Legislation introduced in Congress last year that would provide a 20 percent federal tax credit for cleaners who purchase equipment that uses "reduced amounts of hazardous substances" got a hearing last month before a House Small Business subcommittee.
Titled the "Dry Cleaning Environmental Tax Credit Act of 1999," the bill was introduced by Representatives David Camp (R-MI) and David Price (R-NC) last March, making good on a promise they had made a month earlier in Wilmington, NC, at the grand opening of the first Micell Hangers Cleaners franchise store. The bill (HR 1303) had 27 cosponsors in addition to Price and Camp, by mid-July.
The same legislation was introduced in the Senate late last year as S. 1939 by North Carolina Senator Jesse Helms.
The tax credit would amount to 20 percent of the basis of each "qualified" piece of equipment placed in service during the taxable year, with a limit of one piece of equipment per location per year.
"Qualified" is the key word. The credit would apply only to equipment that "does not use any hazardous solvent as the primary process solvent." That specifically excludes, by definition in the bill, chlorinated solvents, petroleum or petroleum based solvents and "any other hazardous or regulated substances."
In other words, equipment that uses perc or petroleum solvents would not qualify. On the other hand, equipment that uses liquid carbon dioxide clearly would qualify. Whether it includes equipment that uses Rynex, GreenEarth or water-based methods is not clear.
Hoping to clarify those points and seeking to broaden the measure so the tax credit would be available to more cleaners, the International Fabricare Institute went to some lengths to be included among those scheduled to testify at the hearing before the Tax Finance and Exports subcommittee. IFI CEO Bill Fisher said that while the association is not opposed to the tax credit, it had concerns about the "limited scope and applicability" of the proposal.
Is wetcleaning in?
Some supporters of the legislation, including its authors, Reps. Price and Camp, have indicated that the tax credit would be available for wetcleaning equipment. A "Dear Colleague" letter sent this spring by Price and Camp to other members of Congress mentions both wetcleaning and liquid carbon dioxide technologies as alternatives to perc and hydrocarbon solvents.
"Rather than proposing a regulatory burden on these solvents, we are advocating an incentive-based approach to help drycleaning operators switch to environmentally sound systems..." the letter said.
However, the legislation itself makes no mention of wetcleaning equipment. Only drycleaning equipment is specifically mentioned.
If the measure passed as written, the question of whether wetcleaning equipment is included would probably have to be resolved by the Internal Revenue Service, weighing the balance between the "intent" of the sponsors and the actual wording of the bill.
As Fisher noted in testimony he prepared for the committee, "Any of the 30,000 drycleaners, or manufacturers or suppliers for the industry would tell you this phrasing would totally exclude wetcleaning systems." Fisher pointed out that the definition of drycleaning used by the Federal Trade Commission in its care labeling rule specifically excludes the use of water as a solvent.
IFI recommended that the inclusion of wetcleaning equipment be made specific in the bill's language.
Expanding the credit
Other changes recommended by IFI would greatly increase the number of cleaners who could qualify for a tax credit.
The portion of the bill that limits the credit to "equipment that does not use any hazardous solvent as the primary process solvent" should be expanded to read "unless such equipment fully complies with the applicable NESHAP and NSPS standard for that solvent."
That would include perc equipment that meets the EPA's National Emissions Standard for Hazardous Air Pollutants for perc and the EPA's New Source Performance Standards for petroleum equipment. Complying with those rules has brought drastic reductions in the consumption and air emissions of perc and petroleum solvents in drycleaning over the past few years, IFI said.
Since those rules have been on the books for some time, IFI also recommends that the tax credit be extended to equipment put in place since Jan. 1, 1996, instead of January 1, 1999 as stipulated in the proposal.
The 1999 date reflects the beginning of actual installations of liquid carbon dioxide machines, IFI noted, but going back to 1996 would reflect the time at which wetcleaning equipment, new hydrocarbon equipment and more efficient perc equipment came into wider use in the industry, thus allowing cleaners who made investments in that technology to qualify for a tax credit, too.
IFI, Fisher said, "Actively supports the environmentally-responsible operating of existing drycleaning systems and actively promotes the development and investigation of all alternative systems that may offer additional environmental benefits."
But the tax credit bill "as drafted is more likely to damage, rather than help, existing small business drycleaning and to further exacerbate their financial problems."
