Choosing to Build New or Buy and Retool (Conclusion)

CHICAGO — For today’s self-service laundry investors, one of the first — and most critical — decisions is whether to build a store from the ground up or purchase and renovate an existing operation.

Each path comes with its own mix of costs, timelines, risks and rewards. Market conditions, customer perceptions, financing options and operational goals all play a role in determining the right fit.

To examine the factors that can tip the balance and to offer insights to help operators make a confident, informed choice, American Coin-Op sought the input of several distributors and an industry-specific financing company; their responses have been edited for magazine style and length.

Q: What are the biggest upsides to each approach? What about risks or downsides to each?

Tommy Murati, director of marketing for Laundrylux Distribution: With a new build, the biggest upside is control. You get to design the layout, utilities, and customer experience from the ground up. There’s no baggage, no bad reviews, no reputation to overcome, so you’re starting fresh. The downside is the higher cost and longer timeline. Plus, because you’re launching from scratch, you’ll likely need to invest more in marketing to build awareness.

Retools are usually faster and more cost-effective, especially if the store has a solid layout and existing customer base. But there are risks, too. You’re working within the limits of an older space, and you might run into surprises with plumbing or electrical. Also, if the old store had a poor reputation, it can take time and resources to win back trust.

Tony Regan, vice president of sales and marketing for Eastern Funding: A new build provides the owner-operator with that blank canvas to build their vision of their business. A retool typically means a quicker turnaround to increasing cash flow and ramping up quicker than a laundromat that is new to the area. There are tremendous marketing opportunities that a lot of successful new laundries use to accelerate their ramp-up period. It comes down to time and money.

Dan Schulte, sales manager for Laundry Solutions Co.: Building from the ground up is the most advantageous if you have the wherewithal to do it, because you can build that laundry to be the most efficient and not have the headaches you might have as far as a retool. You may have to squeeze and try to fit your machine mix into a retool unless you just totally gut the place and start over. If it’s the right location, that might be the way to do it. But by building a laundry, you don’t have to worry about plumbing above ground. You can have your needed makeup air there. Everything you can do to make that laundry efficient and the best way to go. New construction, of course, is you build this laundry the most efficiently to run. A new business, new build, new everything coming into a community draws a lot of interest. Saying that, retools — if done right — you can probably get a quicker turn or quicker return on your investment because it’s quicker to do and easier to open.

I haven’t seen many downsides in our industry recently. New stores, as our demographics have changed, we’re bringing more people and customers into the coin laundry business with how popular it is now with wash-dry-fold/pickup and delivery.

Andy Wray, sales manager at ACE Commercial Laundry Equipment: Biggest upsides on the new build is that everything is new, from the plumbing to the vents. Serviceability of drains is set up, the backroom space, wash-dry-fold counter is thought-out, and the store layout is modern and exciting, hopefully with space for huge washers by the door and warehouse-like ceilings.

The downside is always the additional costs and investment, birthdays spent waiting for “things to get done,” and the little-talked-about ramp-up: the time you work for free until you get enough revenue to get to pro forma. Risks associated with a new build is where the rubber meets the road, where the months of Excel spreadsheets showing the ROI, EBITDA, turns per day, etc., lead to seeing it all add up in the black.

The retooling route has its ease and speed of entry, lower cost outlay (sunk costs have been paid for, just not by you), and an existing customer base that you can share designs and drawings of the “finished product” with to get the hype rolling for remodel. More than likely, there will be more large-capacity machines at higher vend prices to increase revenues. There are downsides like having to upgrade to meet current codes and experiencing planning or inspection delays just like a new build. The risk on a retool is whether the customers will buy into your new idea of their laundromat and generate enough income to service debt.

Brandon Hoffman, salesman for Gold Coin Laundry Equipment: The biggest upside of building a new store is the sky’s the limit, and you’re not paying for the chance someone else took on the location. You’re building a dream from the ground up with brand-new equipment, brand-new utilities, and fewer headaches once you open the doors and are through the process. Obviously, there are construction hurdles and a lot more cash, usually out of pocket, that cannot be financed with building new. A retool does get you new equipment right away and a faster turnaround time but you’re potentially dealing with a poor layout with older utilities.

