Content about Economics

WASHINGTON — The minimum wage increased in eight states effective Jan. 1, boosting the incomes of more than 1.4 million low-wage workers in Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington.

The state minimum wage in these states rose between 28 and 37 cents per hour—an extra $582 to $770 a year for a full-time worker—as a result of state laws that require the minimum wage to keep up with inflation, says the National Employment Law Project.

More than 1 million workers have been directly impacted as the new minimum wage rates exceeded their hourly pay, and 400,000 more have seen a raise as pay scales were adjusted upward to reflect the new minimum wage, according to an analysis of government data by the Economic Policy Institute.

Eighteen states and the District of Columbia have minimum wage rates above the federal level of $7.25 per hour, which is approximately $15,000 per year for a full-time minimum wage earner.

Washington state has the highest minimum wage at $9.04 per hour. Georgia and Wyoming, at $5.15 per hour, have the lowest.

There are no minimum wage laws in Tennessee, Louisiana, Mississippi, Alabama and South Carolina, according to the Department of Labor.

CHICAGO — Simply put, an outlook is an expectation for the future. But no one has the ability to see the future, so the best you can hope to do is to gather as much pertinent information as possible, prepare yourself for what you think will come, then have the flexibility to adapt your business to what actually comes your way.

As the ocean waves wash away the remnants of 2011, there are reasons to be optimistic that the self-service laundry industry will continue to bounce back in 2012. But that optimism will be tempered by a lagging economy and ever-present high unemployment rates.

In speaking with experts around the industry, it’s clear that an operator’s best course of action in 2012 will be a continued emphasis on running an efficient operation and taking whatever opportunities are available to promote their business.

PAST PERFORMANCE AND FUTURE RESULTS

While past performance is no guarantee of future results, it’s certainly a good indicator. From an operator’s perspective, business in 2010 was better than it was in 2009, according to our 2011 State of the Industry Survey.

Forty-two percent of operators reported an increase in gross dollar volume in 2010 compared to 2009. That was up nearly two percentage points from the previous year. The average 2010 business increase was 10.8%, up from 7.9% in 2009.

But 58% of respondents to our unscientific survey saw their laundry business decrease in 2010. That was two percentage points less than 2009, but a significant portion overall nonetheless. It’s apparent the recession that economic experts say officially ended in summer 2009 was still being felt last year.

There were also reasons for optimism on the supply side. Nearly half of respondents to our 2011 Distributor Survey said their business was better in 2010 than it was in 2009. Better yet, nearly two-thirds predicted in July that 2011 business would be better than 2010. Those whose distributorships thrived saw investors who were inspired by upticks in the economy, or who chose to look into the coin laundry business after losing their jobs.

Distributors whose business suffered in 2010 lamented over changing demographics, tight lending/lack of financing, and potential investors unwilling to spend.

IMPACTS OF 2011

Dick Ruel, national sales manager for Whirlpool and Maytag Commercial Laundry, says the continued sluggish economy and the “exodus of 1 million Hispanics” since the recession began have had the biggest impact on our industry.

People are doing laundry every other week now instead of every week, he adds.

The rising cost of utilities is having a major impact as well, says Setomatic Systems’ Jeff North, who owns the Newport (N.H.) Car Wash and Laundromat.

“While energy-efficient machines and hot water heaters are almost a necessity now, they simply can’t make up for the enormous increases in costs,” he says. “Water and sewage has gotten to the point in many municipalities that it has passed electricity and fossil fuels as the most expensive utility cost.”

His municipality is at approximately $15 per 1,000 gallons and is slated for two more 10% hikes in the next two years, North says.

In the South, where Raymond McMurry owns Pat’s Washtub in Lawton, Okla., the biggest impact on his business came from the weather.

“In 2010, we had bad ice storms and power outages, (and) therefore great sales because we had power. Hard to beat in the first half of 2011 with good weather.”

Second was the shaky economy. “We have seen a major dip in full service (wash/dry/fold, comforters, pressing), and self-service is on the increase. Commercial accounts are increasing somewhat due to outsourcing to cut expenses.”

Larry Larsen has more than 30 years of experience in the ownership, management and construction of Laundromats. “The continued severe recession with high employment and a loss of home-construction jobs has had the biggest impact in Southern California. Our unemployment rate hovers around 14%. If you’re not working, you’re not getting your clothes dirty.”

Another Californian, Andy Wray of ACE Commercial Laundry Equipment, says there are fewer laundry customers to be had because many people have migrated elsewhere to find work and a lower cost of living. And laundry owners there are fearful of losing even more customers by increasing their prices.

