SUN CITY WEST, Ariz. — When I first started in the laundry business in 1976, not many people wanted to own a laundromat.
America was coming off of a 1973-74 oil embargo (price of a barrel of oil shot up 400% during that time) and utility bills had skyrocketed (up as much as 50%).
On top of that, many people were pursuing careers in corporate America, so there weren’t many entrepreneurs around. I had inadvertently stumbled into a high-demand market for laundromats, the exact opposite of a saturated market.
Investopedia says market saturation “arises when the demand for a product or service in a marketplace has been maximized.” The way I see it, saturation occurs when enough retail stores exist in a given market to satisfy the public’s needs, with more on the way. Oversaturation is when there are already more stores than the public needs.
When a market is undersaturated, customer demand for the small number of stores lead to the point where prices start to rise. I was lucky enough to experience this during the 1970s and ’80s.
My stores were so busy and crowded that customers would walk in, then walk right out. I was losing customers because my machines were rarely available, so it was time to raise vend prices. I made some incremental increases and, amazingly, my stores became even more crowded. I had to raise prices three times in one year just to get things under control!
Investors were still spooked by the sky-high utilities, the economy was doing well, and immigrants — who make great laundromat customers — were beginning to show up in New York City. There weren’t enough mats to accommodate their surge.
The influx brought people who would not, or could not, enter the corporate world. Many could barely speak English, but they understood how to run small businesses, hence the interest in owning mats. They saw it as a way to earn a living, so the immigrant surge brought both customers and owners.
But soon, investors saw that mats were really bringing in the bucks, so they wanted to join the party. In the beginning, there was plenty to go around. Next, new mats were popping up all over. I still did well because my mats had developed a great reputation and I was a hands-on operator with multiple stores; many newbie mat owners were part-time investors. Most of my competitors back then were unfamiliar with the business and ended up selling.
However, the demand to own among new investors grew so much that even failing mats never closed down.
It got to the point where you could build a brand-new mat thinking that you’ll do great, but your surrounding competitors would find it easy to sell to a naive newbie, even if their mat was losing money! I saw a failing mat sell three times in the same year.
There were, and still are, a good percentage of newbies who never bothered to think if their market was saturated. Even if they did, they didn’t know how to determine this.
In New York City, the growing population driven mostly by immigrants helped to sustain profits for quite a few years, keeping demand up. But what if the population in your market starts to shrink? Then all the mats feel the pain.
THE PRIMARY DRIVER OF OVERSATURATION
It’s too many new investors building new mats faster than the number of customers coming in.
From the outside, laundromats look like an ideal business. After all, there are many mats where customers hardly ever see the owner, so it looks easy. Just “build it and they will come.”
Only problem is, not enough customers may come, especially if the market is stagnant or losing population.
The balance between number of mats and number of people is fluid and does change. If the population is growing in your market, there may be room for another mat.
If people are moving out, the number of mats should decline, but they often don’t. That’s market saturation. If you keep building mats in such a market, you end up with oversaturation.
Newbies can fail to do their due diligence and sometimes place too much trust in their distributor.
From my experience, the majority of distributors are honest and want you to do well, hoping that you will buy from them again sometime in the future. But there’s always a risk of running into someone who just wants to make a fast buck.
Mats rarely go away, which is one of the main reasons for oversaturation. Each time, someone new comes along who thinks they will make it work even though the mat in question has been sold twice a year for the past five years.
Newbies can come from other careers and have little idea of how to run a business, let alone one that has thousands of working parts that often fail on a regular basis. Many seem to ignore this.
People have to do their laundry, but they don’t have to do their laundry in your store!
In Wednesday’s conclusion: Your best option for responding to oversaturation
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
