Reducing Overhead for Future Growth

Reducing Overhead for Future Growth

Balancing income and expenditures is always essential to running a business. Dry cleaners who saw their incomes slashed during the depths of the coronavirus pandemic, however, found that increasing the inefficiencies in their plants and cutting overhead was an absolute necessity to keep their doors open.

Finding Efficiency

“I know many owners have made a lot of sacrifices in order just to survive, and many of us have learned to do more work with fewer people.” Says John Rothrock, president and CEO of Yale Cleaners in Tulsa, Oklahoma, “Lots of people are short on staff – we’re short on staff. That’s necessitated owners themselves stepping into roles such as pressing clothes or working the counter on a regular basis, and I think that’s opened a lot of eyes.”

Rothrock believes this new perspective, while painful at the time, could provide owners with valuable information – if they’re paying attention.

“We have the opportunity to identify things that can be minimized or reduced,” he says, “The smart owners who were forced into those Roels looked at that and asked, ‘What can we do to make this more streamlined and reduce some waste?’ Many cleaners are much more efficient than they were 24 months ago.”

Part of this efficiency comes from cutting some of the excesses that formed during less challenging times, says Kermit Engh, owner of Fashion Cleaners, Omaha, Nebraska, and managing partner of the dry-cleaning consulting group Methods for Management.

“What I’v found working with people through our group is that the majority of them have right-sized their businesses,” he says. “They’ve closed marginal stores, they’ve reduced staff, and they’re measuring PPOH (pieces per operator hour) and their productivity closer. They’ve adjusted store hours, and, in some cases, the days they are open.”

Hard times make for hard choices, Engh says, but it’s necessary: “They’ve made decisions they would not normally have made when things were kind of fat and happy. They are more efficient, and I would assume that they are also more profitable because of it.”

While learning from the past is an essential part of running a business, hanging onto those lessons into the future can be a challenge, says Christopher White, executive director of the certification and consulting agency America’s Best Cleaners.

“I think the challenge that, historically, our industry has always faced is sticking with those efficiencies,” White says. “That’s one of the things we are coaching our affiliates on right now. This has been a ‘Great Reset,’ and you realize that you can get a lot more value out of your employees than you’ve ever had before. Are you going to be able to continue to maintain getting that value? What systems are you putting into place to make sure you don’t slip back?”

White says this cycle has played out in recent memory: “In the 2008 recession, everyone got lean. And then, by 2014, all of a sudden they were top-heavy in management, and their labor was a little bloated.”

He believes, though, that cleaners who pay attention to their pain now will be able to maintain their efficiency.

“Those who have good systems in place to measure, manage and coach their people to stay on track are going to be successful,” White says. “They’ll stick with it.”

The Hidden Areas of Waste

A key part of creating and maintaining efficiencies and keeping overhead as low as possible is taking an honest look t your facilities and identifying areas that could be operated more effectively.

“A whole lot of things can really add up once you start putting them together,” Engh says. He’s identified several areas for dry cleaners to examine for inefficiencies that are wasting money.

  • Utilites– This can include leaving lights on or starting equipment early in the day that’s not yet needed. “Electric bills can be hugely impacted by how you start your plant each morning,” Engh says.
  • Employee Performance– Engh says this business tracks CSR (customer service representative) dollars per hour. “It’s a key performance indicator (KPI) on how productive a CSR is in checkin in or detailing garments.”
  • Marketing– “If you can’t measure it, stop wasting the money,” Engh says, “How many new customers are you bringing into your system on a weekly and monthly basis? How many customers are you retaining on a monthly basis? How many customers are you retaining on a monthly basis? What is your turnover on customers?”
  • Vehicle Expenses– Engh has found that unnecessary trips have a huge impact on your profitability: “This is where your point of sale system, if you’re doing home and office delivery, can help by providing op-in or opt-out functionality, so you’re not driving to customer who have nothing to pick up or deliver.”
  • Insurance– A regular audit of your insurance policies, Engh believes, can be worth a cleaner’s time. “How many people have adjusted their insurance coverage to their new, right-sized business? You might have too much coverage because your business isn’t the same as it was two years ago,” he says.
  • Supplies– Because supply chain problems have driven up prices and made some materials harder to get, even seemingly small steps can make a difference in profitability. “Are cleaners measuring the soap that goes into their dry-cleaning loads and their laundry loads every time to make sure there’s no waste?” Engh asks.
  • Credit Card Fees– “This is a hot button for a lot of people,” Engh says. “How many actually calculate their rates to process credit cars on a weekly or monthly basis, and are they seeing their rate trending up?” he asks. “If so, they can call their card processor and have a rate review.”
  • Postage– This can be a “how we’ve always done it” area that Engh believes needs to be reviewed. “How many statements are you still mailing out to people that could have been converted to either a credit card on file or by email?” He asks.
  • Free Cleaning for Employees– While free cleaning is a benefit many cleaners provide to their team, Engh says that this can be a mistake. “I believe that, if a benefit is free, it gets abused and is not appreciated,” he says.” Employees should get a discount on cleaning, but there shouldn’t be any free cleaning.”
  • Miscellaneous– “This is the ultimate catch-all bucket,” Engh says. “Whatever the cost is, identify it and get it categorized properly.”

“The bottom line is to measure your EBITAL percent on a monthly basis – earning before interest, taxes, amortization and leasing,” Engh says. “That’s how businesses are valued. If you’re not paying attention to that, what you really have is a glorified job, rather than a business that has value.”

Paying Rent or Buying Property?

One of the biggest overhead expenses for many dry cleaners is paying rent for their locations. Rothrock’s business examined this area years ago and made a decision that would have long-term benefits.