“Prices on utilities in the Laundromat have gone up at an alarming rate, and it has come to the point where owners just simply can’t afford to absorb the increases any longer. Capacity and volume have now officially made way for pricing and margins.”

Tomorrow: Attracting business in 2012…

RIPON, Wis. — Self-service laundry owners have approximately two months left to take advantage of 2010 Tax Relief Act incentives, according to Alliance Laundry Systems, a manufacturer of commercial laundry equipment.

The tax incentive allows laundry store owners to get 100% bonus depreciation when they purchase new equipment and place it into service in 2011. Bonus depreciation is not limited to taxable income; it can create a net operating loss that can be carried back two years to offset taxable income in those years and result in an immediate tax refund, Alliance says.

There is no cap on the amount of equipment that can be depreciated under this provision.

The Section 179 Deduction limit has been raised to $500,000. A business with total equipment purchases—both new and used—that don’t exceed $2 million can expense the first $500,000 (subject to certain limitations) of those purchases for the 2010 and 2011 tax years.

Store owners can combine 100% bonus depreciation with the Section 179 Deduction for purchases incorporating both new and used equipment. Additionally, for the first time, certain leasehold improvements, such as updating or refurbishing a laundry, will qualify for bonus depreciation, Alliance says.

These tax incentives dramatically accelerate cash flow and reduce the time it takes to pay back the investment on new equipment, the company adds.

For more information about these incentives, it’s recommended that you contact a professional tax adviser.

CHICAGO — Making the decision to shift your store’s payment system from coin to cashless, or to a hybrid, can require a great deal of research and planning. There are implementation issues from the outset, and you need to be prepared to market your operation’s changes and educate your customers about the system’s benefits and how they can best use it.

American Coin-Op invites several manufacturers of payment systems to answer some questions that the average self-service laundry owner might have:

ACO: How are technological advances impacting the cashless store? How many different payment options are available?

Steve Marcionetti, product manager, Card Concepts:

Technology advancements are helping solution providers to develop more options for storeowners. The two most popular cashless options are loyalty-based debit-card systems or credit-card-on-machine systems.

Both solutions have their place and can provide owners with the right payment options to help their stores be successful. Often we see loyalty-based debit-card systems as the most popular choice with new stores; this option has the strongest ROI and really sets the store up for success.

The credit card on machine is often popular with existing locations that have many large machines for which their coin boxes fill quickly. These machines, along with a credit card reader, give the customer an option for payment and generally require less hardware to install. This option is perfect for owners who want to upgrade their payment options without fully committing to a loyalty system.

Ryan Carlson, director of marketing, WashCard Systems:

As far as impacting the cashless store, wireless technology is now to the point where it’s made it to the laundry industry. … Wireless is now like a third- or fourth-tier technology; it’s no longer cutting edge. It’s mainstream enough where the cost is down. You just can’t convert to an all-cashless system if it’s a wired solution, because you’ve got bulkheads, you’ve got suspended ceilings, you’ve got to put in cable troughs, it’s a nightmare.

Another is credit card acceptance. It’s mainstream enough, and it’s cost-effective enough. … The Internet is the third, huge technological advance that has hit our industry and the cash side of things. It allows us to do remote machine activations.

Amy Gitlin, president, ESD:

Advances in technology certainly do have an impact on store operation. Technology incorporated into the payment system provides the storeowner with a whole host of benefits.

These benefits range from customized marketing at the machine level to creating wash loyalty programs. In addition, because of advancement in technology, the owner is now able to get timely, detailed reporting of machine activity, inactivity and money collection. These types of reports are available via PC-based software as well as online tools. The use of technology is instrumental in making every facet of your store operate effectively and efficiently.

Technology is also opening up the opportunity to provide cashless payment system options. Today, the typical cashless store operates on the tried and true smart card or magnetic card platform. However, there is an increasing trend in today’s cashless store to accept credit/debit cards.

Michael Schantz, president, Setomatic Systems:

There have been many technological advances in laundry payments over the last few years, as was evident at this year’s Clean Show in Las Vegas. Hybrid systems that accept coin and credit cards along with prepaid cashless cards right on the washer and dryer have really taken hold in our industry.

RFID credit cards (tap cards) are becoming more popular and with Google’s announcement in May that it will be rolling out “Google Wallet” in the next few months, mobile payments will be a driving force in this industry. Our system is compatible with all these new payment methods.

In addition, wireless technology has taken away the burden of complicated and often unreliable RS485 wired networks.

ACO: What level of after-sale support should a laundry owner expect from the cashless system vendor they choose?

