Warren Buffett recently purchased a railroad. So, what does this have to do with the self-service laundry industry? Not much on the surface, but for the purpose of this column, quite a bit.
Buffett, “the Oracle of Omaha,” doesn’t follow trends; he’s made a fortune by staying in front of them. We can theorize by this latest maneuver that he’s betting on there being a shift in how products go to market, and banking that an extra couple of days by rail may be an acceptable trade-off for companies looking to cut transportation costs versus over-the-road trucking.
The point is, Buffet is measuring current market conditions, and is pouring his resources and business knowledge into something he believes will pay large dividends in the long term. Isn’t that what we in the industry should be doing?
A recent Wall Street Journal article mentioned that while there are challenges, overall the self-service laundry business remains relatively strong. But how secure do you really feel? That’s the question you need to ask before opening a second store.
ON CLOSER INSPECTION
Buffett is an astute investor, one who carefully examines his position and the future before jumping in. We should do the same. Survey the cash flow of your current store. Is it up, down or growing? What’s your comfort zone with laying out additional capital? What’s your strategy? Is a second store part of an effort to capture an entire market?
Why should you consider opening a second store at this time? First, look at your real estate market. If it’s anything like what we’ve been seeing, there are bargains to be had. Downtown locations that weren’t even a consideration because of price are now definitely in play for self-service laundry owners. Not only are we seeing attractive lease rates, purchase prices are looking so reasonable that laundry owners can more strongly consider owning property.
In addition, being the owner of one successful laundry should give you an edge over newcomers in obtaining financing. Plus, you can also weigh the variety of incentives and deals many manufacturers are offering on washers and dryers.
Have you considered building? Again, property values have dropped, making this option a possibility, versus buying an existing store. Likewise, the slowdown in construction has led to far more competitive bidding from contractors seeking work. A year or so ago, we’d get a handful of plumbing contractors bidding for a job. On a recent project, we received 10 bids. That puts you as the “buyer” in an advantageous position. But don’t go crazy building that 5,000-square-foot store just because you can, when 3,000 square feet will do the job. Don’t lose sight of the fact that we are about maximizing profit per square foot.
This begs the question, however, about your relationship with your equipment distributor. How are you two getting along? Receiving loads of bid options on new construction is certainly great, provided you know what you are doing and want to deal with the building process. It makes far more sense to enlist your distributor in taking the lead on this work — if you trust him or her to do it.
Cutting-edge controls and card payment technology have also simplified operations, making it easier than ever to run multiple locations, even compared to just six or seven years ago. Networking has also taken that ease to the next level.
QUESTIONS TO PONDER
So what’s the bottom line? Whether you want to build or buy an existing store, lease or own, this is a fantastic time to look at adding a second store. But you still need to think twice about this major decision. The considerations are many.
It’s time to crunch some numbers. Are current profits down significantly year over year? How much do you owe on the current location? What’s the pulse of your community? Is it growing, or is the population retreating? Are the demographics of the area shifting? Do you like this business? Are you ready to give up some level of control and hire additional staff?
The good news is that if you decide to move forward with a second store, many aspects will be easier this time around. You’ll have had (hopefully good) experience with a distributor and equipment manufacturer. You will have a good grasp on what worked for you. Hopefully, you will have loads of customer feedback, and you’ll likely have a strong opinion on card vs. coin.
Because of this strong knowledge base, you’ll be in a better position to expand as well. Maybe this time you’ll make drop-off service or commercial accounts part of your business. Maybe you will shoot for the combo structure, pairing your laundry with a coffee shop or something else.
The point is to think like Warren Buffett and identify opportunities ahead of everyone else. Put your distributor or real estate agent on the case to update you on laundries for sale or new listings hitting the market. Opportunities are out there today for those with the vision to look for them and the bullish outlook to seize them. Your second store could be your best.