By: Samuel A. Maldonado, CBI
Businesses that are primarily engaged in dry-cleaning or dyeing apparel and household fabrics other than rugs are classified in Standard Industrial Classification (SIC) code 7216. The drycleaning industry is very fragmented. The International Fabricare Institute reports that approximately 30,000 drycleaning businesses currently operate in the U.S. today, employing 200,000 people. The size of dry-cleaning operations varies, but 85 percent are small, single-family, independent â€œmom and popâ€?- type operations. According to Dun & Bradstreet data, the average firm employs 5 people and generates annual sales of .20 million.
Who’s employed and what’s the perception of the industry? Dry cleaning occupations consist of dry cleaners, spotters, pressers, and counter attendants, and most dry cleaning establishments require workers to perform at least two of these jobs. The industry is mature, and is not considered a highly growth business. An article in Inc. Magazine describes the industry: “The hours are long and margins are slim, the cleaning process is fraught with difficulty.” But one thing we know is people have to clean their clothes!
What do investors want!? The most common and most profitable form of dry-cleaning business is the “full plant” – companies that perform all of the processing on the premises. These firms often include additional pick-up and drop-off points that provide the main plant with goods to dry-clean. However, some plants may do the dry-cleaning on the premises and send the dry-cleaning of particular goods, such as shirts, out to other firms. According to business broker(s), the most profitable and desirable drycleaners are the ones with retail, walk-in sales that do the processing of the work in-house where the owner has control of costs and quality.”
Where are the trends going? According to Integra Information, average annual revenues for firms in SIC 7216 increased by 2.82 percent between 1998 and 2002. Revenues are forecast to increase by an average annual rate of 3.52 percent between 2003 and 2007
Table 1: Industry Revenue Growth: SIC 7216: Drycleaning Plants, except Rugs Year
1998 1999 2000 2001 2002
1.80% 4.80% 3.30% -0.40% 4.60%
2003 2004 2005 2006 2007
3.50% 3.60% 3.40% 3.60% 3.50%
Source: Integra Information
Industry Pressures Over the years, the dry-cleaning industry has been pressured by: § intensified competition, § higher minimum wages, § changes by the Federal Trade Commission's changes in care labeling rules due to, fashion's fabric trends, § home-care dry cleaning kits, § recent costly environmental regulations, § nonrenewal of leases by building owners where cleaners operate, § increasing public concern about cancer from the cleaning solvents, and § lifestyle changes and the growing acceptance of casual clothing in the workplace.
Perchloroethylene Since the 1950s perchloroethylene, referred to as ''perc,'' has been the main cleaning agent in garment care. This synthesized solvent has been identified as a hazardous air pollutant under the federal Clean Air Act. It is toxic and may cause dizziness, nausea, drowsiness, and headaches. Some groups suspect that perc can cause cancer. Historically, dry-cleaners represented 60 percent of all perc sales, and close to 90 percent of dry cleaners in the U.S. still use perc, alone or in combination with other solvents. However, the past decade has seen a 73 percent decline in perc demand. Many dry cleaners are trying to change their business practices involving perc. Depending upon their volume, drycleaners have paid anywhere between $400 and $1,850 a year since 1985 for hazardous waste removal.
Changing Workplace! In addition, there are growing health concerns about employees in dry cleaning establishments, and new workplace regulations have prompted dry-cleaners to change their equipment. In the past, a worker transferred by hand the solvent soaked clothes from machine to machine releasing hazardous fumes into the air. New machines, now required by law, complete the cleaning process without removing the clothes. Although this new equipment costs $30,000 to $60,000, they are easier to use and require less solvent.
Wet-Cleaning??? Most dry cleaning industry analysts believe that the relatively-new ''wet cleaning'' process is the future for the industry because it uses water and detergents instead of perc.10 There are two general categories of wet cleaning. Multi-process wet cleaning refers to a process of cleaning techniques: hand washing, steam cleaning, and application of soap and water. Machine wet cleaning occurs in computer-controlled washing and drying machines. Most delicate garments that are labeled ''dry-clean only'' can be cleaned in this manner. The machines reduce agitation during washing, increase water extraction, use specially formulated soaps and spotting agents, and closely monitor heat during the drying process.
A new wet-cleaning machine ranges from $22,000 to $37,000 depending on size, but cost less than a conventional perc machine. While perc use reduction ranged from 25 percent to 100 percent, electricity costs may be higher and labor time increases with wet cleaning because more pressing and finishing is required.
