CHICAGO — As the U.S. economy goes, so does the laundry/linen services industry, for the most part.
And the economy has been “booming” in terms of employment, consumer confidence, inflation and interest rates.
But what, in particular, affected the industry in 2018? What will 2019 be like for laundry/linen services? American Laundry News spoke with four experts to get their insights into what happened in the past year and what’s in store for the industry.
STATE OF THE INDUSTRY
David Bernstein, president of Lapauw USA in Park City, Utah, and a frequent educational presenter on the laundry/linen services industry, says the past year has been very good for the North American economy in general and the laundry industry in particular.
“The economy is very strong, with extremely low unemployment, high consumer confidence, relatively low inflation and relatively low interest rates,” he points out. “In a word, the American economy can be described as booming. These factors have had a strong positive impact on our industry, especially in the hospitality and industrial workwear sectors. Meanwhile, the continued aging of our population has stoked and will continue to stoke strong sales in the healthcare sector.”
While there have been good opportunities in the healthcare laundry section, there have also been challenges for providers to overcome, points out Randy Bartsch, chairman and CEO of Ecotex Healthcare Linen Service in Seattle. He is also founding member and chairman of the Healthcare Linen Alliance.
“There are lots of pressures, and they start with our customers as hospitals and healthcare providers adjusting to ongoing healthcare reform,” he says. “As an example, the consolidation trends we are seeing are a symptom of this adjustment, not the cause.”
Bartsch says that on the supply side of the healthcare laundry industry, having half the market hanging out a “for-sale” sign shows how uncertain the future of a once very stable industry was.
“As some owners and investors look to exit, others, many backed by private-equity firms, are keen to invest in an industry that they see as fragmented,” he shares.
While the significant increase in private equity is disruptive by its very nature, Bartsch points out that it is important to consider that these investors also envision a much different future for healthcare.
David Potack, president of Unitex, a medical uniform and linen service based in Elmsford, N.Y., believes it’s a time of opportunity for the industry, especially since it has been expanding, with new laundry/linen facilities being constructed.
“There’s been some consolidation, obviously, in the last 12-24 months, which has changed the market dynamic in some areas, but in other areas, it’s created new opportunities for providers,” he points out. “I think, overall, companies are healthy. Operators and vendors report that they both feel the industry is healthy in their sectors, so I think, overall, things are positive.”
Potack believes there are opportunities for more and better products, and clients wanting to centralize procurement, taking a look at how to be more efficient and then working with laundry/linen businesses to provide a broader platform of services.
He says that Unitex is always looking out for opportunities to grow, opportunities to find new or different products to offer to clients that satisfy a current need or a future need.
“Advancing the opportunities that a company like ours can provide makes us a better value provider to our customers,” shares Potack.
“Based on TRSA’s quarterly survey, as well as discussions with members, both laundry operations and associate suppliers, the linen, uniform and facility services industry continues to demonstrate strong growth from both new and existing business,” says Joseph Ricci, president and CEO of TRSA, the association for linen, uniform and facility services.
“Uniform rental is experiencing growth in food processing and personal protective equipment (PPE) due to increased regulation in these sectors, as well as cleanroom, facility services and direct sales. Linen suppliers are focused on new opportunities with restaurants, hotels and long-term care.”
He says TRSA is working with members to identify new markets and opportunities, focusing on potential customers that are not currently using linen, uniform or facility services.
“We believe our largest competition is from online and storefront workwear sales and disposable alternatives, and that the industry will be better off working together to open and expand new markets, instead of just competing only for existing business,” Ricci shares. “If these opportunities were tapped today, the $20-plus billion linen, uniform and facility services sector could be 1.4-plus times larger.”
Ricci says the strong economy has been a significant driver of uniform rental and linen supply growth, but this has also resulted in historic low unemployment, creating significant challenges for employee recruitment and retention.
“In September, the four-week moving average jobless claims number hit a new 49-year low to end the month,” he shares. “Claims are at very low absolute levels, despite a larger population today.”
He points out that greater employment increases the demand for uniforms. It also translates to more meals away from home, boosting the restaurant business, and increases elective use of healthcare services—all of which increases demand for linens and garments.
On the other hand, record low unemployment creates labor shortages and increases wages necessary to recruit and retain workers, Ricci says.
“Our industry must maximize productivity and embrace workforce diversity,” he says. “TRSA continues to break new ground in the industry in these respects, addressing these issues in most professional development events and developing programming for retaining and rewarding young and emerging company leaders.”