Getting into this business is not buying a pencil from an online store where price is the only thing you need to consider. In today’s modern world, most customers who reach out to us already have a massive amount of information they have attained from a multitude of sources, both online and from “paid professionals.”

There are a ton of good industry people out there who are genuine, who want to tell you their path to success in this business in their market, and it’s up to you to find them. Then there are people out there who simply want you to “buy their time and over-hyped methods,” and who sell a story for profit that make their money talking about the business and not actually being successful in it.

Building or buying a laundromat in Kalamazoo, Austin or New York is kind of the same thing, but do not make the mistake of going at this alone. There is nothing wrong with educating yourself, but listening to the local guys in your market who have a proven track record before you decide which direction to ultimately go is the key to success.

What works for a self-service-only type of laundromat in a low-income area is completely different from a store in a densely populated metropolis whose success may be built on wash-dry-fold and a solid pickup and delivery service.

Q: What advice would you offer a first-time investor deciding between these two paths?

Regan: This depends on the investor. We see a number of savvy investors who are focused on their vision for the business, believing they can only accomplish this with a new-build project. Having seen a number of both new construction and retools of existing stores, I lean toward having first-timers acquire an existing store, learn the business, and identify what they might change on their second store and beyond. Retooling would still offer a cash-flowing business that one might use for additional collateral for their next project. It’s typically a faster path to quicker growth.

Schulte: I would make sure you do all your due diligence, that you do it on the location you might want to retool, where you get detailed P&L statements from the previous owner. You can really decipher all those fixed and variable costs and his revenue and profitability. On a new store, you’re relying on us as distributors to give you a good pro forma, accurate, conservative, to really see what that store could expect to (earn) in the future.

Wray: If you don’t own the building and can get a huge tenant improvement with a sweet, long-term lease; have deep pockets like Bill Gates; or the location is just out of this world, my advice is to go the retool route. There are newbie investors who come from the construction space and could have a much easier time working through building and then operating a laundromat, but most newbies I come across have a hard time changing a belt on a washer.

Hoffman: Understand what you want, your risk factors, and have realistic goals on what it will take to get into this amazing business that allows for much more free time than most businesses.

Have a plan, get the funding lined up beforehand, and be ready to move on a location and potential deal right away. But most importantly, trust someone who has done this before in the market you’re looking to get into and that you’re comfortable with.

Murati: Don’t make the decision based on assumptions, make it based on data. Look at the demographics, competition, lease terms and infrastructure. Just because a store looks like a deal doesn’t mean it is.

Work with an experienced distributor early. We guide investors through the entire journey, from site selection and market evaluation to equipment planning, financing, and even marketing support for the grand opening and beyond.

The right path really comes down to what makes the most sense for your business plan: your timeline, the kind of capital you’re working with, and what the local market conditions look like. And while location plays a big role in a store’s potential, it’s efficient management and an exceptional customer experience that truly make a laundromat successful in the long haul.

Q: Anything else you’d care to add about the differences between building new and buying and retooling an existing laundromat?

Wray: Even for an industry veteran, building a new store is rough. It’s costly, time-consuming, trying on you emotionally and physically, as well as ultimately being “a calculated gamble” in which you pay the mortgage and for the equipment and recoup your own investment.

Retooling and remodeling an existing store to create a super-modern (and efficient) laundromat is what customers of ours have been doing over the past few years and it has worked very well for most.

Either way you decide to go, find a good (quality) local distributor or expert to help you navigate through these waters. There is always something that throws you a curveball and we’re back learning how to work past the problem.

Murati: Neither path is automatically better; it really depends on the opportunity in front of you. We’ve seen investors succeed with both approaches. What makes the difference is doing the homework up front: understand the local market, know the numbers, and have the right team to support you.

Regan: Plan, plan, and more planning. Do not be impatient. Leverage the experience of people who have done both.

If you missed an early part of this series, you can read it here: Part 1 – Part 2 – Part 3