Labour shortage puts growth under pressure17 December 2019
As the tariff war with China reached boiling point, the USA’s giant textile care industry braced itself for a sharp slowdown in what has been its longest bull market. But labour – finding and keeping it - could constrain company growth, reports Penny Wilson
Laundry production positions languish, unfilled for months. There is intense competition for staff, despite companies paying above market wages and offering good healthcare benefits. Many states have been raising minimum wages for political sway. Walt Disney Company set the pace to attract labour by recently hiking its starting wage to $15 per hour.
Now, reports the TRSA, a collective industry voice and whose members account for more than 80% of US linen and uniform service revenues, in some areas where living costs are highest, textile care companies are paying a staggering 60% more than the federal minimum wage. In less expensive places, it is 30%. Minimum wages vary by state and can range between $7.25 to $15.00 per hour, up from a maximum of $8.00 per hour. Unemployment, at 3.7%, is at its lowest since 1969.
Recruiting qualified maintenance and engineering personnel is the industry’s biggest hurdle. Newly hired chief engineers are amongst the highest paid employees in a plant, finds the TRSA’s 2018 survey and Compensation Benchmarking Report, and are better compensated than branch and shift managers, route supervisors and sales representatives. “We anticipate our 2019 survey will show chief engineers earning more than plant/operations, sales and service managers,” it says.
Such high employment generates greater demand for workwear. And a bull economy sees companies getting bigger through mergers and acquisitions.
Witness, says Keith Ware, vice president of sales for Lavatec Laundry Technology, the uniform market with Cintas buying G&K Service and Aramark acquiring Ameripride. “Firms are attempting to become larger and there has been a lot of consolidation of large players in healthcare, uniforms and hospitality. Much of this activity is being driven by investment firms buying laundry companies and looking for quick growth through acquisitions. In the healthcare market, many organisations are growing to become large regional or national players and laundries are consolidating in order to be able to service them.” Then they turn to increased automation to speed up production lines, cut labour and keep prices competitive. TSRA findings show its members are typically married to automation, dedicating around 8% of expenses to building and machinery depreciation and costs.
All very well, says Pellerin Milnor’s Rick Kelly, vice president of sales and marketing at Pellerin Milnor, but automation requires skilled technicians to keep operating and now they’re hard to find.
Those manufacturers with the right gear are in high demand. The Jensen-Group, for example cites accelerated interest in its Inwatec Robot automated sorting system.
Alliance Laundry System says as operations are expected to do more with less, management demands better access to operations data that improve efficiency and maintain good quality.
It reports notable uptake of laundry management systems, such as UniMac’s TotalVue system, to reduce operating costs and manage resources.
Comparing results from the 2015 TRSA’s Financial Performance Benchmarking Report to the most recent 2018 version, median laundry pounds produced per customer rose more than 20%, but sales were up just 10%. while plant wages increased by 15%. The TSRA says these are the companies well positioned to grow as long as they can garner the labour and avoid price competition.
Another giant hurdle is the environment. Linen and uniform service laundries are targets for legislators currently focussing on water and air pollution.
Lack of central government commitment and the scaling-back of the US Environmental Protection Agency (EPA) under the Trump Administration are, many report, pushing environmental actions back to individual states.
California, the eco warrior, seeks reduction of per- and poly-fluoroalkyl substances (PFAS) and accuses laundries of being among water polluters.
The TRSA has convinced the California legislature that more research is needed before it forces commercial operators to install filtration devices to eliminate microfibers in the waste stream. This could cost over $500,000 per facility. But the issue is likely to resurface. In readiness, the industry will have to prove discharges from commercial laundries, often dealing more with less harmful cotton than man-made textiles, pose less of a threat than domestic washing. Watch this space.
By 2020, California also wants all garments comprising over 50% polyester to bear labels alerting consumers that they shed ocean-polluting microfibers during washing.
Meanwhile, in US laboratories, innovators are growing pieces of biodegradable textiles from live bacteria, algae, yeast, animal cells and fungi, Scientific American reports. Theanne Schiros, assistant professor in the math and science department at the Fashion Institute of Technology in New York City says such textiles would be completely biodegradable.
Next on the green list is vehicles. New York City proposes congestion pricing that the TSRA estimates would add $25.34 to the cost of each of a laundry’s deliveries into Manhattan. It urges fierce opposition from New York laundries. At the same time it is working with CARB, the California Air Resource Board, to find grants and ways to help fund laundries with electric vehicles. Textile rental company, AmeriPride Services was a test case, now boasting 20 all-electric delivery vans. It’s a programme hoped to roll out to other states.
On the US drycleaning side, California has banned perc’s use by 2020. Whilst Marco Niccolini, general sales and marketing director of Renzacci Spa, celebrates this he argues next generation customers drive industry changes, not “a legislative pistol to our heads”.
Renzacci has an educational centre in Stuart, Florida whose teachings include use of alternatives to chlorinated substances.
Talking of next generation, the US laundry business is increasingly attracting Ivy League business graduates with zappy new offerings designed to upturn traditions. Rinse was founded in San Francisco by Ajay Prakash and James Joun, MBAs from the Stanford and Harvard Business Schools.
Rinse has rapidly spread to seven major cities, including Los Angeles and Chicago with pickup and delivery service, door to door. A spokesman said its secret is to “solve massive pain points” in the business by smoothing out processes between customers and service, and between the service operator and cleaning partners. Plus it’s virtually a 24/7 operation.
Maytag Commercial Laundry says it is seeing big numbers of multi-store owners entering the vended laundry space. The 2018 Coin Laundry Association’s industry survey shows 21% of store owners are planning expansion. Maytag says technology is allowing them to manage their stores, even when they’re not there. Machines with remote connectivity capabilities allow them to adjust pricing and rates and deliver real-time data so they can monitor efficiencies and running costs.
Is industry optimism running high, despite economic forecasts? Yes, says the TRSA. The economy won’t slip below 2% growth until 2021. Equities are expected to have periodic fits and starts. Business debt is hefty and tariffs on Chinese products loom large, making consumer confidence waver. But the TRSA says its members will thrive because they move to sweet spots in bad times.
For example, as manufacturing production jobs emigrated from the United States to lower labour cost countries, companies diversified into healthcare, investing heavily in providing workwear. Linen and uniform services reduced their service minimums and profited from serving smaller businesses. Linen rental respondents forecast 3.7 percent growth over the next 12 months; uniform rental operators forecast 4.5 percent in a recent industry survey by Investment analyst Robert W. Baird & Co.
As Ware says, the economy’s health all depends on whether President Donald Trump’s tax reductions continue to juice the economy or stall it. And if China and US quit warring and thrash out a decent tariff agreement. And if inflation is kept lurking under the radar. And whether, as Pellerin Milnor’s Kelly points out, local government bodies impede or slow down the pace of permitting new construction and tax abatements. The real unknown is the US general election outcome late next year.