Typically, initial jobless claims begin to increase ahead of recessions, Ricci says, being a widely acknowledged leading economic indicator. Continuing jobless claims also remain at low levels and were lower in September.
“Analysts see no fundamental evidence that suggest deterioration in the labor market or wages,” he shares. “These trends are likely to continue, and TRSA will again concentrate on addressing their positive and negative impacts on the industry.”
Ricci says TRSA is fostering relationships among linen, uniform and facility services organizations domestically and internationally to identify opportunities to collaborate on automation and other technologies that can reduce costs and improve operational efficiencies.
THE YEAR AHEAD
In 2019, according to Ricci, consolidation and the impact of private equity will continue to have an effect on the management and direction of the linen, uniform and facility services sector, particularly in the growing hospitality (outsourcing hotel linens) and specialty medical markets.
“During the past 18 months, we’ve seen continued M&A [mergers and acquisitions] in our hospitality and healthcare sectors,” he shares. “Investors are attracted to our industry for its history of growing faster each year than the economy as a whole by serving other stable industries—food and beverage, healthcare—or pivoting to customers that remain healthy as a result of others receding, such as auto service vs. auto manufacturing.”
Ricci says TRSA’s most recent financial survey of operators, the 2018 Industry Performance Report, put 2017 median sales growth at 4.0%, trumping the 2017 U.S. GDP (gross domestic product) growth of 2.2%.
“The industry probably won’t double GDP growth in 2019, but a 50%-plus positive difference wouldn’t surprise me, especially if GDP growth projections fall short,” he points out.
“A National Association for Business Economics survey showed that two-thirds of such economists expect a downturn by year-end 2020, but only 10% see it coming next year, 56% say 2020, and 33%, 2021 or later. Respondents had a roughly 40% consensus that trade policy represents the biggest downside risk.”
If the economy remains strong in 2019, Ricci sees a possible 4% median growth in the TRSA Industry Performance Report. This represents TRSA members, however, not the industry as a whole, he points out.
“Industrywide, operators should be busier and produce more cost effectively,” says Ricci. “But to what extent? Those that upgrade to handle more business without hiring too many more employees will gain the most. The greatest growth segment of the industry will likely be specialists in work from hotels, as that industry increasingly values the economic gains of outsourcing linen over the expensive convenience of operating on-premises laundries [OPLs].”
A continual focus for laundry/linen operations, according to Potack, is cost containment.
“I think cost is something that is really one of the challenges going forward in 2019, in figuring out how to manage that or take costs out of your operating equation, whether more efficient operations or distribution logistics, whatever the circumstance might be, company by company,” he says. “I think that’s probably the biggest concern.”
Potential areas for rising costs Potack shares include labor issues and the potential for increases in tariffs, which could impact cost of textiles, equipment and other materials.
“Whether you’re in a major metropolitan area that went through a significant minimum wage adjustment, which pushes all wages up, or you were in the scenario where you were potentially in a high growth area, which sounds great but in a very tight labor market having to increase wages to attract and retain talent, both management and hourly talent, it’s a challenge,” he says.
In conversations with friends, colleagues and customers, Bernstein says the No. 1 concern is access to a qualified, affordable, stable workforce.
“Among the concerns listed by industry colleagues are the rising cost of labor, the near full employment status of our workforce, the need to recruit, hire, and retain technical and engineering staff with the requisite skills to keep our increasingly complex systems running, and a host of other factors that keep many of us up at night,” he says. “These concerns permeate all levels of the industry, including both laundries and suppliers.”
In addition to continuing mobility of workers and pressure to raise wages, Ricci says the severity of labor shortages is likely to be exacerbated by the baby boomer generation leaving the workforce.
“It’s estimated that more than one in three workers in the industry is eligible to retire,” he shares.
He goes on to say that current laundry/linen service operators need to identify potential leaders and allow them to get involved with expanding roles, responsibilities and decision-making tasks, while mentoring them through challenges.
Besides labor, the regulatory environment could also have an impact on the industry in 2019.
“I think that looking at the regulatory environment on the federal level, the current administration has worked pretty aggressively to minimize regulations that may be too burdensome, or just overall business conditions,” says Potack. “I think there’s a potential for risk at the state and local level.”
In the macroeconomic sense, he says, if the federal government reduces aid to states and municipalities, those local entities need to generate certain revenue to maintain infrastructure and governmental operations. Then there’s potential for tax schemes and costs at the local level that can be “potentially problematic.”
