National Clothesline

few years ago, before the horrendous events of September 11, 2001, it looked like the drycleaning industry would divide more and more into the high-priced and low-priced cleaners. It appeared that the middle-of-the-road cleaners would have to become more upscale, more downscale, or go out of business altogether. Today, the middle-of-the-road market continues to shrink.

The federal government continues to work at jump-starting our economy by keeping interest rates low and by reducing income tax rates. The hope is that these actions will increase spending. Thus far these measures have done little to spark consumer spending.

The biggest problem is that unemployment remains above 6 percent. This high unemployment rate is caused in large part by our “global economy” which has exported many jobs to Mexico, Asia and other low-wage countries.

As a matter of fact, manufacturers in the US have been reducing prices in an effort to remain competitive. Services, on the other hand, have increased prices during the first six months of this year by 6.1 percent.

Robson plans route development seminars

Routes provide the quickest most effective way to grow retail drycleaning sales, according to industry management expert Alan Robson and he will explain how to increase market share with pick-up and delivery routes at his new seminar, Building Profitable Routes.

This one-day seminar will cover all aspects of successful route building from how and where to start a route; route mapping; commercial versus residential; compensating drivers; to calculating profitability.

Fall seminars will be held in Orlando, Austin and Los Angeles. Complete information and on-line registration is available on the Biz Builder website: www.bizbuilderonline.com.

Biz Builder Services is a privately owned management consulting firm working exclusively with the drycleaning industry.

What does this have to do with drycleaners? Drycleaning is a service business — a fact that too many drycleaners seem to be unaware of. The good news for us is that drycleaning services cannot be exported.

As I travel around the country I am finding that many cleaners are lowering their prices to match their competition or to simply increase their piece volume. In some markets there are new drycleaning plants opening every week.

Many of these new plants are discount cleaners. When a new plant opens in a market, it will always steal some pieces from the existing cleaners. When that new cleaner has discount prices, such as $1.49 per drycleaning piece and 99 cents or lower for shirts, they will steal even more pieces — at least in the short run.

Racing to the bottom

Too often these discounters strike such fear in the hearts of the existing cleaners that they join this race to see who can reach the lowest price structure first. It’s what I call “The great race to the bottom!”

As I’ve said many times, You can’t sell your service at below cost and make up the difference in volume.

Several of my management group members have opened drop stores and started routes in the last six to 18 months. Each one has been able to finance these new ventures through their cash flow because they are the full, high-priced cleaners in their market.

Cleaners who join the great race to the bottom will soon be spending their assets just to survive.

Assets can be tangible, such as equipment, or intangible, such as amounts due from customers (accounts receivable).

There are also intangible assets that are not recorded on the balance sheet. Employees are often referred to as being a companys’ most valuable asset.

Another intangible asset is the relationship between you and your suppliers. A good example of a supplier who is also an asset to your company is demonstrated by how your supplier services your account.

In a recent Cost Survey that I did with my management group members, one member discovered that he was paying $5 less for a box of hangers than one of his drycleaning friends. They were buying the same hangers from the same supplier.

My client called the supplier to find out why the difference (he was trying to help out his friend).

A supplier or a creditor?

The supplier told him that he was receiving the best price because he pays his bill within 30 days. His friend (who pays $5 more per box) stretches his payments to the supplier out to 90 days.

Also, who do you think gets the best service in an emergency situation? Of course, the one who pays his bills in a timely fashion. My client, who pays promptly, has created an intangible asset for his company — an asset that does not appear on the balance sheet.

When cleaners join the great race to the bottom, often the first asset they spend is the one with their suppliers. As cash flow starts to shrink they find it harder and harder to pay their bills.

When they start paying their bills at 45, 60, 75 days they are actually borrowing money from their suppliers. When they are borrowing from their suppliers, they lose their negotiating power in terms of pricing.

Once this downward spiral begins it is very difficult to stop. When a company exhausts its ability to borrow from suppliers and landlords, it begins to cash-in or borrow on more valuable assets. I have seen owners borrow money on business and personal real estate. When you begin to dip into your assets to pay your bills, your assets will start to decrease at an increasing rate.

With the exception of your drycleaning and washing machines, everything in this industry is still one piece at a time.

Therefore, if you decide to join the race to the bottom, your costs per piece will go up.

When your customers pay less you must increase your productivity (which normally means decreasing your quality); reduce employee wages; or decrease your profits. These are your choices.

For those of you who are losing piece volume to low-priced competitors, you must become pro-active.

Start by lowering your expenses; reducing your labor costs; improving your quality; and gradually increase your prices.

Lower your expenses by looking at every dollar you spend on utilities, supplies, insurance (at renewal time), personal spending habits and those ambiguous travel expenses.

Lower your labor costs by sending people home when the work is done, requiring people to start when you need them at work, and ensuring that they are productive when they are at work.

Improve your quality by personally checking pieces throughout the day with an emphasis on the work going out at the end of the day. If you don’t show genuine concern for the quality of your work, no one will. Double check your shirt quality every day. Remember, quality shirts bring in customers — not cheap shirts.

About those prices

As for increasing your prices, Just do it! Several small price increases per year will make you more money than dropping your prices.

These strategies will provide you with the financial strength you need to expand your business. As we all know, it takes money to make money.

Note: Clean ’03 The Clean Show in Las Vegas last month provided me an opportunity to meet many people who told me that they read this column every month. I want to say thank you to every one who took the time to stop by the National Clothesline booth to say hello. It was a privilege and a real pleasure to meet and talk to you. I look forward to seeing many of you at one of my Route Builders seminars this fall.

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.