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Laundry Industry SWOT Analysis (Part 1)

Associations examine industry strengths, weaknesses

CHICAGO — Many businesses regularly undergo a SWOT analysis.

This process looks at the strengths, weaknesses, opportunities and threats a company faces to improve the probability of success for various projects and important decisions.

After the challenges of 2020, American Laundry News thought it would be beneficial to do a SWOT analysis of the laundry and linen services industry in the hopes of helping businesses making positive steps in 2021 and beyond.

TRSA, the association for linen, uniform and facility services, the Association for Linen Management (ALM) and the American Reusable Textiles Association (ARTA) answered the call to examine the state of the industry to help it move forward in the coming years.

STRENGTHS

Going into 2021, the laundry and linen services industry has many strengths that operations can rely on. The first is that laundry operations today provide maximum hygiene.

Capable of washing, drying and finishing at high temperatures in serving customers in all industries, linen and uniform services are superior in these respects to smaller on-premises laundries and home washing machines, according to TRSA.

“Some 250 such services have been certified Hygienically Clean by TRSA,” says Joseph Ricci, TRSA’s president and CEO. “Their industrial-scale laundries facilitate hygiene by providing enough space to prevent cross-contamination (separating clean from soiled items) and for social distancing of workers, reducing the likelihood of a virus outbreak.”

Another strength for the industry is that reusables substitute well for disposables. TRSA says this attribute has been evident in COVID-19 regarding healthcare garments, particularly isolation gowns, as linen and uniform services have fulfilled high demand.

“An April 2020 U.K. government study determined such substitution in healthcare gowns can produce savings up to 75%,” Ricci shares. “Decreased waste disposal costs contribute to that difference. Reusable materials and products are also known to improve hygiene. They don’t need to be stockpiled.”

“The laundry industry will benefit from a renewed interest in reusable products in areas where disposables had almost become the only option (e.g., infection control gowns),” adds Gabriel Boardman, president of ARTA and vice president of Product Development for MIP Inc.

“Many of the industry’s textile suppliers have domestic resources that help them in situations where borders are closed or where certain key offshore suppliers may hoard production for selected customers/markets.”

ALM adds that the laundry-processing industry continues to be of high value to businesses serious about reducing their carbon footprint.

“Commercial processing’s efficiencies from water reclamation and the impact of a business utilizing reusable textiles over the disposable/single-use products makes them a highly desirable corporate partner,” shares Linda Fairbanks, ALM’s executive director.

TRSA also sees the fact that the industry is founded on competitiveness as a strength.

“While some companies anticipate reduced sales, budget cuts and cashflow and employment issues, some see competitive opportunities,” says Ricci. “They envision spending time and resources on incorporating technology and automation, building a superior work situation and investigating supplier relationships.”

Also, areas such as cleanliness are expected to grow as cultural shifts in travel, social distancing and overall sanitation take precedent.

Boardman adds, “Competitors (whether suppliers or operators) have similar goals and there is an openness to share ideas that benefits the industry.”

Laundry and linen services are large, essential businesses as well, and TRSA says the long-term market is well-suited to improved profitability.

“In an environment characterized by increased focus on hygiene, decreased pressure from marginal competitors and an acknowledgment of company services as ‘essential,’ there is reason to believe that once linen and uniform services are able to achieve the economies of operating at or near capacity, margins can improve,” Ricci says.

Another strength is strong access to customers. Linen, uniform and facility services are among the few types of B2B suppliers that personally serve customers’ business locations by visiting them once a week or more, according to TRSA.

“Prior to COVID-19, linen and uniform service route personnel were so well recognized in these locations that, once their presence was noted, they could walk unaccompanied throughout such facilities as valued contractors,” Ricci points out. “Virus prevention has increased touch-free/outdoor deliveries but route service personnel remain highly visible.”

Laundry and linen services are also bolstered by the fact that they are long-term contract businesses.

