It is amazing to think that this year is almost over. It seems as if the current year has just begun and yet, here we are, getting ready to change our calendars again. And although some things improved this year, let’s face it, business conditions could still be a whole lot better for many of us. Just as we thought we might be able to put Covid-19 in our rear-view mirror, we get whacked with supply chain issues that certainly made it difficult to manage our supply inventories and related costs. Furthermore, because of a whole lot of reasons, labor became extremely difficult to find and keep. And a lot more expensive! Just when folks were starting to go back to their offices and return to a somewhat normal lifestyle – we learn of new strains of the Corona virus and (just because our media likes to keep us scared out of our minds) monkey pox!
Had enough of 2022? Hold on, we’re not done yet… Inflation reared its ugly head and the producer price index soared to over 10%. Energy prices have skyrocketed in many parts of the country, creating extremely higher utility bills and transportation costs. Now we are hearing that we may be entering into an economic recession. The political climate and world events are creating uncertainties in financial markets and some of us have been impacted by natural disasters, such as wildfires, water shortages, widespread flooding or hurricanes. With all of this going on I can’t help but think many of us will be glad to see 2022 pass into the history books once and for all.
But what will a new year bring? As I am preparing our budgets and marketing plans for next year, I do see some things we can build on and help us to move past some of the issues of the past few years. For example, during the current year, we have seen a nice increase in our revenues over previous years. In fact, we have been fortunate enough to increase our piece counts and prices, so our year-to-date revenues are well above our sales over the previous couple of years (duh!) and also pre-covid levels.
But here is the real kick in the pants. Although our revenues have increased substantially during the year, increased costs have outpaced our improved sales numbers. I guess this should not come as much of a surprise, but it still stinks. All we need to do is take a shallow dive into our costs and we can get a pretty good understanding of the cause of this phenomenon.
Let’s start with one of the basics, supplies. We all have felt the impacts of increased supply costs. Hangers have nearly doubled in price (when we could get them.) Plastics, solvents, spotting chemicals, detergents, packaging materials – are all more expensive than the pre-covid days. When combined with the effects of shortages of certain items, this has led us, and just about every other dry cleaner I know, to experience a sharp increase in their supply costs.
And what about overhead? Occupancy and utility costs have escalated substantially for many operators. Many leases are tied to an index for inflation. In these cases, rents have gone up substantially. Furthermore, business and vehicle insurance rates sure haven’t gone down in price either. Costs of equipment have followed suit and when combined with rising interest rates, our out-of-pocket expenses for capital improvements can’t help but go up.
Here in Florida, our utility bills have shot up too. Our electric bills have increased almost 40 percent in the past 90 days. Because we have a contracted rate, our natural gas bills have remained relatively stable over this same time frame. However, some of my peers who use propane have seen a dramatic rate increase in the past months. Like most operators, we do our best to maximize efficiency in our production operations to help keep these costs under control as much as possible, but real relief does not appear to be coming in the foreseeable future.
Of course, as much as these issues have been an issue impacting profitability, we haven’t touched upon the big gorilla – labor. It really does not take much time and effort to realize that finding and keeping good employees has become more expensive and more difficult in recent years. Personally, we have gone months dealing with job vacancies, just hoping we could attract candidates who had the basic skills required to perform the duties of a specific job. We have even offered positions to individuals who had been recently released from prison, hoping to develop them into respectable employees. Fail. We have offered jobs to recent high school graduates and senior citizens, again with limited success.
These failed staffing efforts caused me to take a step back and examine some of the reasons for our problems with hiring and retention. First, I concluded this type of work is not for everyone. Employees are on their feet most of the time, it gets hot (especially here in the Sunshine State) and the pay is traditionally not good when compared to what other semi-skilled or unskilled workers are paid. I discovered our firm was guilty of not being truly competitive with other employers. Even fast-food joints were paying as much or more than we were offering. As a result, we are looking for ways to increase compensation, improve benefits and better working conditions. Let’s face it, I can’t do all this work by myself. We need talented people to help meet the needs of our clients.
Yes, 2022 has been both exciting and challenging. And it is painfully obvious that certain issues will be with us for some time yet. But there are some signs of hope. For example, many workers are continuing to return to the office as some employers have determined the work from home experiment may not have resulted in long term improvements in productivity. Steel costs are coming down (at least for now) which could allow hanger and other supply costs to come down some. And maybe, just maybe, people are coming back into the job market as inflation has effectively reduced household earning power – which may make it a little easier to find and hire talent.
In talking to our suppliers, it seems some (but certainly not all) of the supply issues are easing. Some supply problems will obviously continue, but at this time, it does appear many of the shortages can be managed by using different products than we normally use or, adjusting some our processes to adjust for these shortages. For example, certain plastics or packaging items that are manufactured in Asia may not be available when we order them. We have adapted by using products that may not be identical, but are made domestically, allowing us to maintain our normal cleaning or packaging processes. We are also ordering supplies earlier than we have traditionally, knowing lead times may be longer.
I am looking forward to the new year with cautious optimism. I do believe there is room for growth in both our own business and the dry cleaning and laundry industries. But it will take work. Personally, I am putting on my big boy pants and looking closely at every line item on our income statement and balance sheet in an effort to find places where efficiency can be gained, or costs reduced. To ensure we continue to grow we are committed to a detailed marketing plan that focuses on new client acquisition, customer retention and growth.
During the planning process we are focused on profitability of basic services, our pricing structure, product and service offerings and cash flow. From our marketing efforts we hope to attract clients who seek our quality and service and are willing and able to pay for it. In short, we hope to bring in more clients who look like our top 20 percent. If in fact a recession is coming (or is already here), it is just a matter of time until we begin to experience layoffs and reduced job numbers. By focusing on our top tier of clients, we understand these are folks who are less likely to be impacted by the effects of an economic slowdown.
Here is the main point I am trying to convey. I really believe many of us in our industry sell themselves short when it comes to understanding the true value of what we do when it comes to meeting the needs and wants of our customers. As a result, we underprice our services and fail to examine all the variables and complexities of operating our businesses. With some well spent effort on planning and budgeting, (and taking subsequent required actions) we can improve both the quality of our services and the profitability of our businesses.
Steve Thompson is the owner and operator of Sand Dollar Cleaners in Jacksonville, Florida. He has been in the dry cleaning business for almost 30 years, starting with a dry cleaning pick up and delivery service and developing it into the full service dry cleaning operation it is today. He was previously in the banking industry, working with organizations in Indiana, Texas, Oklahoma and Florida. While in the banking industry he earned designations as a Certified Public Accountant, Chartered Bank Auditor and a Certified Internal Auditor. Steve has previously written articles and developed training programs for accounting and internal audit organizations. He is a graduate of Indiana State University with a degree in accounting.