Hietpas: Like other types of store ownership maintenance and upkeep, the more self-sufficient a laundry owner is, they are generally happier and more profitable. Owners should plan to get familiar with their system. We do long-term service and maintenance training on our system at distributor local service schools. This way, owners can learn to get the most out of their system while they are learning to get the most out of their equipment.

Gitlin: When operating your cashless payment system, a laundry owner should expect that their distributor work with them in successfully implementing the system. This starts with training. Also, are the distributor and manufacturer of the payment system available for technical support and service not only during normal business hours but after hours, or on holidays as well?

Schantz: The storeowner needs to make sure he is dealing with a vendor who has vast experience in the laundry field. You need to make sure that when you call, you get somebody on the phone who can answer your calls. You shouldn’t find yourself going through endless voice prompts while seeking help.

Marcionetti: Vendors should understand that Laundromats are not a Monday through Friday, 9-to-5 business, and make technical support available when the storeowner needs it. (CCI has always provided technical support 24/7 365 days a year.) Most systems are sold through local distributors, so storeowners should choose wisely and make sure that the company they buy from is committed to providing localized support.

Carlson: There should be ongoing training. There had better be ongoing updates to maintain PCI compliance if they’re doing credit card acceptance of any kind. It is now a requirement of VISA and MasterCard that you’ve got a compliant system. … Unfortunately, most of the products in our market research in the laundry industry, updates aren’t a big thing that’s pushed out, and if they are, they’re paid updates.

Click here for Part 1.
Click here for Part 2.
Click here for Part 3.

To learn more about payment systems:

Card Concepts — laundrycard.com
Dexter Laundry — dexter.com/laundry/products/management/
ESD — esdcard.com
Setomatic Systems — setomatic.com
WashCard — washcard.com

CHICAGO — Making the decision to shift your store’s payment system from coin to cashless, or to a hybrid, can require a great deal of research and planning. There are implementation issues from the outset, and you need to be prepared to market your operation’s changes and educate your customers about the system’s benefits and how they can best use it.

American Coin-Op invites several manufacturers of payment systems to answer some questions that the average self-service laundry owner might have:

ACO: What are the immediate benefits to the laundry owner who decides to go cashless? What are the long-term benefits?

Kevin Hietpas, director of sales and marketing, Dexter Laundry:

By going cashless, a storeowner is trading one set of operational challenges for another. One item that many owners have reported as a major immediate benefit is that their collection time in the store is significantly reduced. With only one unit to collect and no change to handle, owners free up time to devote to other management and operational duties.

At the time of opening the laundry, or transitioning to a cashless system, owners should plan on devoting time to educating attendants and customers on use of the system. Some customers might be resistant to (use) the new system, and making the transition as smooth as possible with friendly help and support will make sure that the laundry doesn’t experience a loss of customers.

Amy Gitlin, president, ESD:

Cashless to some might mean not accepting coins, only smart cards, in your Laundromat, while cashless to another would mean eliminating coin and bills from the Laundromat (and) using credit/debit cards as a means of conducting store transactions. Either way, a self-service laundry owner would reap a number of immediate benefits.

By removing coins or other currency, one eliminates the temptation for theft or vandalism—this also includes employee theft. Another benefit is the reduction or elimination of collecting coins and bills. In addition, the laundry’s customers would benefit from the convenience of not needing to find and carry heavy coins. Instead, they would simply carry their smart card or credit cards to complete their transactions.

By going cashless, your customers are apt to utilize more machines, especially your large machines with higher vend pricing. Your customers will continue to benefit using their bankcard (either credit or debit) by earning more loyalty rewards/benefits associated with their card of choice.

The long-term benefits are easier accounting practices for laundry owners and continued customer convenience.

Michael Schantz, president, Setomatic Systems:

We believe that going totally cashless is no longer in the best interest of the laundry owner. We have been developing these types of systems since 1995, and over the last few years it has become evident to us that a hybrid system is more advantageous to the storeowner than a totally cashless system.

The average Laundromat user does not want to purchase a card that can only be used in your store. Offering the Laundromat customer the convenience to pay with any method they choose is what drives more customers to the laundry.

Our credit card system allows customers to pay for their wash by using coin or their own credit or debit card. No unhappy customers walk out the door because they don’t want to buy a card.

It is true that the storeowner has the convenience of never collecting coins in a totally cashless system, but he or she should be looking to maximize revenue. To do this, you need to give your customers the added benefit of paying by credit card or coin.

