m saying about location. You can build a huge store, but if it’s not in the right location you’re not going to do well there. Sure, you may be able to get volume by competing on price, but I don’t think anyone wants to compete on price.

Why be in business if you’re not going to make money? You’re not running a charity.

Also, there are different trends that work in different areas. I have a friend who put WiFi in his store, which is great for his location. The customers use it. I thought about doing that, but none of my customers would use it.

Each market is different. And a market doesn’t have to be a metropolitan area. A half-mile radius may be a particular market, especially if you have some physical boundary like a mountain, a highway or train tracks that separate them. You have to look at that carefully.

That’s a mistake that some new owners make. They’ll conduct a demographic survey, looking at a two-mile radius around their store, but not looking at the lay of the land, the natural traffic patterns.

If you have a major highway running through your market that people can’t cross, all of a sudden, you don’t have a two-mile radius – you may have half of that. Part of it may not be your “market,” even though it is adjacent to you.

Do you have a business philosophy that guides your decisions?

I look at things from a business perspective, not necessarily from a customer satisfaction perspective. Satisfying 100 percent of the customers 100 percent of their desires is a perfect formula for bankruptcy. You can’t give the customers everything they want because they’re not willing to pay for everything they want.

You really have to understand what the customers value and make sure you can offer that value proposition and be properly rewarded for it. That’s the key to operating any successful business.

Also, I’m careful about taking advice that other people give me, because what works in one location many times does not work in another. However, it would be a mistake not to at least listen to other perspectives.

Too many small business owners just do their own thing with blinders on and don’t learn what’s going on. The only way to improve is to see what’s going on elsewhere.

How are vend prices in your market?

I don’t look at what the competitors are doing. I look at my costs and, when they go up, I raise my prices accordingly. That’s the way you have to operate, and customers understand that.

When we have these big utility cost spikes that make it into the news, that’s the perfect time to raise prices.

In addition, one of the biggest misnomers in the industry is that customers want lower prices. Sure, everyone wants lower prices, but it’s not as big an issue as many owners believe.

Look at Burger King or McDonald’s. They don’t put up a sign that they’re going to raise prices; you go in one day and, all of a sudden, the prices are higher than they were. And they don’t apologize for the higher prices. It is what it is.

In this industry, we’re too afraid that customers are going to overreact to price. If you operate that way, you’re always going to be behind the curve.

Even if you raise prices a quarter, percentage-wise that may seem like a lot, but what is it going to cost the customer to go somewhere else – even if they only have to go two miles farther? It’s time. It’s added gasoline. It is really worth it for them? For the most part, they want to go to what’s convenient for them.

Obviously, if you’re in a market where there are five stores within a quarter-mile radius, it’s a different story than when they’re more disbursed. You have to look at your market conditions, but I think owners need not be so overly concerned with vend price.

When a coin laundry fails in your area, what are the most common reasons?

Bad location, too much competition and bad management. When I say “bad management,” I’m referring to owners who are competing on price; they don’t have enough money to reinvest in the business.

In the last couple of years, I’ve seen a few stores in this area fail. It goes back to pricing and utility costs. A lot of them just got squeezed. Your suppliers don’t care. They’re raising their prices and, if you don’t raise yours, you’re going to disappear. It’s that simple.

What’s the biggest mistake you’ve ever made in this business?

When I first put in my card system, I offered customers a $1 bonus for putting $20 or more on their cards, but I charged them a 50-cent deposit for the card. In essence, if they put $20 on a brand new card, they got $20.50 worth of value.

Well, I almost had a revolt on my hands. The customers were outraged. They went ballistic: “How dare you? Why should I have to pay in order to do business with you?”

I quickly eliminated the charge and the bonus. So, they suffered, I benefited – and everybody was happy. Sometimes perception is more important than reality. They thought they were benefiting.

What advice would you give to a new owner just getting started in the business?

If you’re getting into the business, it’s probably better to not build a new store from scratch. Yeah, you can make money, but there is a lot of risk involved. Also, it’s probably not a good idea to buy a great used store that’s only two or three years old and still looking good, because that store is probably at the top of its game – the only place it has to go is down.

The best thing to do is buy a store like the one I did that had been there for a long time. The equipment was somewhat rundown and it was doing OK in spite of itself.

I knew, based on the location and on what it was doing, that I would get in and make some money right away. But my goal was to upgrade all of the equipment quickly and get more customers to come to it. Those are the real opportunities. If you can find something that is in bad shape but does well in spite of itself, you can do pretty well.

With that in mind, I put in mostly new washers and dryers. I put in a card system right away.

I don’t understand why anyone would do a major upgrade or build a new store today without putting in a card system. If you look at the lifecycle costs, it really costs you almost nothing and it adds tremendous value and capability – both in terms of pricing and the information that you get as far as learning what’s going on with your store.

Other technological things are high-efficiency water heaters. They’re a great thing that owners should be looking at. High-efficiency dryers also are a great thing, if you have to put new dryers in.

Basically, it’s a pretty simple industry. We’re reselling utilities to customers through these machines to let them get clean clothes. Make sure you get the basics down first before you start adding all of the bells and whistles.

In your market, is this still a good business to be in?

It can be. The key is to find the type of opportunity I was talking about. Do your research. Understand what you’re getting into, and try to find a store that’s there in spite of itself, which you can add some value to.

But be careful. Anyone who is selling a business is out for themself. The same thing goes for brokers; they work for the seller. No one’s out there protecting you, the buyer.

Also, get involved with the association. Meet some of the people who own stores in the area. Get someone to take you under their wing. You’re talking about a pretty significant investment, and you don’t have a lot of opportunities to undo what you’ve done.

A coin laundry is not like a clothing store, where there really aren’t a lot of fixtures and, if you don’t have the greatest location, you can find another place and move your inventory in one truck. With equipment that weighs thousands of pounds and is bolted down, you’re there for the long term.

Also be careful what equipment you put in. A lot of the equipment today has a lot of bells and whistles on it. That’s great, but look at your marketplace and try to understand if your customers are going to understand the value of all that.

For example, you can have 12 different options on what your customers can spend for a wash. This is great. They’re all opportunities for you to price the value. But if your customers don’t understand it, they may just say the heck with it.

I’ve seen some of that equipment in some stores where they do a good job. But I’ve also seen it in others where they’ve basically given up, and all of the options are priced the same because the customers just put the stuff in and the machine just does what it does.