So whatâ€™s going to happen in the next few years??? The trend for U.S. consumers to spend less on dry-cleaning because of environmental concerns and changes in workplace dress will continue to impact the dry-cleaning industry. However, the industry will still benefit from the baby-boomer generation as its grows older and continues to have less time, and looks for time-saving conveniences. Economists with Integra Information are forecasting average annual revenue growth in the mid 4 percent range for the next couple of years.
The Industry has a BRIGHT FUTUREâ€”trust the big boys!!! Ken Langone is one active investor in the dry-cleaning arena. This heavy hitter is famous for cofounding the Home Depot. Tapping his well-placed connections, Langone has helped raise $50 million for Micell Technologies Inc., a dry-cleaning franchisor based in Raleigh, N.C. The company is now rolling out a chain called Hangers Cleaners. "Micell is one of the darlings of Ken's stable," says CEO Kirk Kinsell, adding that the company also has backing from billionaire George Soros's private-equity fund. Meanwhile, three-year-old Zoots, a rival based in Newton, Mass., has also amassed $50 million in private equity, including $11 million from Staples Inc. founder -- and Zoots cofounder -- Tom Stemberg. And in Pleasanton, Calif., Payam Zamani, CEO of PurpleTie Inc., has raised $8 million from investors that include Apple Computer's former chief financial officer, Debi Coleman. Source: http://www.inc.com/magazine/20010101/21413.html
Ways to Growâ€”PICK IT UP!!! Other start-ups are focusing less on the process of cleaning clothes and more on logistics and technology to improve overall efficiency. A broad movement wants to centralize cleaning facilities rather than have dry-cleaning equipment in every storefront. Increasingly, dry cleaners are using fleets of trucks and vans to go door-to-door to collect soiled garments from timestrapped customers. One company that's taking the concept to the next level is PurpleTie, which is gambling on handling its customers' transactions online. CEO Zamani believes that the Bay Area's burgeoning professional class will prefer to use the Web (or the telephone) to order home pickup of dirty clothes by PurpleTie's fleet of trucks. After receiving the order, the company transports the soiled garments to a centralized facility, cleans them, and then returns them to the customer.
Cost Efficient Operations The most profitable set up in the drycleaning industry is one centralized plant and 3 drop stores, or an odd number of drop locations. All the Real Estate costs are consolidated and so is the labor costs for manufacturing the service. The external labor costs is counter help which is easy employment shoes to fill. Logistics is an increasing and desired way to improve profitability in a dry cleaning business. Drop Store costs are minimal and versus advertising within a plant, it turns out to return more on initial monies laid-out.
Dry Cleaning Valuations Retail Sales sell for $1 for $1 on gross sales volume. Wholesale business has little to no value. However, may attribute high levels of value behind written contracts or purchase orders. Also, wholesale could be very valuable for accounts that have steady weekly business for a long time span i.e. 5 years from a large corporation or midsized company.
Tenants Above the Cleanersâ€” EPA is on your side! Only Cleaners with Grandfather Clauses may have tenants above the dry-cleaning plant. The DEP, EPA and OSHA have put a band on new drycleaning plants to be open underneath residential tenants unless one exists already. The Grandfather Cleaners have a lot of compliance issues to handle within the facilities in terms of equipment and environmental air acts. New Plants can only be opened in strip malls and even then landlords are reluctant to lease to a cleaners due to the numerous EPA/DEP/OSHA issues that can possibly arise decades after tenancy. This provides for a great competition deterrent and prevents competition from opening up easily.
How Dry Cleaning Works It's a process that cleans clothes without water. The cleaning fluid that is used is a liquid, and all garments are immersed and cleaned in a liquid solvent -- the fact that there is no water is why the process is called "dry." Profit Wisdom Corporation will take a behind-the-scenes look at the dry-cleaning process so that you can understand what happens to your clothes after you drop them off at the cleaners!
Dry Cleaning Evolution Like many inventions, dry cleaning came about by accident. In 1855, Jean Baptiste Jolly, a French dye-works owner, noticed that his table cloth became cleaner after his maid accidentally overturned a kerosene lamp on it. Operating through his dye-works company, Jolly offered a new service and called it "dry cleaning." Early dry cleaners used a variety of solvents -- including gasoline and kerosene -- to clean clothes and fabrics. In the United States, the dry-cleaning industry is fairly new and has developed only during the past 75 years. Since World War II ended, the volatile synthetic solvents carbon tetrachloride and trichlorethylene gave way to a product known as perchlorethylene (perc), which became the overwhelming solvent choice for the industry. It was not only safer and faster, but did a much better job of cleaning, required less massive equipment, less floor space, and could be installed in retail locations offering excellent quality one-hour service. As a result of this innovation, the majority of clothes today are cleaned by perc. A proliferation of cleaning franchises and dry-cleaning businesses offering fast service from convenient, clean, and attractive locations evolved to change the industry into what we see today.