The consumer has been conditioned to pay by credit/debit card for even small purchases like a cup of coffee today, so why should they not have that convenience in a Laundromat?

Steve Marcionetti, product manager, Card Concepts:

The obvious immediate benefit is the time savings and the safety of having central collection. What many people don’t think about is what you can do with the time that was once dedicated to pulling quarters from machine.

For many operators, collecting is the primary reason for visiting the store. With collection reduced to only a few minutes, this time can now be used to pay closer attention to the details that make their store attractive to their customers. This is a great opportunity to take some time to speak to the customers in the store and find out what they like or don’t like about it. Taking this extra time to focus on “marketing” the store rather than just collecting has both short- and long-term benefits.

The more obvious long-term benefits come from two important factors: penny incremental pricing and float.

Having the ability to properly price your equipment and maintain a fair profit margin regardless of the increases in utility costs will ensure consistency. Too many coin operators resist increasing vend prices because they lack the flexibility of penny incremental pricing and ultimately lose profit when their utility costs rise. Only when the costs have risen above what they can tolerate do they consider increasing vend prices, and often it’s too late.

Float is the unspent value that is residing on customers’ cards. For example, most customers will add $20 to their card but only spend $16, taking the remainder home to use on their next visit. Two huge benefits here: First, the storeowner gets to hold that money in their account until the customer returns; second, this unused balance is a “loyalty” factor that will encourage customers to return to the store rather than visit a competing store.

As the owner of four Laundromats myself, I can personally attest to the validity of these two benefits. They have made all the difference in the success of my stores.

Ryan Carlson, director of marketing, WashCard Systems:

There are two reasons to go completely cashless; neither of them benefits the consumer. We have to be clear about why an operator wants to go cashless. The first is security. We’ve got clients who want to eliminate all cash collections from machines because they can’t carry a big enough gun at their store to feel safe. They want to centralize all the money collections into a locked, secure, separate room.

The second one is for an off-site operator, someone who is a “serial” entrepreneur who owns lots of different businesses and the Laundromat is where they’re planning on not spending any time. They hire employees as attendants, and all the attendant does is clean (the store) and educate people on how to use the card technology. You cannot have an unattended store and be 100% cashless; it does not work, period. You use the cashless system for accountability, to eliminate any opportunity for employees to handle money.

Tomorrow: What are some basic questions a laundry owner should ask when considering a cashless store?

To learn more about payment systems:

Card Concepts — laundrycard.com
Dexter Laundry — dexter.com/laundry/products/management/
ESD — esdcard.com
Setomatic Systems — setomatic.com
WashCard — washcard.com

CHICAGO — While buying Laundromat insurance may be a less-than-glamorous task, few things are as important to your survival as a self-service laundry owner as protecting your business. Your investment must be looked after. For example, could you afford to rebuild after a disaster? Gambling is for Las Vegas, not the self-service laundry industry.

Have you changed insurance carriers lately? Have you looked for a better deal? Do you know what questions to ask when shopping for insurance?

Take a moment out of your busy business life, and think about the last time you reviewed your coverage. Are the limits adequate? Think about the laundry. Have you made any changes to the store? Have you added any washers or dryers? All of these things have an impact on your coverage.

There’s another way to look at your insurance coverage. Has your carrier contacted you lately? If not, maybe you should ask yourself why. It’s never a bad idea to give a new carrier a chance. The worst thing that can happen is you get to compare prices and coverages. A new deal may be beneficial for your operation.

Before you rethink your coverage, be prepared. Larry Trapani, an industry insurance veteran, offers tips on how best to shop for Laundromat insurance.

Look for a Specialist

When acquiring a store, you focus on the terms of the lease, cost of the washers and dryers, and the cost of the build-out, says Trapani, senior partner with New York-based Brooks-Waterburn Corp., an independent agency that represents more than 15 insurance companies with clients throughout the United States.

“Many lenders tell me that the potential owners use their home as collateral against the investment,” Trapani says. “Given that so much is at stake, wouldn’t it be prudent to make sure your business is properly protected?”

This is where the “friendly” neighborhood insurance writer usually enters the picture, Trapani notes. “[This] could be a local insurance agent who handles your home and car insurance, or a direct writer such as Allstate or State Farm. I’ve been in the insurance business for more than 25 years, and the truth is that insuring a Laundromat is relatively simple.

“Most insurance companies want to write this class of business, and are willing to do it at competitive prices. But are they really capable of analyzing your unique situation so that you are adequately protected?”

Just asking a few, basic questions can go a long way in determining if you have the right person or company behind you, he says. Trapani suggests posing the following questions before you request a quote:

How many Laundromats do you insure?
Unless the answer is more than 100, the company probably does not have much expertise in the field, he believes.

