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Growth cycle: Superstores bring the local laundry to Main Street

By Mark Seavy

Clean Rite, one of a new breed of laundry superstores, plans to have 100 outlets by 2002.

Armed with a mixture of bright and clean outlets and high technology, a superstore format is putting a new spin on the laundry business.

Many dark and dingy neighborhood laundries are receiving a facelift and being replaced by spacious and colorful versions that sport televisions, vending machines and children’s play areas in addition to washers and dryers. And while chains such as Clean Rite, SpinCycle, LaundroMax and Lucy’s Laundry Mart combined account for only about 300 of the 35,000 laundries in the United States, their formats are shifting the market into a new cycle of growth, industry officials said.

“It’s a profitable and stable industry and one of the few that hasn’t seen any consolidation,’’ said Brian Wallace, executive director of the Coin Laundry Association in Downers Grove, Ill., which serves as the trade group for an industry that generates $3.5 billion to $5 billion in annual revenues. “New technology will make these formats much easier to roll out, and right now we’re at the very cusp of these types of stores.’’

The trend of bringing the neighborhood laundries from side streets to Main Street began in earnest about four years ago when SpinCyle emerged and bought up 65 stores on its way to amassing its current 172 outlets. But the idea of alleviating the boredom of a weekly trip to the laundry actually began in the late 1980s with the arrival of Duds & Suds franchises that offered a bar and pool tables in addition to detergent. The chain peaked at 90 stores before breaking up, but the strategy was laid for a new generation of stores, industry officials said.

“Typically, the laundromats are on side streets in low-key environments, but as a retail concept we’re looking to bring them into the mainstream, higher visibility areas as we continue to build the brand,’’ said Timothy King, director of real estate at Clean Rite, which operates 28 stores in the New York City area, but plans to expand beyond the five boroughs on its way to 100 outlets by 2002.

Building a brand is somewhat unusual in a business where most storefronts simply carry the word “laundromat’’ over a doorway. But Clean Rite has sought to burnish its image by placing its brand name on everything in its stores from vending machines and laundry bags to the washers and dryers themselves. It has also sought to build a bigger box — an average store measures 7,500 square feet in an industry where most are 2,400 square feet.

Competitors like SpinCycle and Lucy’s Laundry have kept their stores in the 3,000- to 4,000-square-foot range, but like Clean Rite, will typically deploy 110 washers and dryers in each outlet.

Among the new wrinkles in the laundry business are smart cards, which are being used to replace coin operation. But since smart cards were introduced three years ago, laundry operators have been slow to adopt them.

So far only 300 to 400 stores have been outfitted with the smart-card readers that are needed to allow consumers to make purchases, Wallace said. In part, the resistance to the technology change is rooted in the demographics of typical laundry customers. Most have annual household incomes under $50,000 and may have little or no credit history, Peter Ax, CEO of SpinCycle, said. While Clean Rite has expanded the smart-card concept chainwide, SpinCyle has installed them in about half of its stores, but will gradually phase them out.

“We found that many of our customers didn’t understand the smart cards and that sales were actually lower in stores where we had machines installed,’’ said Ax, whose chain downloads sales data from its machines to monitor store performance.

In addition to smart cards, the laundry superstore chains are bringing entertainment into the marketing mix, industry officials said. Clean Rite, for example, is considering adding space for children to do homework or access the Internet, Ryan said. Los Angeles-based Lucy’s Laundry, which has about 20 stores in Southern California, has launched a format in which it reserves 3,000 square feet for its laundry area, but subleases additional space to tenants like Burger King Express, Starbucks and Wells Fargo Bank.

Yet while the new superstores try to add a little excitement to an otherwise mundane task, they’re also cautious about moving away from their core business. And many industry officials point out that while most customers spend $6 to $12 during an average 90-minute visit, they’re reluctant to stay longer. Most chains also offer the traditional mix of 14-to-80-pound washing machines priced at $1 to $6 and provide a laundry service that charges $6 for a 1- to 8-pound load, and up to $55 for more than 100 pounds.

“Our customer is one who wants to do laundry, not necessarily have a cup of coffee,’’ said John Sabino, president of Clean Rite. “We have limited parking and limited space in our stores, and we don’t want to detract from our core business — which is producing the cleanest, safest experience that someone can have while they’re in the laundromat.’’

Despite the focus on new formats, however, the pace of the consolidation has moved slowly, Wallace said. Only three chains have crossed the 100-store barrier, and most operate under 50 outlets, he said. SpinCycle, which has stores in 25 markets, had its sights on New York City, but has postponed the expansion for 18 months as it seeks to raise additional capital, Ax said.

The lag in growth of the superstore format is largely tied to the industry itself, Wallace said. The stores require extensive maintenance and typically employ unskilled workers whose turnover rate is high, he said. And despite the advent of smart cards, laundries remain a cash business that requires frequent collections from the machines, Wallace said.

“It’s one of those businesses that operationally poses some challenges,’’ Wallace said. “It’s a simple business, but not a very easy one at the same time. It’s all self-service, you have no inventory and employ unskilled labor. If you’re talking about brand training in the coin industry, I’m not sure where those benefits are.’’

The benefits, however, could be soon laid out as part of pitches that Fort Lauderdale, Fla.-based LaundroMax and Scottsdale, Ariz.-based SpinCycle are both expected to make to potential franchisees.

SpinCycle will use the franchise format to expand its reach to smaller markets like Memphis, Tenn., said Ax, whose chain has company-owned stores in such cities as San Antonio and Austin, Texas, as well as Philadelphia and Chicago. At the same time, owners of five to 10 stores that once viewed laundries as a side business are becoming full-time operators, creating a fresh crop of potential franchisees, industry officials said.

The expansion plans, however, will be tempered with the knowledge that laundries thrive in densely populated areas and may only draw customers within a half-mile radius of the store, industry officials said.

“You need population densities to succeed with your own stores, but to reach the smaller markets it make more sense to franchise,’’ Ax said. “We’re creating a brand at this point, and until there is a major national leader, it’s hard to see where there will be a widespread consolidation.”