Bouncing higher on the rebound
he resiliency of
the American economy is legendary. For the past three years
consumer spending has kept the economy chugging along.
Now, in the face of outrageous trade
deficits and record high oil prices, American businesses are
beginning to stoke our economy with more hiring and machinery
purchases.
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So, how does all this affect our
industry? So far the pluses are outpacing the negatives with
more than 80 percent of the cleaners I talk to reporting higher
sales volume.
Also, the number of phone calls that come
into my office every week has tripled since the first of the
year. Owners are becoming excited about the potential of
growing their businesses — both sales volume and profit
margins.
Some of the calls are from owners who are
trying to figure out the best way(s) to deal with rising costs.
The easy answer, of course, is to raise prices. Everyone thinks
about raising prices and most have plenty of sleepless nights
when they give it some serious thought.
At first, raising prices seems like an
easy decision to make. After all, supply, energy, and labor
costs are going up all the time. Your customers know that and
they will understand. Furthermore, you’re justified
because you haven’t raised prices in two years.
Next, you start to think about how much
to increase prices and on what items. A ten percent increase
sounds like a good idea.
Sure, that’s the ticket — a
ten percent increase across the board! That means your $1.90
shirt will go to $2.09. Oops, that will break the $2 mark.
Can’t do that! Forget about shirts. Let’s think
about drycleaning prices.
The thinking is that increasing prices on
the drycleaning side will be easier. Most customers don’t
even know what you charge for drycleaning — not like
those shirt prices — everybody knows how much they are
charged for shirts.
A ten percent increase on a $4.50 pair of
pants will bring the price to $4.95. Not bad! Furthermore, your
$5 sport coat will increase to $5.50.
This is getting easy. Your $9.50
two-piece suits (men’s and women’s) will increase
to $10.45. That will bring them over $10 but you decide to get
tough and go with it anyhow.
Next question: When will these price
increases be implemented? April would be good, but maybe May
would be better.
You decide to give that some thought.
This moment of indecision is the kiss of death. You begin to
second guess yourself. This is also that point in time when you
start to focus on how your handful of pain-in-the-neck
customers will react.
You begin to imagine what they will say
to your CSRs and to you. Even worse, you know they will make
their most cutting remarks in front of other customers.
As you lay awake at night worrying about
how unhappy some customers will be, you start thinking about
all those who will not say a thing. Instead, you think, they
will go directly to your competitors.
How many customers will you lose over a
crummy ten percent price increase? You’re thinking most
of them will leave you… it may be better to do a five
percent increase. And, do it next September.
This is the fear factor at work!
The subject of pricing reminds me of a
recent Wall Street Journal article about the Exxon Mobil
Corporation. Exxon reported fourth quarter net income of $8.42
billion, their biggest quarterly profit ever and a record
quarterly take for a U.S. public company. Gross sales for the
drycleaning industry are $7 billion a year.
One oil company earned more net profits
in three months than drycleaners generate in total sales in 12
months.
Just think — there are still
cleaners who believe the road to financial success is paved
with low prices! Duh!
Many of my calls are from people who are
getting tired of constantly trying to reinvent the wheel.
Lately, the most frequently asked questions are about the
management groups I run.
In my conversations with these owners, I
have learned that they all have friends in the industry that
they talk to often. But they do not have anyone to openly
discuss proprietary issues with. One of the biggest benefits of
belonging to a management group is the opportunity to meet with
non-competing professionals on a regular basis to discuss
issues of concern in a confidential environment. Try it;
you’ll like it!
I am also hearing a lot of talk about the
Orlando Clean Show in June. Two years ago people were telling
me that they were not going to the Clean Show in Las Vegas
because they were not in the market for new equipment. This
year owners are more optimistic about the future and are
looking forward to seeing the new equipment and new products.
Several of my clients are showing their
confidence in our economy and the future by building
stand-alone drop stores; multi-purpose drop stores (with
tenants); plants; and/or purchasing other drycleaning
businesses.
Why are these business owners making
large capital investments at this time? Because they are
confident that these investments will:
• Increase their piece volume and
profits.
• Help them secure a larger market
share.
• Provide greater financial security
for their families.
Their confidence stems from knowing that
their customers patronize them because of their superior
customer service and superior work.
This is not just some touchy-feely
rhetoric. Remember the 80/20 rule? Eight out of every ten
cleaners are doing a terrible job!
To share the confidence of these
successful cleaners, shop your competition and then make the
necessary changes to become a part of the top 20 percent, also.
This is an exciting time to be an
entrepreneur — and even more exciting to be a
drycleaner — opportunities abound. So keep those
phone calls coming. I look forward to hearing from you.
In the game of business the more you know
the better you can play the game.
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