How will you cover the build-out?
The build-out is how much you invest in the leased space, and could include costs such as plumbing, carpentry, electrical, etc., he explains. “If the agent answers ‘Huh?’ to your build-out inquiry, it’s best to look somewhere else.”

What markets do you have that specialize in Laundromats, and is the policy you offer specifically designed with coverages for a Laundromat owner?
While this might seem obvious, many agents, and almost all direct writers, only represent one insurance company, he says. “What happens when [the company] stops writing Laundromats, or the price goes too high?”

Other than the basic coverage, what specialized coverages are included in your policy?
At the very least, you should have coverage dealing with customer goods, hired and non-owned auto and business-interruption problems, he explains. “All of these coverages mean the difference between reopening after a loss or not. They are not automatically included!”

Are water heaters and boilers covered?
These pressure vessels are generally excluded from a traditional-package policy, he cautions. “Some business-owner policies do include this coverage, but you need to ask.”

What about workers’ compensation?
“Given that this is a cash business, not all owners pay their employees on the books. The truth is that the IRS is cracking down on traditional cash businesses like restaurants and Laundromats. [The IRS] needs their tax revenue, and are going after easy targets.”

Workers’ compensation is relatively inexpensive, according to Trapani, and you also protect the worker if he or she is injured on the job.

He is often asked how to “stretch money” when it comes to buying insurance and protecting a store. “The easy answer is to buy as much insurance as you can afford. For example, for only a few hundred dollars a year, you can add an ‘umbrella’ liability policy. This is an additional million-dollar (or more) liability coverage above the basic liability policy you have on your Laundromat policy.”

If business picks up, another option is to include policies on you, such as disability income or life insurance, he suggests. “A disability policy would give you the money and, most importantly, peace of mind if you are partially or permanently disabled.”

Similarly, life insurance is a good option to protect your family and investment, too, he says. “If you die, who is going to pay the loans on all of your equipment? Perhaps your spouse does not want to run the Laundromat after you are gone.”

If you have any questions or comments about this article, contact Larry Trapani at ltrapani@brookswaterburn.com.

Next page: Larry Larsen on avoiding key mistakes…

ST. LOUIS, Mo. — I’m no meteorologist, but I can see what’s been happening since the year began: We’ve been hit with record ice and snowstorms in places that rarely receive it.

And this troubling weather “report” doesn’t end there. The country has experienced more than double the usual number of tornadoes, record-breaking rainfalls and hailstorms, and flooding. And hurricane season only recently began!

Since we have no idea if these weather occurrences will continue or subside, it’s better to be safe than sorry when it comes to taking care of your self-service laundry.

Have you thought about cutting back on your insurance due to economic conditions? Well, now may not be the time to make any insurance changes.

If you’re thinking about cutting back on insurance, here’s a question that needs to be asked: What would you do if one of these disasters hit your community and you lacked the proper insurance coverage?

Three Items to Review

If you want to feel a bit more secure about your store as it pertains to dealing with a potential disaster, take a look at your policies and check these items: policy limits, deductibles (including any special deductibles for wind or hail), and exclusions.

Now decide if you can live with the coverage you have.

Let’s start with limits. Insure your building and personal property for replacement cost. If your limits are too low, you will be out-of-pocket on a loss. A few dollars in premiums can get those limits up, and save you thousands in the long run.

Regarding deductibles, you may think you will save a great deal of money by increasing your deductible, but that is not always the case. Of course, explore this with your agent, but don’t be surprised if the savings aren’t what you had anticipated.

Remember, with wind/hail deductibles, the percentage applies to the limits, not the loss. So, for example, with a 5% wind/hail deductible, if you have a $100,000 wind/hail loss on your $500,000 building, your deductible will be $25,000, not $5,000. Many people do not realize this until after the loss.

Regarding exclusions, read them over so you know what property and what perils are not covered. If you have any questions, call your agent. If you want coverage that is excluded, ask your agent to supply a quote. You will discover that many exclusions can be covered for an additional premium, and sometimes that additional premium is not as expensive as you might think.

If you’re looking for an example of exclusions, consider a fence around your self-service laundry. Did you know that fences are not covered? However, you can add them to your coverage for a small, additional premium.

Tomorrow: Loss-of-business coverage is not enough…

ARMONK, N.Y. — In Part 1 of this article, the focus was on the various expenses Laundromat owners encounter. In this part, the emphasis is on pricing and inflation. Have prices really kept up with inflation?