The outcome of the hearing was not known at press time. The subcommittee was scheduled to hear testimony from two drycleaners, Tom Ustanik of Illinois and Gordon Shaw of California, as well as Joseph DeSimone of Micell Technologies and Henry S. Cole, former science director of Clean Water Action.
HR 1303
Mr. CAMP (for himself and Mr. PRICE of North Carolina) introduced the following bill; which was referred to the Committee on Ways and Means
`Sec. 48. Energy credit; reforestation credit; dry cleaning equipment credit.'
END
Quality work, with matching high prices, is the hallmark of von Korff Cleaners in Meschede, Germany.
"Everybody in the world likes quality," Hans von Korff, company president, said while showing his unusual and diversified operation to American visitors who were in Germany for the Texcare show in June.
His business is comprised of three sectors: von Korff cleaning, Vips cleaning and fire and disaster restoration. The main plant cleans about 2,000 pieces each day. The day's cleaning arrives on trucks late in the afternoon and the work is done at night. Most of the clothing comes in very dirty, von Korff said. Germans are not heavy users of drycleaning services, he noted, typically cleaning three and a half pieces twice a year. The average drycleaning expenditure is a mere $15 per year, so catering to high-end consumers is important to his business.
But customers are demanding, nonetheless. Von Korff goes the extra mile, and then some, to meet and exceed those expectations. "No stains is the most important thing," he says.
To achieve that level of work, every garment is checked at the beginning of the process. It is at the beginning, von Korff believes, where most cleaners make their mistakes. Four spotters pre-spot the garments and repairs are made before cleaning. It is better to prevent problems than to try to fix them later, von Korff said
Every item is inspected and, to keep fresh eyes on the work, inspectors work in 20-minute cycles, alternating between bagging and assembly. Anyone who spends more than 20 minutes examining garments will stop seeing things properly, von Korff believes.
After inspection, everything is packaged with tissue and returned to the customer on wooden hangers.
The heart of the plant is the cleaning area. Of five Realstar drycleaning machines, one 60-pounder is dedicated to whites and light silk and another to darks.
Von Korff wants "brilliantly white" whites. He uses Street's Fabricol for whites because of its optic brightener.
Three larger, 110-pound capacity machines, are used for raincoats, draperies and pants and jackets. The company also cleans many church garments and opera and theater costumes.
The drycleaning machines and the solvent recovery system in the von Korff's plant surpass even the stringent German requirements. The current standard is 3 parts per million, or 21.3 mg. In the von Korff plant, emissions are a fraction of that -- about 3 mg.
Although the drycleaning machines are state-of-the-art, von Korff is in no hurry to replace other kinds of equipment. For instance, he has an original model Hawo bagger bought years ago from B&G Lieberman.
He is able to keep machinery well beyond the usual life expectancy because of his maintenance program. Every piece of equipment is inspected once each week. Parts are replaced at the first sign of wear, before problems can occur and spread damage. It's a policy he feels pays for itself in both equipment longevity and absence of down-time.
Still, von Korff constantly looks for new ideas and new tools. He and Dagmar, his wife of nearly 30 years, are currently discussing how to expand in the future. They have already decided to update their computer system and now are wondering:
Should they begin shirt laundering, or are Germans too entrenched in home washing and ironing?
Should they expand their alterations departments by promoting them more?
The company was started in 1929 by von Korff's grandfather, Robert, and later operated by his father until 1975. After high school, von Korff studied textiles for two years and then worked for another company for two more to gain broader experience before coming home to the family company.
When he joined his father in 1967, the company had one store and 10 employees. There were two trucks that operated in Meschede (a city of 60,000 people in central Germany). Both the company and the equipment were old.
With the rise of one-hour cleaning in package plants, von Korff's customers started to disappear. At one point there were 80 plants operating in Meschede and the surrounding towns and their business plummeted.
His father said they should wait the downturn out, that the customers would return because of the outstanding von Korff quality. But they didn't. Von Korff felt the only thing to do was to meet the problem head on. However, his father would not permit his good name to be used on anything that was not the absolute best.
Von Korff knew that the market could be divided into two types of customers. One group drycleans frequently and wants high quality. They were the natural von Korff customer. The second and larger group wash as much as possible at home and only patronize the cleaner who is fast and cheap. They don't care much about quality.