“While operators have been flexible in payment terms and recognized customers’ hardships, these are viewed as goodwill gestures likely to be rewarded with customers’ continued loyalty as they recover,” Ricci says. “The legal standing of long-term contracts appears sound subject to usual grounds for breakage, such as bankruptcy.”

Also, the industry has flexibility in contract terms. TRSA says customers who procure laundered textiles by the pound can “pay as you go,” maintaining their connectivity to their linen suppliers through reduced orders without severing the relationship.

“In uniform rental, adds and stops are common,” Ricci points out. “Absent stipulated minimums, contracts can remain in force as minimal service continues. Conversely, if a customer is a loss leader who has been carried without reaching such a minimum, an amicable parting of ways may be likely.”

Finally, Boardman points out that laundry and linen services have many educational and support opportunities.

“The abundance of great associations (TRSA, ARTA, ALM, IAHTM, etc.) allows members to benefit from many networking events where members share common values and interests,” he points out.

WEAKNESSES

While the laundry/linen services industry has many strengths going for it, there are weaknesses that operations have to overcome. One such weakness relates to operational infrastructure.

“With some companies experiencing major reductions in revenues, forecasting their inability to return to previous levels for up to two or three more years, lowering margins will require budget cuts and efforts to preserve cash,” Ricci says. “That can curtail spending needed to expand or economize.”

Operators will also need to think creatively about the supply chain and build relationships with other vendors, instead of relying on the international supply chain as in the past, says TRSA. Disruptions are anticipated in importing textiles, along with possible impacts from tensions in trading between the United States and China.

“In healthcare, operators envision more alignment with suppliers to manage costs, given reductions in reimbursements provided to medical facilities,” says Ricci. “Such challenges and disruptions portend the loss of reliable access to some textile items and increased costs.”

ARTA notes that the disposable industry has deep pockets.

“The production of disposable items benefits from automation that gets faster and more efficient by leaps and bounds,” Boardman points out. “Quality and availability will need to trump abundance and low cost per unit.”

Lower margins are another weakness the industry is facing.

“Capital spending will need to rise for improvements to contend with reduced labor,” Ricci points out. “Greater aggression in signing new customers will be required to increase revenue to offset those costs. This combination of higher expenses and lower revenues squeezes margins.”

Because many operators invoice customers often, lack of payment disrupts cash flow, TRSA says. Receivables rise as customers face decreased revenues (e.g., restaurants’ limits on capacity) and higher costs to adapt to increased health and safety concerns.

“Such financial difficulties are forcing linen and uniform service management to prioritize, making balancing customer retention with customer delinquency tricky,” shares Ricci. “General managers are being asked to make decisions based on the long-term value of a customer and its financial position. Long-term contracts may become less prevalent.”

Unfortunately, services that are dependent on foodservice and hospitality will continue to suffer as COVID-19 restrictions remain.

“Linen and uniform services that specialize in these markets are deeply invested in the infrastructure and expertise to serve them,” Ricci points out.

“These customers require access to capital markets to sustain customers and expand. Their lack of such access extends to our industry as banks are very suspect to make new loans connected with travel or tourism, making it difficult to pivot from these markets to others.”

As foodservice and hospitality businesses reopen, they are likely to be cash-strapped and have a deficient customer base, prompting them to consider moving to the cheapest suppliers regardless of service or quality, shares TRSA.

ALM believes a company’s greatest weakness lies in the failure, or fear, to accurately know where they stand in comparison to other like operations.

“In a conversation with a very reputable and successful laundry operator, regarding their hesitancy in participating in an external benchmarking program, they shared it was fear that their data would reveal they are not as good as they think they are,” Fairbanks shares.

“It has been shown that production-based companies that utilize benchmarking data in decision-making outperform their competition.

“Companies that make business decisions without accurate data are placing themselves at a distinct disadvantage. External benchmarking is a business practice that demands the time and attention of operators.”

Check back Thursday for the conclusion on opportunities, threats and strategies to move forward.