Get your head out of the wheel
he trying economic
times that we are now experiencing will force 15 to 20 percent
of the existing drycleaners out of business during the next two
years.
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Over 90 percent of the cleaners I talk to
are reporting dismal sales figures when comparing same location
sales to last year’s sales. Sales for January and
February are down from three percent to 20 percent compared to
the same months in 2002.
This down market has driven many owners to
take action before they had time to consider what the final
results would yield. When times are good there is more room to
recover from a bad decision. Now, more than ever, there is
little room for error in the decision making process.
Decision-making has become more
complicated because time is the enemy. Today you must fully
analyze your choices and you must make the decisions more
quickly.
Here are some facts:
• Piece volume is down because your
customers are trying to save money.
• Costs for Workers Comp. insurance,
liability insurance, gasoline, boiler fuels and supplies are
going up.
• Fewer pieces means that a larger
portion of the revenue from each piece must be allocated to
your fixed expenses, such as rent, loan payments and your
salary.
I have talked to several cleaners who have
decided to weather this storm by reducing the number of people
on the payroll. In these situations, the owners feel they can
save money by doing more of the work themselves. This strategy
can help cleaners doing less than $300,000 a year, but it can
be devastating to larger cleaners.
I have also talked to managers who have
taken the same action. This can serve as a temporary solution
but if it is allowed to continue for more than a few months
things can get out of control.
Case study
Background
I received a call from a cleaner who told
me that his sales are down 20 percent and his cash flow had
gone from bad to worse.
This company has a drycleaning plant and a
shirt/laundry plant. Both locations have front counter sales.
The two locations are too small to consolidate drycleaning and
laundry operations.
In addition, the company has two drop
stores and a small commercial route that picks up and delivers
to a few office buildings. This company’s sales are
currently running about $14,000 per week.
Situation
When sales volume began to drop the owner
decided to cut his payroll. He decided that he would do the
drycleaning and spotting and his drycleaner/spotter could work
in the finishing department. Because his drycleaner/spotter was
a good presser, the owner felt that he could lay off two of the
three pressers. These pressers worked about 34 hours each per
week. In this way, the owner could save 68 payroll hours weekly
and if the drycleaner/spotter had to work more than 40 hours
that was OK because he was on salary.
The next step the owner decided to take
was to re-organize the shirt/laundry department. Once again,
the owner decided that the shirt manager should run the shirt
unit and continue to perform his management duties, too. After
all, he figured, the shirt manager is also on salary.
I’m sure everyone has heard that old
cliché “You can’t manage your business with
your head in the wheel.” When this owner started making
these changes, sales were down five to six percent. When I
heard from him (six months later), sales were down almost 20
percent.
The owner became a production worker when
he started cleaning, spotting and trying to keep his old
drycleaning machine running without hiring a mechanic to fix it
right. As a production worker he did not have the time or the
physical energy to check the quality of the finishing and
packaging the way he used to.
Furthermore, his drycleaner/spotter felt
that he had been demoted when he went back on the press.
Although his salary was the same, his hours were longer and, in
his mind, the work he was doing lacked prestige. Consequently,
the quality of the garments going back to the customers
deteriorated rapidly.
When the quality of the work declines, the
complaints and claims increase. We all know that the customer
service reps take the heat when quality suffers.
Once this vicious cycle begins, you get:
• Lack of management.
• Disgruntled production employees.
• Poor quality.
• Customer complaints.
• Disgruntled CSRs.
These problems will grow at an exponential
pace. Suddenly, the owner’s world begins to crash in
around him. Sales continue to drop; his employees do nothing
but complain; and the bills get harder and harder to pay.
How could this be? After all, the owner
wanted to show his employees that he was willing to work as
hard as they do and that he was willing to keep his long-term
employees on the payroll.
As the owner’s frustrations
continued to build, the customers and employees complained even
more. Finally, when things looked as though they could not
possibly get worse, the owner caught two trusted CSRs stealing.
Solution
The very first thing this owner had to do
was to get back to managing his company. Obviously, his first
step as manager was to fire his two “silent
partners” who were stealing.
The second step was to sit down with his
former drycleaner/spotter to determine if that relationship
could be salvaged. It could not. The owner placed a “help
wanted” ad in the local paper and hired an experienced
cleaner/spotter within a week. Incidentally, he interviewed
three people for the position.
When the owner and I reviewed the payroll
hours and the actual number of pieces being processed, we were
able to cut enough hours to pay for the new spotter.
We went to the owner’s bank and were
able to refinance two equipment notes at much lower rates and
for a longer period of time. Also, we secured a line of credit
that would allow the owner the time he needed to rebuild his
business.
As for the shirt department, the shirt
manager is doing a great job. By installing the proper
incentives, that department is averaging 27 quality shirts per
hour, per operator, all operations.
Shirts represent less than 20 percent of
dollar sales for most cleaners. Therefore, it is more important
to focus on your shirt quality and your shirt prices than it is
to try to squeeze one, two or three more shirts per hour out of
your people.
Shirt facts
1. The
quality of your shirts is very important to your customers.
2. You
can and should price your shirts so that you make money on
them. If you need help in this area, visit the library on my
website (www.bizbuilderonline.com): put in keyword
“pricing” or “shirts.” I’ve
written many articles on the subject of pricing.
3. The
margin on shirts will never be high enough to make you a
wealthy person. Focus on number one and number two above
because anything more is a waste of your valuable time.
When sales are down, your primary
responsibilities are to ensure that: 1) everyone is working to
the best of their ability in terms of the quality of their
output; and 2) each employee is working efficiently. You cannot
accomplish this task when you have your head in the wheel.
Research update
My research on the 10 percent of cleaners
who are increasing their same location sales shows:
• They continue to improve the
quality of their customer service through training and
re-training their CSRs.
• Secret shopping their own stores.
• Responding quickly to customer
complaints.
• They (owners) are visible at the
front counter.
• They increase prices as costs
increase.
• They continue to advertise the fact
that they are quality cleaners.
• They do very little, if any,
couponing.
• They are price leaders in their
market.
In the game of business the more you know
the better you can play the game.
Alan Robson is a private consultant
dealing with the specialized needs of the drycleaning industry.
Contact him by telephone at (941) 408-8819 or send e-mail to
him at: alan@bizbuilderonline.com or visit the Biz Builder web site: www.bizbuilderonline.com.
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