It was that second group -- those who had left the quality store -- that von Korff wanted to win back.
In German, the expression "vips" means quick and cheap, not in any way related to the English term VIP. Twenty-five years ago, the company opened its first Vips store, keeping it totally separate from the parent shop. It was a full package store with its own equipment.
All garments would be prepaid, cash only. There would be no spotting of any type. There would be no finishing, only light pressing with an iron if the garments looked really bad. At pickup, the garments would be taken off the hanger, folded and put into a shopping bag.
The concept worked. Today there are ten Vips stores, and everybody in the area knows them and the work they do.
Because some of the garments brought to them were expensive, and because some of the customers wanted better quality, the stores soon began to accept orders for the von Korff Cleaners.
The Vips store frequently have racks filled with the high quality, stain-free well-packaged and high priced garments from the parent company. When customers come in, they can choose the level of service that meets their needs. They understand they are paying a different price for different service.
The difficult era of wash and wear brought another addition to the von Korff operation. Looking for ways to diversify, von Korff tried a few things. Not all of his ideas were winners. At one time, he tried to sell yarn in his stores, figuring that German women were great knitters. The idea went well for the first five years, but then business dropped off and he was left with a lot of inventory and no customers to buy it.
He began to venture into disaster and fire restoration work. His first few projects went well, since the clothing could fill in slow times at the plant.
Just as losses in the yarn business were mounting, von Korff was offered a large fire job that included many books which had to be cleaned along with the other work.
He wanted the order, but he had to agree to do the books. By trial and error he was able to clean them satisfactorily.
His ability to clean and restore books, then paintings, then furniture grew, and so did his reputation across the country. Insurance companies with large and expensive claims now call him for their most valuable work.
During the period of the Frankfurt Texcare exhibit, von Korff was finishing up a disaster project that included, in addition to clothing and household textiles, paintings by Rembrandt, Cezanne and others, over 1,200 antique books, silver, Meissen porcelain and antique furniture. Most of the items, including some of the furniture, were stored in a bank vault while they were in von Korff's care.
Von Korff is a firm believer in drycleaners' associations. His father was one of the organizers of his local association and von Korff is also a member of the Neighborhood Cleaners Association-International, because he feels that information is essential to running a successful business.
"Drycleaners go to meetings when business is bad or if there is a problem," he said. "But as soon as things improve, they stop going to meetings and go on vacation instead.
"They don't do any marketing when they are busy, but when things slow down and they start losing customers, they suddenly start to market, but then it's too late. They should be doing it all the time."
"I'm a cleaner," he says, "So everything must be clean, clean, clean. That means the stores, the employees and the trucks. The stores should smell clean."
To emphasize that feature, his stores are infused with a light, barely perceptible but fresh scent. He hopes that eventually customers will think of his stores whenever they smell something fresh and clean.
How successful is von Korff's philosophy? There are currently three von Korff stores, 10 one-hour stores and 140 agencies, drop stores or local businesses where clothing is either picked up or received. These can be local stores which handle the items as a service. The company now has 110 to 130 employees, depending on the season.
While most drycleaners are eminently aware of Procter and Gamble's home drycleaning kit Dryel, a newer product is striving hard to become an even more popular household name.
Dry Inc. has plans to launch an aggressive advertising campaign that it hopes will propel the sales figures of its product, Dry Cleaner's Secret, past Dryel and its other rivals, which include Clorox FreshCare and the Dial Corporation's Custom Cleaner.
According to a recent article in Advertising Age magazine, Information Resources Inc. had reported that Dryel reached a total of $93.8 million for product sales generated between September of 1999 and June 18 of this year.
The same article attributed $12.1 million worth of sales for Custom Cleaner, which was introduced back in 1996, and another $5 million worth of revenue has been accredited to Clorox FreshCare since it hit stores last January.
Dry Inc.'s president, Scott Heim, a former Kimberly-Clark Corp. and DowBrands executive, expects to launch 30-second TV spots and 60-second radio promos for Dry Cleaner's Secret in 17 U.S. markets, starting next month.
The company also bombarded about 300,000 households with newspaper coupons and product samples during the week of July 27, focusing its efforts mainly on the West Coast.
