When Should a Laundromat Replace Equipment?
When should a laundromat replace equipment?
This is a question that can be challenging for laundromat owners, and every laundromat owner will likely need to address the issue at least once during the lifetime of their laundry. You likely have thought about when you want to replace your machines at some point, so we wanted to see what laundromat owners and their stakeholders consider when asked the question, “When should a laundromat replace its equipment?”
The Coin Laundry Association interviewed laundromat owners, equipment distributors and manufacturers representing a cross-section of experience and different geographic regions about this very topic. So, let’s dive into the results that may help you decide when to replace your laundromat equipment.
First, let’s look at the factors that most laundromat owners will need to consider.
1. Age of the equipment
2. Efficiency of the equipment
3. Pricing
4. Value of the laundromat
5. Financing
6. Down time
7. Divestiture planning
8. Full vs partial replacement
9. Payment systems
10. Increasing capacity
AGE OF THE EQUIPMENT
When does the lifetime of a laundry machine come to an end? Many factors are associated with this question, and the answer is subjective as each situation is unique. So, let’s keep this simple and define what “old equipment” means to you.
Actual age: Washers and dryers definitely have a lifespan.
Small chassis washers and dryers = 5 – 7 years
Heavy-duty washers and dryers = 12 – 15 years
You can increase or decrease the lifespan of your equipment by maintaining it properly, cleaning regularly and making sure customers do not mistreat them…or not. Your large washers will likely see more spins in a shorter period of time, so their lifespans as a pure function of time will be less than the average. Likewise, machines that are used less will last more years.
Usage
Simply put, usage refers to how often a machine is used per time period. If your laundromat is open 24 hours, your machines will spin more times per day than a laundromat open 12 hours per day.
Condition
When washers and dryers begin to show rust, dents, chips and soap cake, some laundromat owners may be motivated to replace the equipment with newer, more aesthetically pleasing equipment. This may not be as much of a consideration in some areas.
Efficiency
Older machines just aren’t as well engineered as current models. Efficiency has been a key driver of washer and dryer technology over the past decade or so. Spending more money upfront for a better, more efficient machine will save money in the long run by lowering utility expenses. Many owners are currently retooling their laundromats to increase future cash flows.
Repair Costs
Older machines break down more. The older the machine, the more likely it is to fail, and the less likely you are to be able to find the parts to fix them. New machines come with a warranty on most parts for up to 10 years, giving laundromat owners a little piece of mind when it comes to their revenue generating equipment.
No matter how you determine what constitutes an “old” washer or dryer, once you realize your machines may be needing replacement, there are a few things to consider.
EFFICIENCY OF THE EQUIPMENT
With each new generation, laundry equipment is becoming more and more efficient. Per the Coin Laundry Association, water and sewer prices are nearly guaranteed to stay on an upward trajectory. Depending on the price of utilities in your city, new equipment can save thousands per year in expenses.
Water Savings
Water efficiency of your washers should be the first place you look to upgrade your laundromat when retooling. 15 years ago, water consumption per cycle was about 45 gallons. 10 – 15 years ago, it was about 30 gallons per cycle. In the last 5 years, water consumption has been cut to about 25 gallons per cycle. Electrolux has done even better, with Automatic Water Savings on all their washers. The machine senses the weight of the goods and only uses the right amount of water for that load size. When you consider the average customer puts 9 pounds of laundry into a 20-pound washer, this bit of engineering can save the laundromat owner who uses them tens of thousands of dollars of the lifetime of the machine.
Energy
High-extraction washers, like the Electrolux Ultra Dry line of washers, reduce dry time by about 15 minutes. This means your customers will spend less time and the same amount of money in your laundromat, and you save on the cost of energy needed to dry their goods while increasing your throughput.
New models of almost any brand will have efficiency benefits over older models. Along with fully customizable programming, machine efficiency is a major driver of the decision to retool your equipment.
PRICING
When replacing old equipment, laundromat owners have an interesting opportunity to raise prices, and to do so in such a way that customers can see the added value.
Special Pricing
New equipment allows owners to customize pricing by time of day, day of the week or week of the month as they see fit, as well as adjusting cycle pricing to account for customer hot water usage, for example.
New Mix
Replacing older equipment with new equipment gives you the chance to increase your overall capacity by getting bigger machines in the store to help capture market segments that require larger machines to service. You may also find that you can replace some dryers with more washers if you purchase high-extract washers, since less drying capacity is needed. All of this equals more revenue.
