CHICAGO — When it comes to finding a location for a new store, two things probably come to mind:
Let me add a new saying, one I hope you always remember when scouting out a location: Don’t let anyone convince you that you have a great location before you do your homework.
Many ingredients go into making a coin laundry successful. In that same regard, there are different variables that we must evaluate in order to make sure that the chosen location has the best chance of being a real winner.
WATCH THAT LEASE
One of the first things you need to do is get an understanding of the lease — how it is structured. You also need to understand if the caps are acceptable. By understanding the lease and the caps you help ensure that your cash flow won’t be choked off. It’s easy to get caught up in the excitement of opening a new store, but you need to remember that the reason you want a new store is to make money, not be a slave to your creditors.
KNOW YOUR AREA
Before you invest any money on architectural drawings or hire any consultants, make sure that the area is properly zoned. In addition, find out if any other coin laundries are scheduled to go up in the same area.
All of this leads up to the most important thing — doing your due diligence on the competition. It’s essential to know if you’ll have a fighting chance to succeed in the area, and be able to get more than your fair share of the pie.
Plenty of dedicated parking spaces is also essential.
You must have a complete financial analysis of all the up-front costs dealing with construction of the laundry. If you don’t have this information in hand, you might find yourself knee-deep in trouble and may end up having to borrow more money to complete the project or run the risk of not being able to complete the project at all. Either way you’re dealing with a disaster.
There is always going to be a risk involved with opening a new store. It’s a risk vs. reward situation, so make sure that you not only have the capital to get the project completed, but also the additional capital reserve that can carry you through your ramp-up period. It could be up to eight months before you meet your cash-flow goals.
When looking for a new location, it never hurts to consider an existing laundry. The cost of purchasing an existing laundry versus the cost of building a new store are vastly different, and your risks are minimized because you're buying a business that already has a cash flow from day one.
TOO MANY STORES?
With this topic you also have to touch on oversaturation, a big concern of mine. Many of the smaller stores are being eaten by free enterprise. A vicious cycle of feeding the monster and a dilution of the smaller stores will continue to be an issue.
Your new location must be large enough to compete with others and defuse the thoughts of others to play in that market because of the costs associated with building a big enough store.
The marketplace is changing and with oversaturated areas you must do you due diligence before pulling the trigger on an enormous capital investment that begins at zero cash flow on day one. There will be some locations that will be sweet for a new super store, but giving yourself the option of taking a close look at an existing location is looking more and more attractive.
A DIFFERENT PERSPECTIVE
As a distributor, the most difficult part of this whole process is to find a site that makes financial sense from either the purchase price or from a rent perspective and the terms of the lease.
There are too many stores being built today that do not meet the criteria in this column. We need to look long term. We, as distributors, can’t lose focus simply because the buyer may be in love with a location. Without knowing any better, your customer may find himself/herself overleveraged, spending too much and not having the proper collateral.
The buyer always needs to be better informed. This can be accomplishied by doing a competitive analysis of the surrounding marketplace. For example, the big chain department stores are driving up the rents and the costs of the properties, some of which are not at all conducive for the coin laundry financial model.
In the end, a great part of the location search is about plenty of parking, good visibility and, best case, limited competition. If you’re not getting what is really needed, you best take a pass and let your customer avoid a financial nightmare.