AWASH IN CLEANERS : Price Wars, Environmental Concerns and Fears of a Shakeout Accompany Proliferation of Outlets in State
In the past two years, four new cleaning establishments have opened up in Pacific Palisades near the dry cleaner operated by Weldon H. Emerson, precipitating a price war that drove prices for cleaning a pair of pants to 99 cents for a while.
“You can’t make money at that price, I don’t care how efficient you are,” said Emerson, who has been in business there for 36 years and who charges $4.95 for slacks.
Emerson said he has stayed aloof from the price war but also hasn’t increased prices in the past four years. “The competition out here is fierce,” he said. Meanwhile, he noted, several of the new competitors have upped their prices after attracting a sufficient stable of new customers with low introductory rates.
Emerson, who is also chairman of the California Fabric Care Institute industry trade group in Cupertino, isn’t the only one in the business feeling the crush of competition these days.
The number of dry cleaners in the state has skyrocketed to about 5,300 plants from slightly more than 3,100 at the end of 1986, when the state shut down its regulatory agency, the California Fabricare Board, and dropped a requirement that dry cleaning operators pass a state-administered test about chemicals and cleaning procedures.
Lured by relatively low overhead, improved technology and the relaxation of state regulation, would-be entrepreneurs--especially new U.S. immigrants--are flocking to the business.
Today, new operators need only post a $5,000 surety bond and pay the California Consumer Affairs Department a $25 one-time fee as far as the state is concerned, said Cindy Thompson, assistant to the director of the Department of Consumer Affairs. Operators must also meet city and local business regulations.
“Dry cleaning businesses are very popular,” said Emory Holt, vice president of Allied Corporation Investments Inc., a Sherman Oaks-based business broker. “Retail stores are not a popular item; car washes are overpriced. But we have more buyers waiting (for dry cleaners) than we have inventory to sell.”
Even so, the current euphoria over dry cleaning businesses may be short-lived. The industry foresees costly new regulations on the horizon that they fear could make their business more difficult.
The federal Environmental Protection Agency and the California Air Resources Board have launched inquiries about the toxicity of perchloroethylene--a leading dry cleaning agent that was labeled a possible human carcinogen in 1985 after EPA tests showed that mice fed the substance developed tumors.
The South Coast Air Quality Management District, which already requires 1,760 dry cleaners in Southern California to meet perchloroethylene emission standards, is considering further regulation in the wake of the EPA tests. But a spokeswoman for the agency said no work has begun on drafting new rules.
The EPA says perchloroethylene, which is used by about 80% of the dry cleaning industry, may pose a risk to people who inhale it when it is released into the atmosphere from dry cleaning outlets and in homes where dry cleaning clothing is kept. But spokesmen for both the EPA and the California Air Resources Board say their agencies are months away from deciding whether to ban the substance.
Neither agency would speculate on what kind of regulatory action they could take. However, industry experts say they expect that the agencies would likely limit use of the chemical rather than ban it since there is no widely available substitute.
Despite the uncertainty over possible regulation, experts say dry cleaners offer a lot of appeal to entrepreneurs with little or no business experience. There’s no inventory to speak of: Clothes are not as prone to theft or spoilage as merchandise in retail stores, and an owner doesn’t even need to have cleaning equipment in his facility. He can simply ship the clothes out to large wholesale cleaning plants to do the job for him.
What’s more, the increased use of natural fabrics in clothing and the rise of two-income families with little leisure time has prompted more and more consumers to patronize dry cleaners, which rid clothes of dirt with chemical solvents rather than soap and water.
For instance, Stephanie Walker, an assistant vice president of Security Pacific National Bank, said she takes most of her and her husband’s clothes to the cleaners because she is too busy working to wash clothes and perform minor alterations.
“I hate ironing,” Walker said. “I come in (to the cleaners) once a week. In the business world, most of the things you wear--suits and dresses--can’t be washed, so you have to take them to the cleaners anyway.”
That attitude has aided cleaning establishments in high-traffic areas near office buildings and busy neighborhood shopping centers, where busy professionals drop off suits and dresses on their way to or from work, experts say.
“The return on investment in the cleaning industry is pretty high if you are in the right location,” said Adel Mogharrabi, president of Napa Investment Inc., a Beverly Hills business broker. “It’s all service and no merchandise. There’s no cost of goods . . . so the risk is much lower” than other traditional entry-level small businesses such as retail stores, gasoline stations and liquor stores.
Mogharrabi said dry cleaners normally sell for 10 to 12 times monthly gross, compared to four to six times gross monthly income for liquor stores, mini-markets and car washes.
The actual asking prices of dry cleaners on the market, added Allied Corporation’s Holt, occupy an even wider range. He said he has handled establishments in busy areas that have sold for as much as $700,000. Smaller dry cleaners, with no cleaning equipment, go for as little as $40,000, Holt said.
The low entry price and ease of operation proved to be the key attractions for Alma T. Johnson, who said she paid about $20,000 two years ago to open up A & W Cleaners on Western Avenue and 20th Street.
“I looked at restaurants, but they are expensive and it is one of the most difficult businesses to succeed in,” explained Johnson, who grew up in Los Angeles. “In the grocery business you have to worry about inventory, pilferage and crime. In the dry cleaning business you just have to worry about quality control and pleasing your customer.”
The dry cleaning business has also become particularly attractive to the thousands of foreign immigrants--especially Koreans--who flock to Southern California each year.
The Korean Dry Cleaning Assn., which started with fewer than 50 members five years ago, now has 500 members in Southern California, according to the group’s president Lee Bong Ik, who owns Flair Cleaners on Leimert Boulevard in Los Angeles.
Dry cleaning establishments are appealing, Lee said, because the business doesn’t require that operators “speak a lot of English.” Most transactions, he said, require little more than segregating clothing by type and filling out a form. Also, Lee said, Korean-Americans like the opportunity to employ family members in the cleaners, which helps them be more competitive.
Even so, there is growing evidence that the industry may be facing a shakeout as the market for dry cleaners becomes saturated. Price wars have become commonplace and business failures are up, according to business brokers.