“We’re monitoring that for any new regulations that ultimately are really taxes,” Potack says. “In some ways, they deal with relevant issues, in some ways they’re just increases in cost of operation. I think that’s something people are focused on in the more local sense.”
There’s also the potential for global events to impact the industry, he points out.
“I think certainly the trickle-down effect of global events, whether it be cost-related in the form of tariffs, trade agreements or lack of trade agreements, could trickle down to cost of textiles, cost of equipment, cost of other products we buy, which, if we can’t pass those costs on, become an economic burden for operator companies like ours,” Potack says.
“If geopolitical events cause an economic slowdown, and that economic slowdown leads to a change in pattern of discretionary income spending, then that certainly could have an impact on the industry.”
In terms of opportunity, Potack believes there’s more of an understanding at the customer end for the need for a professional outsource partner.
“I think customers are making qualitative decisions, which is, in the end, beneficial for the better-run organizations and companies that have grown their business and reinvested in their companies to prepare for these opportunities,” he says.
As indicated earlier by Ricci and Bernstein, Potack says there is a correlation between the overall economy and the health of laundry/linen services.
For example, in the food and beverage and hospitality sectors, as the economy continues to progress, more people go out to eat, more people go on vacations, and more people stay at hotels, which is a direct corollary to the food and beverage and hospitality sector of laundry/linen services.
“On the healthcare side, healthcare continues to grow as a percentage of GDP, so providers in the healthcare space, to the extent they’re focused on their business and have reinvested and have the ability to add clients and enhance services within their clients, I see good opportunities as well,” Potack points out.
Bartsch doesn’t think the healthcare laundry industry will look much different at the end of 2019 compared to now.
“Consolidation will continue,” he says. “There will be fewer hospitals and fewer larger health systems providing care with fewer laundries and fewer, but larger, companies providing linen services to them. But for the majority of us, soiled laundry will continue to arrive and clean linens will continue to be shipped.”
Of course, technology will be another factor impacting the industry in 2019. Bernstein says that there was a time when the North American laundry industry was known as a late adopter of technology, but that is no longer the case.
“As someone who has embraced technology, I am looking forward to seeing how the industry uses technologies like robotics, artificial intelligence and machine learning to better serve its customers, improve productivity and reduce costs,” he shares.
In addition to greater adoption of technology in 2019, Bernstein says he is also looking forward to the biennial Clean Show in New Orleans in June.
“Although the trade show industry in general has lost considerable steam over the past decade, ours in an industry whose products are better seen and explained in person, and the Clean Show provides the perfect forum for end users and suppliers to come together for important face-to-face interactions, all of which lead to mutual understanding and improvement,” he says. “Besides, the Clean Show allows all us of the opportunity to see old friends and make new ones.”
While the industry is strong and continues to grow, operators do need to keep their eyes open for any signs of change.
“Aside from the industry issues we are adapting to, at a macro level it’s starting to feel a lot to me like 2007 and 2008, and I am wondering if we are fast approaching the end of this business cycle,” Bartsch says.
“Inevitably the economy won’t be as strong as it is today,” Ricci points out. “Companies should start contingency planning, assessing their vulnerabilities, but not abandoning their core values or plotting a total shift from business as usual.”
He says that this planning can help ensure that if a downturn does take place, laundry/linen services can act faster, which is critical in a recession, and avoid panic, which can lead to less rational decision-making.
“Obviously, from an economic/political perspective, as much as we like to not believe it, economies go in cycles,” agrees Potack. “We have to be prepared for any future downside, whether it’s minor or major, so that comes back to continuing to stay true to the fundamentals of how you operate the business in a most cost-efficient manner so that you’re prepared, maybe, for an economic downturn in a way that you come through it ready for the next cycle up. That’s something we always think about.”
Still, he thinks the industry is in a positive place right now, and there are trade associations and a lot of good educational content available for companies to be able to improve themselves.
“I think the industry has really evolved over time in a way that’s positive, so I think, overall, we’re excited about 2019, and we’ll see where it takes us,” Potack says.
“My crystal ball is not as accurate as others’, as evidenced by the fact that I was unable to predict the winning numbers of the recent $1.6 billion lottery or buy Apple stock when it was $14 per share,” Bernstein laughs. “That said, I remain bullish on the industry and its ability to remain strong in good economic times like these, as well as in times when the economy is not quite as strong.”