VALUE OF THE LAUNDROMAT
This may be obvious, but newer, more efficient washers and dryers increases the value of your business. In addition to the energy savings and opportunity to increase prices, more valuable assets increases the borrowing capacity of the business and the price you can get in the event you decide to sell. Practically, if there are two laundries close to each other with similar gross revenues, the laundromat with the newer machines will fetch a high price. Newer machines decrease costs and increase both revenues and profitability.
FINANCING
Financing availability and loan terms change over time. Currently, the U.S. is seeing rises in interest rates. When rates are lower, loans tend to be more difficult to get, but the cost of the loan is lower. As rates increase, it becomes easier to borrow, but the cost of the loan goes up. Captive lenders like LaundryLux Financial Services focus solely on the laundry industry and typically offer more favorable terms and up to 100% financing on laundry equipment. Captive lenders can also offer deferred payments, interest-only payments, no prepayment penalties and other favorable terms.
DOWN TIME
A key factor to consider when deciding to replace your older laundromat equipment is the down time it will take to get the old machines out and the new machines in. Shutting down your business for a period of up to 2 weeks can have some negative effects. Lost time, lost revenue and lost customer confidence should all carefully be considered. Your customers will certainly have the chance to visit other laundromats while yours is closed. Alternatively, you can replace your equipment in phases, which allows you to communicate your changes with your customers while not shutting down your services.
DIVESTITURE PLANNING
Should you sell your store as it is or replace the equipment prior to selling? This can be a difficult question to answer. While the age of your equipment does have some effect on the value of your business, the sale price will largely be determined by your cash flow and profitability. Generally, your laundromat’s value will only go up or down slightly based on the age of your equipment.
However, new owners do not necessarily want to but a laundromat only to gut it and replace the old equipment with new stuff. Most potential investors are not looking to buy an equipment headache.
FULL VS PARTIAL REPLACEMENT
Your replacement strategy will be determined by a plethora of variables, including: location, competitors, downtime tolerance, age and/or wear of the machines, utility prices, lease length and access to a lending partner.
Replacement as needed
This strategy involves replacing individual pieces of equipment as they come to the end of their lifespan. This can be less of an option for owners in competitive markets, as your equipment mix will consist of older and newer equipment, which can put you at a competitive disadvantage.
Full Replacement
This approach is less common than the other two, as all machines are taken offline for up to 2 weeks. Your revenue will stop, and your customers will seek other laundromats in the meantime. While we do not recommend this strategy, there are times when it can be your best option.
For example, your specific market conditions or long-term business plan may necessitate a full replacement. If the store has older equipment but lots of potential and the opportunity to take advantage of another laundromat closing, it may make total sense to not only upgrade the equipment, but also give the store a cosmetic facelift.
Laddered Replacement
Our preferred method of equipment replacement, the laddered approach involves replacing groups of machinery at different intervals. You may consider replacing one row of washers at a time, replacing certain sets of sizes of washers and dryers as you go, or simply replacing your oldest equipment first. However you do it, the laddered method gives improved customer perception, consistent tax advantages, LESS lost income, better long-term planning and competitive security. .
PAYMENT SYSTEMS
Once you have decided to upgrade your equipment, you may consider alternative payment system solutions. Turning your laundromat from an all coin/cash business to a mixed model or even coinless model can offer huge benefits. Most payment systems these days allow for added value through marketing channels you can not get with an all coin store. Loyalty programs, special pricing promotions, back office management suites and a host of other value-added services can be implemented through modern payment systems, giving your business the ability to create customers for life.
UPGRADING CAPACITY
Replacing old equipment also gives the laundromat owner the chance to increase overall capacity and revenue generation potential of the store. Due to changing demographic variables, the general trend in today’s environment is toward larger machines. Customers are doing most of their laundry in one load, and many laundromats are incentivizing this behavior through pricing strategies that reward the customer with lower prices per pound in the larger machines. Thus, customers are spending less time in the stores, and owners are seeing increased throughputs. Additionally, replacing 90 – 130 G-force washers with 300 – 450 G-force washers decreases drying times, increasing throughput and revenues and decreases the costs associated with operating the machinery.
CONCLUSION
Laundromats seem like a very straight forward business, and they are to some degree. As many laundromat owners know, there is a lot more to operating a store than simply keeping machines running and replacing them when it is time. Savvy owners will make laundry equipment a part of their long-term plan and coordinate retooling with a local distributor who can help them plan.
To help you with your decision, be sure to keep good records on your equipment, know your customers and your competition, keep yourself educated on the latest in washer and dryer innovations, and make equipment replacement a part of your long-term strategy.