The Process When you drop your clothes off at the cleaners, the employees follow a pattern that holds true at just about any drycleaning operation running today. Your clothes go through the following steps: Tagging and inspection - Some method, whether it is small paper tags or little labels written on a shirt collar, is used to identify your clothes so they don't get mixed up with everyone else's. Clothes are also examined for missing buttons, tears, etc. that the dry cleaner might get blamed for otherwise. Pre-treatment - The cleaner looks for stains on your clothes and treats them to make removal easier and more complete. Dry cleaning - The clothes are put in a machine and cleaned with a solvent. Post-spotting - Any lingering stains are removed. Finishing - This includes pressing, folding, packaging and other finishing touches.
Tagging When you drop off your clothes, every order is identified. Although the exact identification process may vary from dry cleaner to dry cleaner, it basically includes counting the items and describing them (e.g., shirt, blouse, slacks). Also noted is the date they were dropped off and what date they'll be ready for the customer to pick up. Then, a small, colored tag is affixed to each piece of clothing with a safety pin or staple, and this tag remains attached to the clothing during the entire dry-cleaning cycle. The dry cleaner also generates an invoice, and information about the order -- including the customer's name, address, and phone number -- is entered into a computer. This helps to keep track of the order. If a garment needs special attention, such as removing a red wine stain from a shirt or putting a double-crease in pant legs, there's a special colored tag that gets affixed to that particular item of clothing. Once the clothing has been washed or dry cleaned, it goes through a quality check and the order gets re-assembled. This means the clothing is bundled together for the customer to pick up. Remember, every order is identified by a colored tag with a number on it so the person who re-assembles the order knows which shirts and which slacks go together and to whom they belong.
Pre-treating Stains Pre-treating stains is similar to the procedure used at home when you apply a stain remover to stains prior to washing them. The idea is to try to remove the stain or make its removal easier using chemicals. You can even help the process, especially if you catch the stain early! Simply apply water for wet stains (a stain that had water in it) and solvent for dry stains (a stain that has grease or oil in it). Then, gently tap and blot both sides of the fabric with a soft cloth so the stain "bleeds off" onto the cloth. Then, rinse the fabric, let it dry and your cleaner will do the rest.
Dry Cleaningâ€”Itself !
While there are many brands and makes of cleaning machines, they are all basically the same in principle and function. A cleaning machine is a motor-driven washer/extractor/dryer that holds from 20 to 100 pounds (9 to 45 kg) of clothes or fabrics in a rotating, perforated stainless-steel basket. The basket is mounted in a housing that includes motors, pumps, filters, still, recovery coils, storage tanks, fans, and a control panel. In all modern equipment, the washer and the dryer are in the same machine. Doing this makes it possible to recover nearly all of the perc used during cleaning, which is better for the environment and saves the dry cleaner money. As the clothes rotate in the perforated basket, there is a constant flow of clean solvent from the pump and filter system. The solvent sprays into the basket and chamber constantly -- not only immersing the clothes, but gently dropping and pounding them against baffles in the cylinder as well. The dirty solvent is pumped continuously through the filter and re-circulated free and clear of dirt that gets trapped in the filter. As an example, a typical machine might pump perc through the clothes at a rate of perhaps 1,500 gallons (5,678 liters) per hour. Perc is about 75 percent heavier than water. If a cycle lasts for eight minutes, the clothes would be doused during mechanical action with 200 gallons (757 liters) of solvent. This is more than adequate to thoroughly clean the clothes. The next cycle drains and rapidly spins the clothes to expel the solvent and then goes into a dry cycle by circulating warm air through the clothes. The remaining fumes and solvent are vaporized by warm air and then condensed over cooling coils. The distilled solvent is separated from any water (that may have remained in the clothes or system) and returned to the tank as distilled solvent. Since any moisture that may have condensed into water during the process floats on top of perc, it is relatively simple to separate it. Cleaning plants using petroleum solvent rather than perc are exposed to a different set of circumstances and face some challenging considerations. The solvent is flammable, and therefore many fire-prevention steps must be taken for safety. The solvent is very slightly lighter than water and the two mix easily. There is also a need for higher temperatures to dry and deodorize the garments, which makes shrinkage and re-deposition of soil into the clothes more likely. These disadvantages are the reason why the industry currently uses perc almost exclusively. Regardless of which solvent the dry cleaner uses, the quality of cleaning, the degree of soil removal, the color brightness, the freshness, the odor and the softness all depend on the degree to which the cleaner controls his filter and solvent condition and moisture. Quality control can vary day to day unless the cleaner is constantly attentive to these factors.