“Our company owns every single one of our facilities,” he says. “We have 11 locations or purpose-built freestanding buildings, and we own them. That’s not always been the case – we started out renting. Our focus in the 1990s was to own all of our buildings, and it took us 20 years to get there.”

So when does it make more sense to rent property versus buying a piece of real estate to set up a business?

“When you’re first starting out. I think it makes a lot of sense to rent,” Rothrock says. “Dry cleaning already has a high barrier to entry if you’re opening up a plant and doing the work yourself. The cost of capital and labor are big numbers to overcome, and owning your facility is just one more hurdle that makes it prohibitive to get into the industry.”

The decision to buy, he believes, comes with a cleaner’s experience at that location.

“If you think you’ve identified a strong market but aren’t 100% certain, it makes sense to rent,” he says. “If it does really well and outperforms your expectations, then you can transition and look for the right opportunity to purchase instead of renting.”

While it might entail more risk, Rothrock believes the benefits of owning the right property are worth it.

“Obviously, purchasing is preferred because when you rent, the building owner controls the property, and dry cleaners are hard on facilities,” he says. “When you own, you don’t have to fight those battles – you have complete control over the facility, and you can set it up to be the most successful. It also starts building wealth for you. Instead of paying rent to someone else, you can diversify your income stream, allowing you to be a stronger company.”

Straightening Out the Chain

Another recent obstacle to profitability has been problems in the supply chain. Many cleaners are finding that, even when they can get the materials they need to operate, the rising costs are impacting their budget.

White has witness online discussions between dry cleaners who can’t seem to get supplies and others who have been able to stay fairly well-stocked through the supply chain disruption. He says the difference comes down to relationships.

“If you really dig and start asking some ‘how and why’ questions, you find that those people are having supplies delivered on a regular basis – while it’s still challenging and prices have gone up – are those who have traditionally valued their partnership with their supply houses and have always had a two-way communicative process,” he says.

“Unfortunately, a lot of people in our industry look at the supplier as just the guy who brings hangers and the guy they have to beat up when the bill goes up 5%. That’s not a partnership. That’s not going to get you through tough times.”

White believes that maintaining this type of relationship works on both the business level and from the standpoint of basic human nature.

“At the end of the day, it’s a good, sound business decision for any distributor to ask themselves who are the people who have paid on time, have been great business partners with them, who have given them good feedback and given them great recommendations,” he says. “I don’t know of any supplier out there right now saying, ‘I don’t want to sell hangers to anyone because of XYZ reason.’ They’re saying, ‘I have to make a smart business decision and take care of the people who have always taken care of me.”

Lowering the Cost of Labor

Labor can be another massive component of a dry cleaner’s budget. Investing in the right type of equipment, Engh believes, can help dry cleaners increase efficiency and decrease overhead.

“Automation is used to replace labor,” he says, “and if there was ever a time that labor has become a massive issue, it’s right now, with the hourly rates accelerating and the lack of people who want to work. It can also help reduce mistakes and allow tracking of an item throughout your entire process. It can give you a garment’s history and, in some cases, lets you take a photo of each garment, so you have documentation.”

Rothrock believes that barcoding is perhaps the best place for cleaners to begin automating processes.

“I know there are still dry cleaners out there writing tickets, thinking that they’re too small to invest in barcode technology,” he says, “but it’s absolutely astounding how much labor you can save and how many activities in the building you can eliminate by transitioning to a barcode identification system. No company is too small to do it. It will cost more time while you transition, but once you do, it will pay dividends that last forever.”

“After you start barcoding, the biggest bang for the buck is an auto bagger,” Engh says. “That literally eliminates a full person and the baggers are very efficient and save on poly. The next step would be in assembly – either auto assembly or semi-auto assembly. That cuts down on mistakes and cuts steps.”

Are Some Services Worth It?

For his business, Rothrock has found that not every service makes cost-effectiveness sense.

“Look at your least-profitable services and put them on a list to eliminate,” he says. “When you gather that list, focus on the ones that are the most complicated to product – you’re putting a lot of time and energy into something that’s not generating a profit, and you’re wise to eliminate it.

“When you do that, it will enable you to focus on those services that are profitable, and you will start improving on them, making them better and even probably higher quality. Your sales are going to increase on those actives, and it’ll be an easier company to run.”

“Rothrock and his team have pared Yale’s offerings down for maximum profitability: “We focus on what people wear every single day. We do wedding dresses and a couple of other things, but everyday clothes are 90% of our business. That’s where you can make your money, and you can get efficient.”

Clearing A Path to the Future

While auditing your business to root out inefficiency may seem like a never-ending quest, White advises cleaners not to forget about their most valuable assets.

“Don’t be afraid to empower your people,” he says. “As an owner, if you’re feeling overwhelmed, it’s probably because you decided you needed to step in and take on some of these extra tasks. But if you have good communication with your staff and can let them know what you need them to do, and then empower them to do it, people will do amazing things for you.”

And that includes the younger generation, he adds. 

“I think many people write them off because ‘they’re all attached to their phones’ or things like that. Maybe they do things differently than the way we historically have done it, but people will do amazing things if you are clear on what you want.”

Also, the quest to minimize inefficiency in your business isn’t a “one-time” effort, Rothrock says. It can, in fact, be boiled down to a simple idea.

“Every single day, we look to be better than we were yesterday,” he says. “You have to create that in the culture. It starts with the person at the top and goes down from there. You have to build those relationships with your team so that everyone gets on board and buys into this idea.

“Create a culture of continuous improvement and get buy-in from the entire team to help you reach that goal. You’ll be amazed at what you can achieve.”

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