BENTON HARBOR, Mich. — As a store owner, the choice to expand your vended laundry portfolio is a significant moment in your business trajectory. There are several reasons you may wish to add one or more stores. You may be interested in strengthening your positioning and brand with customers, or growing your investment portfolio. For some owners, expansion is also a chance to improve on your current business concept, or a time to expand service offerings. As you consider this choice, keeping a few key items in mind may help improve your chances of a successful expansion.
TIMING IS EVERYTHING
Knowing the right time to expand can mean the difference between success and failure. Focusing on key signs of readiness can help guide this decision.
Many owners consider expanding when they find themselves reaching their key performance indicators (KPIs) at their current store. This is encouraging, because it often means the return on your initial investment is meeting or even exceeding your financial projections. If your management and organizational set-up seems to be running smoothly, that’s another indicator you might be ready to expand. There’s also the simple matter of time: if you have extra bandwidth to devote to more locations, that’s a positive sign.
David Wieland, private investor at Cardigan Capital, notes that often, the best times to expand are really only truly known in retrospect. But, for an industry like coin laundry that remains stable—or even improves—during an economic decline, owners could look to a strong stock market as a positive indicator that expansion is viable.
Other signals to look for include an accelerating rate of high-density rental occupancy rates and high-quality debt with competitive interest rates and low service requirements. He emphasizes, however, that no one knows their business more intimately than the owner.
“Expansion is not only a business decision, but a personal one as well,” says Wieland. “Expansion requires time, capital and additional risk. For many, however, when they consider the trade-off, the juice is worth the squeeze.”
DO YOUR HOMEWORK
As you weigh the possibility of expansion, a market analysis can help make sure your decision to expand is a sound one, and provide valuable insights to give your new location(s) a leg up.
“Market analyses are critical for an industry that values cash flows,” says Wieland. “When contemplating expansion, businesses should consider competition, the growth rate and makeup of the location demographics, and changes in taxes and zoning that may ultimately affect the bottom line.”
BUILD VS. BUY
If you’ve made the decision to expand, you’ve likely considered the merits of buying vs. building a store.
Regardless of the path you choose, location evaluation remains important so as not to saturate a market. Both buying and building are attractive investments with different capital needs and return on investment (ROI) schedules. And while you will use learnings from your first store to inform the path of your second investment, pay attention to your new customer base who may have very different laundry and amenity needs.
If acquiring a store worked well for your first investment, applying those learnings may simplify a second acquisition. But, be aware that one acquisition may not be the same as the next. Things like utilities and rent are tied to the individual locations, and you might not necessarily realize efficiencies in those categories. You’ll want to pay attention to ensure lease terms will help you in seeing a good ROI, especially if you plan on making a large capital investment for improvements. A good rule of thumb is to have 8 to 10 years locked into your lease agreement to avoid rent increases that will delay your expected ROI.
If you do decide to buy, be sure you fully inspect all equipment, ideally with the help of your distributor. They can help assess quality, serviceability, and opportunities to correct the machine mix for your customer demographic. Think of it as if each machine is paying rent for space in your store. It’s not about replacing all machines, but that your machines get enough turns in a day for you to make a profit—all while providing for your customers.
Building one or more new stores has its own set of considerations. While a new laundry can take longer to see an ROI because of the increased capital spend, you’ll have more opportunities to create the ideal store environment. By harnessing new technologies, you can add customer amenities like card readers, and simplify store and equipment management with connectivity solutions. Your store will be an empty space to maximize the footprint for equipment, workflow and amenities.
Check back Thursday for the conclusion!
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].