Though Dry Inc. lacks the financial resources of the three main competitors (Advertising Age reported that Procter and Gamble spent $34 million on advertising for Dryel in last year alone), it plans to win customers over by proving that Dry Cleaner's Secret offers superior results to other home kits.
According to the product's web site (www.drycleanerssecret.com), Dry Cleaner's Secret offers the following advantages over its competitors:
Dry Cleaner's Secret will also be the first home drycleaning product that will be made available in single sheet packs (enough to clean up to four garments) for less than $2, making it the least inexpensive package on the market.
The name of Dry Cleaner's Secret is a reference to Rayvon Reynolds, a master drycleaner with 12 years experience who developed the formula that inspired the product's name.
According to a press release available on the company's web site, Reynolds states, "Dry Cleaner's Secret is the only product which uses a formula that is similar to what traditional drycleaners use to clean and freshen clothes. In-home products made by P&G, Dial and Clorox use water-based systems -- and simple chemistry prevents them from equaling our results. These aren't idle claims; they're facts."
Reynolds also added, "The oldest rule in drycleaning says never use water to remove an oil-based spot because it can permanently 'set' the stain. The water-based formulas of other products in this category can actually do more harm than good."
The press release also points out that Reynolds believes that Dry Cleaner's Secret will "complement" drycleaning and not actually replace it since some stains and garments will always require the service of drycleaners.
In order to back up its claims of being the best home drycleaning kit, Dry Inc. aims to provide retail buyers throughout the country as a means to self-test Dry Cleaner's Secret with Dryel, Custom Cleaner and Clorox FreshCare.
Dry Inc. estimates that its product will be available in 10,000 stores by September. The company believes that sales for home drycleaning products will reach $750 million within five years.
"Consumers want an in-home drycleaning product that will freshen clothes and remove the common spots," said Dry Inc. President Scott Heim "While convenience and cost savings have fueled the initial growth of in-home drycleaning products, consumers will always gravitate toward high quality results."
The five-day Texcare trade show concluded its run June 22 in Frankfurt, Germany, to the satisfaction of the show's organizers who reported that the show drew more than 17,000 visitors and 258 exhibiting companies.
It was the first show in Germany since 1994 where the number of drycleaning outlets has declined by two-thirds in recent years as a result of mergers and closings.
Two out of five visitors came from outside Germany, primarily outer European countries but also from North America.
A striking increase from eastern European countries was noted, especially Poland, the Czech Republic and the Russian Federation.
Drycleaning machine manufacturers presented their latest developments, perhaps most notable being a growing field of high-speed extract machines designed to reduce drying time and the overall cycle time.
Several companies also displayed liquid carbon dioxide system,s although German observers said they do not believe that equipment will be ready for the German market for several years yet.
Petra Knecht of Germany's Hohenstein Institute noted that the CO2 equipment presented in Frankfurt "was not yet ready for the German market, but it plainly showed the new initiatives which the industry has for the future."
Max Rechnitz a senior consulting engineer from the U.S. who was on the scene looking for "what's new," reported that the cleaning machines and new solvents are difficult to evaluate.
"Much research and development has gone in to several new solvents and is continuing both in the field and in the lab," he reported. "It would be totally unfair to be overly critical of specific shortcomings at a time when much money and effort are being spent to achieve acceptable products.
"To the developer, time is, of course, money," he added. "A complicate product such as an acceptable cleaning solvent will have to be field tested under controlled conditions and not pre-judged by comparing it to existing solvents which have been in use for many years."
Perhaps by the next Texcare show, slated for June 6-10, 2004, the new developments will have undergone scrutiny and there will be more answers than questions. In the meantime, the industry can look to the next international trade show, Clean '01, which will be held in New Orleans, LA, June 19-22.
It's not a done deal, says Bill Seitz, but don't be surprised if the long-time executive director of the Neighborhood Cleaners Association-International announces his retirement soon.
A special NCA-I committee has been working for several months on a plan to what the organization would do when Seitz, who has been its executive director 35 years, decides to retire. The committee, chaired by Russell Petrozzi of Capitol Cleaners in Niagara Falls, NY, is to report to the NCA-I executive board this month.
"I'm feeling good and working every day, Seitz said. "But times change and conditions change and nothing is written in stone."
He noted that he will turn 70 this October and that his wife has been pressing him to retire so he can spend more time with her and the family.
