If you’re ready to open a new store, or even get involved in a major retooling effort, you probably have put a great deal of time into the project. The state of the economy has crossed your mind more than once.
We recently talked about doing business in today’s economy with Randy Karn, national director of commercial laundry sales at Whirlpool Corp., and John Hoffman, CEO of U.S. Capital Corp.
Q: Has a struggling economy affected new store construction or retooling efforts?
Karn: The economy has affected things, probably more so than in some past economic downturns. I have had an opportunity to visit different locations and business seems to be a bit more affected than usual. Essential needs are impacted by high food and gas prices. Storeowners are impacted because people are not doing as much laundry; people are not traveling as much from their apartment buildings.
But new business is still fairly strong. The new investors aren’t affected as much. There are as many investors as ever, each having different motivations. They need to be in this for the long run, and they may need to come up with more capital in order to get proper financing. The new investors see companies creating more energy-efficient equipment to deal with utility challenges. I think the manufacturers have done a pretty good job of coming up with better equipment.
Q: What’s the credit situation today?
Hoffman: There is a good supply of expansion credit available for owners who run a successful business and purchase good equipment. There has been a lot of turmoil in the financial markets, but the history of the commercial laundry market is solid. Lenders have embraced this industry, especially when it comes to a credit-capable business person getting capital for new equipment.
I have not seen a decline in the application flow for business. The chance for failure of a commercial laundry entity is remote. You don’t see some of the issues in this industry that the other market segments are seeing.
Q: Has the credit situation changed recently?
Hoffman: It hasn’t changed in the last several years. Over the years, people looking to get into business have looked to their bank, finance company or equipment manufacturer. All avenues are still there. The banks continue to take a thoughtful look at these types of loans, even though it isn’t their core competency to understand this industry. Some people will still go to the banks, but many prefer to work with manufacturer financing. I see a shifting because of future uncertainty; more customers are looking for other offers that would attractively mirror bank or financial firm plans, so they can leave credit lines with banks, etc., untouched.
The business plan is still important because nothing is ever as easy as one would think. The more thoughtful plan you have, the more comfortable the lend organization feels. This industry has a long track record of success with long-lasting products. The lenders want to know what you’re getting into, if your products are good and will the products last.
Q: Are foreclosures impacting business?
Karn: I think it’s more of a buyer’s market with the square-foot cost coming down a bit for laundries in some markets. This can make up a bit for the tougher times. This helps new owners. It’s too hard to generalize about this in terms of a certain region. It just hasn’t been going on long enough to see a specific trend.
There have been some video stores going out of business as well as some restaurant chains. Some types of business opportunities may occur because of this. Most of the aggressive operators who keep track of the pulse of these things can be successful.
Q: Are rents coming down?
Karn: I haven’t seen rents coming down fast enough, but they are coming down a bit in certain spots from what I see. People are still trying to hold their line.
Hoffman: We see this also. We think that some of the rents are holding because these are good locations that have visibility. They are good sites to begin with.
Q: Are equipment incentives being used?
Hoffman: We see two sides of the coin. Some operators will call us and quickly bring up the Economic Stimulus Act of 2008. Some people are aware of it, but are focused on other things, not the tax breaks (see Stimulating Small Business: Tax Relief on the Way).
If you’re looking at the Economic Stimulus Act, Section 179 allows you to write off the full purchase price of equipment for your commercial laundry of up to $250,000. If you’re looking to do more, you have a first-year bonus depreciation of 50%. That’s a lot to grasp. You need to contact your CPA, tax attorney, etc. Everyone’s finances are different. It may be the right economic decision to do everything under this stimulus package. Any time you can get up to $250,000 in deductions in the first year, that’s important. The industry has done a good job of letting people know about this. This information is not just in the Wall Street Journal.
Karn: I pretty much agree. More people are aware of these incentives than in the past. It helps us, but hasn’t done quite as much as I would like. Between the industry magazines and various communication, people are hearing about this. The distributors are doing a better job of supplying clients with this type of information. We like this, and we believe in it.
Q: What’s good about doing business today?
Hoffman: There is more than adequate financing and capital dollar for the laundry business. Finance companies like ours and others, embrace this business. Even in difficult times, people want a clean shirt. The population continues to grow and the laundry business is a growing business.
Karn: I agree. You have to look at the population percentage having home washing equipment. As the population grows, so will the business. The savvy operators using energy-efficient equipment — one key variable — will do well. People need to pay attention to customers. Service is king. Offer clean, well-lit stores. Watch population shifts. People are moving all the time.
Q: What does the future hold?
Hoffman: You will see different innovations and creative financing. When you deal with a long-established company, there is staying power. The product is there. Finance companies may look at longer-term payment operations or seasonal ones for successful businesses. Good equipment can outlast the lend term.
In my view, not the company’s view, there have been enormous challenges in the financial markets that have impacted every person walking around in this country. I don’t know the limits of what the federal government will do to stabilize things. Most of the steps they have taken so far are necessary and important to stabilize things. I believe that the worst times, if not over, are being dealt with right now. The sun will come up tomorrow. In many respects, great things are ahead of us. We have a great economy and a great country. It just goes through ebbs and flows. Right now, it’s an ebb. You just can’t continue the enormous growth that the U.S. economy went through for the last 15 years.
Karn: It’s tough to use the crystal ball. We think it’s a positive environment. We don’t see the market shrinking, but people have to be aware of the situation and take advantage of things like energy-efficient equipment in order to be competitive in the marketplace. People need clean clothes. That’s not going to go away. This is a good business. We are equipment people, and we think our customers want good equipment, equipment that will reduce their energy costs.
If you have any questions, U.S. Capital Corp. can be reached at 815-477-1600.