Post-Spotting Post-Spotting Post-cleaning spot removal is another part of the quality control process. Post-spotting, as it is called, uses professional equipment and chemical preparations using steam, water, air, and vacuum. Post-spotting involves a fairly simple process for removing a stain. If the stain had water in it to begin with (bean soup, for example), then it takes water or wet-side chemicals to remove the stain. If the stain was on the dry side (grease, oil-base paint, tar, nail polish), it takes solvents or dry-side chemicals to remove the stain. In home laundry, most wet-type stains come out during the washing process. Grease does not. The opposite is true in dry cleaning -- it will leave the wet-side stains intact after the cleaning cycle. On the other hand, the solvent removes grease and oils during the cleaning cycle. The exception to this rule involves incorporating a "charge" of specially formulated dry-cleaning soap (an anhydrous emulsifier) into the cleaning cycle. The dry cleaner will examine your clothes after cleaning is complete to see if any stains remain. If they do, post-spotting tries to get them out. A conscientious cleaner will remove the overwhelming majority of soil and stains, but there is always a small percent of very stubborn stains that may not be entirely removed for a variety of reasons, such as: Tannin stains set by heat and time Original dye stripped or faded Bleached-out spots or sun-faded materials Foreign dye deposit
Men's Dry Cleaning Prices Item Price Shirt $1.70 Car Coat $4.15 Coat $3.05 Trench or Top Coat $4.55 Down Coat $6.60 Plain Jacket $3.70 Necktie $1.00 Overcoat $6.00 2 Piece Suit $6.00 3 Piece Suit (vest) $6.65 Sweater $2.60 Trousers $3.05 Vest $1.70 Tuxedo $6.60 One (1) day special service will be added 20% surcharge.
Women's Dry Cleaning Prices Item Price Wool Over Coat $6.00 Down Over Coat $7.45 Rain Coat $4.55 Plain Skirt $3.05 Pleated Skirt $6.55 Silk Pleated Skirt $9.10 Linen Skirt $3.90 Silk Skirt $4.20 Wool Slacks $3.05 Linen Slacks $3.65 2 Piece Suit $6.00 3 Piece Suit $8.10 2 Piece Silk Suit $8.40 2 Piece Linen Suit $7.80 Angora Sweater $3.95 Scarf $1.70 Korean Silk Dress $8.50 One (1) day special service will be added 20% surcharge.
Machinery vs. Labor Shirts—Double Buck Machine vs. Single Buck Machine A single buck machine needs 2 shirt-men A double buck machine needs one shirt-man The cost of a Double Buck machine is $50,000 Most cleaners outsource shirts to minimize labor and circumvent the costs of the machine or simply put they do not have the space on the floor for the machine, labor force or volume of business. Leathers and Furs Leather is stripped and re-colored—this entails a regular cleaning machine that most cleaners do not want to use on leather because the color might run and stay within the chemical solvent. Hence, this will mess up the next load and waste chemical solvent recyclability. Furthermore, Leathers and Furs are delicate products to clean so they are labor intensive and costly in labor to clean. Volume in this business makes the service profitable—if not for volume many cleaners could make little money to no money cleaning these items!
Discounts Remember, dry cleaners give discounts i.e. Shirt Discount Subtotal Tax 8.375% Total
$1.65 10% $1.49 $0.13 $1.61
A discount should be labeled as an expense before the COGSâ€”margins should be benchmarked from Net Sales, not Gross Sales i.e. Total Sales Discounts Net Sales COGS Gross Profit
$350,000 $ 40,000 $310,000 $ 35,000 $275,000
Conclusion High Labor Intensity Competitive Industry trends are growing due to the lack of time the Baby Boomer Generation has to due their clothes and indefinitely for the lack of time Gen X has to do their clothes. Increase in casual clothes in the workplace is offset by the increase in casual wear being dry cleaned—i.e. designer jeans, designer shirts and dresses Security in sales due to regulatory agencies preventing new competition from opening EPA/DEP/OSHA compliance issues Machine intensive Off Sundays Service with a retail appeal.