"I have tried to build an organization based on a life for NCA-I after Bill Seitz," he said. The association has grown from 150 members when he first joined it to about 4,000 today. A capable staff is in place to carry on should he retire now, Seitz added.
"I have reached a point in my life where I wanted more time to devote to family and friends, and felt with all the talent and energy on the current board and staff, now was the ideal time to get them more involved in operation of the organization and myself a little less involved," Seitz said
He has been working with the special planning committee for the past few months to develop a plan for the post-Seitz era. The committee has been familiarizing itself with the association's systems and controls and has been working with consultant in the computer and financial planning areas for assistance in developing a strategic plan. At the same time, key NCA-I staff have been attending management courses and computer seminars to become more involved in the administration of the organization.
The first draft of the strategic plan will be presented to the NCA-I board of directors later this year.
When we first learned that there would be a hearing before a Congressional subcommittee on HR 1303, the environmental tax credit for drycleaners, we were surprised. Surprised, first of all, that the bill was getting a hearing as there had been little movement on it since it was introduced in March of last year. But even more surprised that the only people invited to testify were those who were 100 percent in favor of the bill as it was written. There are, as noted in our story on page one this month, a few problems with the bill -- or at least a few questions that need to be answered. Yet there seemed no one on the list of witnesses who would raise those question or address those problems.
No one that is, until key staff people and several concerned members of the International Fabricare Institute got involved and insisted that a broader industry viewpoint be represented at the hearing. Their insistence created the opportunity for IFI CEO Bill Fisher to testify. On short notice, Fisher prepared testimony that explained how the proposed tax credit would not, as some would have us think, be a great benefit to thousands of small business "mom and pop" drycleaners, but instead would likely benefit only a small percentage of the industry. IFI has developed several recommendations that would broaden the bill's scope and clarify its intentions. So credit is due to IFI for making sure Congress understands what the bill would and would not do, and how it could be improved.
Credit is also due to the many thousands of drycleaners who have invested heavily in new, improved equipment over the past few years -- whether their solvent of choice is perc, petroleum or water -- to accomplish what the bill says it aims to do -- reduce pollution. They did so without promise or benefit of a tax credit from the federal government. Are they due one? IFI thinks so, and we agree. Whether they get one remains to be seen. If they do, cleaners should remember IFI when tax time comes around and they are saving thousands of dollars. If they don't cleaners should remember IFI anyway -- for standing up for the whole industry, not just one small sector, and taking their case to Congress.
Whether or not you believe that the advent of home drycleaning products is a viable concern, it is hard to deny that they are already beginning to affect the industry. According to recent financial reports, Dryel sales are in the $100 million range for Procter and Gamble and Clorox FreshCare and Custom Cleaner have combined to walk away with almost $20 million.
Some analysts have predicted that the home drycleaning trend will reach $750 million in five years. Of course, all of that isn't taken directly out of the industry, but some customers will definitely feel justified in using home products to make less frequent trips to the cleaners and that will take money directly from the drycleaning industry. It already has.
Dryel and the others have had a good share of ambivalent publicity, although, most news stories seem to target the failures of such products rather than the benefits. Still, people continue to buy them and now a new one, Dry Cleaner's Secret, will be launching an aggressive campaign to capture some more of the ever-shrinking market. Dry Cleaner's Secret promises to outperform Dryel and the others and it is quite eager to tell the world that its stain-fighting formula comes from a master drycleaner with twelve years of experience. This approach may appeal to consumers. Certainly, some will think twice about taking garments to a cleaner when they can use a product that is based on the mysterious "secrets" of drycleaners.
Cleaners still have a few weapons to maintain customer flow: continuing to provide high quality that a home kit simply cannot offer; informing customers why home kits fail so often and explaining the chemistry and complexity of stain removal; and showing customers that there is no real mystery to drycleaning. Though the "magic" behind drycleaning has elevated cleaners to a sort of mythical status in the past, that same myth can undermine the industry now. Customers will begin to believe that they can capture a little of that ol' drycleaning magic in a home drycleaning kit -- especially if its formula was derived from an all-knowing drycleaner.
Home drycleaning may be an expanding market right now, but cleaners can curb it if they can convey to the public that they have no tricks up their sleeves, but rather, hundreds of years worth of cleaning knowledge that cannot possibly be contained in a small box on a retailer's shelf.
Retirement isn't the cut-and-dried event it used to be. In the past, you retired at 65, and hardly ever worked beyond that time. The company for which you worked, perhaps for 25 to 30 years or more, provided you with a fixed pension and Social Security payments that covered your retirement income.
Things are different now. People are living longer, staying healthy longer and enjoying a wider range of activities in retirement, including work.
In an American Association of Retired Persons survey, just 16 percent of baby boomers said they expect to stop working altogether in retirement.
Retirement income will likely come from a three-way partnership of employer-sponsored retirement plans, Social Security and savings.
Employees today need far more help with retirement planning than they have in the past. There are more decisions to make, the decisions are more difficult to make, and the consequences of those decisions are too weighty to leave to chance.
Increasingly, employees are looking to their employers for help.
Fortunately, as a business owner, you don't have to come up with the answers on your own. Seminars, retirement planning kits, worksheets, Internet resources, personal counseling, and many other materials from financial services firms like Merrill Lynch are available for your use. With a little forethought, you should be able to offer a comprehensive retirement planning program.
Answer the big questions
When you're evaluating possible retirement planning materials, keep in mind that you want to help employees answer the questions they should be asking. Here are six topics you'll want to make sure you cover.
When will I retire?
Employees need to start with a retirement target in mind. Whether employees want to retire early or continue working into their 70s and beyond will determine many of their financial needs in retirement.
What will my retirement look like?
Another factor to consider is what employees hope to do in retirement. Whether they want to work part-time or not at all, where they want to live, whether they want to travel or putter around the house, how they and their spouses will adjust to the new situation.
These lifestyle issues too often go unaddressed by pre-retirees. Yet having enjoyable and sustainable activities is central to a fulfilling retirement
What might my retirement cost?
Depending on how they answer questions like those above, employees need to calculate what level of financial resources they'll need to make their dreams a reality.
Here is where employees need in-depth assistance. A comprehensive but easy-to-follow worksheet that helps employees approximate what they'll need is a valuable planning tool that you can offer.
What financial resources do I have?
re-retirees need to estimate what financial resources they have today and what resources they might have in the future to determine whether their retirement goals are attainable. A net worth worksheet is a starting point.
To estimate future resources, employees should be guided in a calculation of what their Social Security payments might be, and what their 401(k) plan assets or other retirement accounts and sources of income might generate in income.
A big part of this calculation is determining the best way to take distributions from your retirement plan - whether to leave the assets with your plan, take a lump sum immediately and pay taxes, or roll the assets over into a tax-deferred IRA. The presence of employer stock complicates this issue.
Each decision has its own tax considerations and may have long-lasting consequences, so employees can't afford to make this decision lightly.
Using these numbers, employees can revisit their retirement goals to see whether they're realistic, or whether they need to save more, work longer or make other adjustments to make them possible.
How to invest in retirement to make sure that they don't outlive their money is another task that most employees need help with.
What contingencies should I plan for? What a person's retirement costs on the first post-career day will probably not be what they need in their fifth, their tenth, or their twentieth year in retirement.
Inflation cuts into one's buying power year after year. Current and future health costs, as well as responsibility for the care of elderly parents or relatives, among other things, all might change a person's income needs as they progress through retirement.
Employees need to decide for which contingencies they need to plan on top of their known income needs.
What have I done for my dependents and heirs? Wills, trusts, living wills, powers of attorney and other estate planning tools are too often neglected by employees. Yet estate planning is as necessary as retirement planning.
Federal estate taxes generally apply for estates worth more than $650,000 -- a number that is more reachable than people think, given the recent stock prices gains and the gradual appreciation of real estate.
Employees need help in determining whether there are ways to shelter their estates from unnecessary taxation through the use of estate planning tools such as life insurance and trusts.
Five years and counting
If you have employees nearing the five-year mark prior to retiring, you'd be providing an invaluable employee benefit to offer a retirement planning program.
It's never too early to plan retirement -- allowing your employees the time to make adjustments to their savings habits or to construct post-retirement work and investment plans can make all the difference in the satisfaction and success your employees ultimately find in retirement.
Patrick J. Walsh is Senior Vice President and Director, Group Employee Services, for Merrill Lynch. ning.com">www.greenearthcleaning.com.
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