Preparing for fresh growth1 January 2005
Tony Vince reports on the uncertain economic conditions that confront Germany’s textile care sector
For those involved in the textile care sector, a great deal hinges on the performance of the German economy. With its 83million population, Germany is the biggest single national market in Europe with growing integration into the total European economy. Behind the USA and Japan it still ranks No 3 in the world by size of the GNP.
The speed of amalgamating with Europe remains high, says Martin Kannegiesser, managing director of Herbert Kannegiesser, the manufacturer of laundry equipment.
He points out that Germany is also still adjusting to the economic and social effects of re-unification. Every year more than Euro80bn is transferred from West to East. Without this shift of resources, the country’s growth could be higher and and its unemployment lower.
“By the same token, more and more German companies have become international – the German metal engineering industry alone employs 3.5million people in Germany and already a further 1.2million outside the country,” he adds.
“This is leaving Germany with a growing employment problem, especially in the segment of the lower qualified workforce with negative effects on the social welfare systems.”
According to Jesper Munch Jensen, CEO of Jensen Laundry Systems Group: “We follow the developments in Germany and sincerely hope that the overall macro-economic environment will improve as Germany should be the engine of European Union. Unfortunately, it is currently not able to live up to this role.”
The Jensen Group claims to be market leader in heavy-duty laundry process engineering, manufacturing equipment and supplying systems.Today the Jensen Group consists of seven operating companies, including five production units in Europe and one in the USA.
The group acquired Senkingwerk of Germany, a leading supplier in washroom automation systems, in May 1998 and now Jensen-Senking in Harsum manufactures the group’s washroom technology line.
“Our Jensen sales and service centre in Harsum has been able to show growth through these difficult years as we have been able to establish ourselves as a leading turnkey laundry and systems supplier to the textile rental industry.”
In the German drycleaning sector, overall revenues in 2003 fell by about 14%, while the number of companies declined by about 4%. “As in previous years, the drycleaning industry as a whole is subject to great pressure on prices,” according to Friedrich Habermeyer, president of the German Textile Dry Cleaning Association (Deutscher Textilreinigungverband or DTV)
Conditions on the laundry side are somewhat better, says Habermeyer. Approximately 2,400 laundries generated about Euro1.5bn in revenue.
“The market is developing in the field of textile rental services, especially for professional garments, working and protective clothes and in the health and hygiene sector.”
“This development is being promoted by the increasing requirements in terms of work and health protection on the European plane. Individual and customer-related services dominate in this field.”
The government could play a further role in falling industry revenues, he adds.
“The cost-cutting policy of the government is likely to result in a further down-sizing of the budget for public-sector orders,” he noted. “At best, growth can only come from expanding sectors of trade and industry.”
According to industry observers, a great number of German companies have now closed their in-house laundries and have switched to textile rental instead. Rental is seen as less expensive than providing each worker with a set of purchased clothing. Customers benefit from a service that provides control of supplies, reliable deliveries, prompt repairs to garments and a high standard of processing. Where smaller commercial laundries do exist, they tend to specialise by focusing on workwear or flatwork.
Most of the on premise laundry (OPL) sites in Germany look after in-house personal linen and towels, according to Jean-Baptiste Van Damme, sales director of Primus in Belgium. Almost all the flat linen is outsourced to a central laundry.
And indeed the German laundry sector has good prospects, according to Gottlob Stahl, of Stahl Wäschereimaschinenbau. Referring to the depth of know-how that the professional laundry operators possess, the CEO of the south German company describes the laundry market as “a wonderful market” to operate in.
Laundry operators use the robust machines most intensively and therefore also put the highest expectations on them, he says. This makes the launderers the most professional business partners that a manufacturer of high-quality laundry machines can hope for, and adds that many innovations generated by the family-run enterprise have been inspired by the expectations voiced by its professional laundry customers.
Cause for concern
Certain developments in the last few years are cause for concern, however. Chief amongst these is the tendency to favour the most economical mass production without paying any heed to the quality of the linen care, says Stahl.
“There has been such a fall in prices on this market that many laundries see themselves forced to engage in virtual discount battles. This in turn leads to an investment attitude of these laundries that is almost entirely governed by price.”
He adds that Stahl has specifically developed two machines to take these demands into account – the Divimat S600 hygiene washer-extractor and the Power Roll flatwork ironer with two rollers. These machines were mainly designed as economical models for the international market, in order to counteract currency fluctuations but they are also in demand in the German market.
There is also a move to counter the discount mentality. Some laundries are offering high-quality services that are also a little more expensive. They draw their clientele from luxury hotels and private hospitals, for example.
Convinced that this market does not only exist but will continue to do so, these companies choose to invest in machines which are particularly suited to producing a superior linen care and a superb finish.
“The ability to react to such changes of the market quickly and to cover different requirements is one of the advantages of a smaller, family-run company,” says Gottlob Stahl, who says that the company is well prepared for the future in spite of the current economic situation.
Martin Kannegiesser sees consolidation within the German textile care industry continuing with the further erosion of profit margins, because newly-formed groups mainly compete on price and less on quality, diversity and flexibility of service.
In the rental sector, the hospital market has been getting very tough, while the hospitality business has had a satisfactory year, he says.
“Uniform rental still has growth potential but with increased price competition. There has been some growth but with considerable customer movements: existing customers have reduced their work force and this can only be compensated by new customer accounts – the total sum very often remains equal.”
Decline in drycleaning
In the drycleaning market, the number of businesses has fallen sharply. Changes in clothing habits are perhaps the most obvious reason: industry experts point to the strong increase in the purchase of casual clothing at the expense of formal clothing, accelerated by the drop in disposable income per capita over the past decade.
Friedrich Habermeyer, president of the German Textile Dry Cleaning Association, says the “economic circumstances and the conditions of the drycleaning sector in Germany have changed dramatically over recent years”. He points to the continued trend of plant closures and layoffs in the industry and declining revenues for drycleaning companies in general.
“Far-reaching statutory regulations, international agreements and a variety of changes in customer behaviour have all had an impact,” he says. “Whereas a slight increase was recorded in the laundry segment, at least for the contract business, the development in the drycleaning segment was clearly negative.”
Jean-Baptiste Van Damme, sales director of Primus in Belgium, says the drycleaning industry in Germany has been going through a recession during the last 6-8 years. “The main reason is undoubtedly the transfer to casual clothing in general. Very few people wear suits whether for business or for special occasions such as weddings or parties,” he says.
The weakness in the German market continues as a result of legislation in general, and particularly from the volume of machines replaced not so long ago in order to meet the introduction of the current tougher legislation, according to Ian Hearle at Böwe Ltd, the UK representative of Böwe Textile Cleaning, the German manufacturer of drycleaning machines.
Böwe, which celebrates 60 years of manufacturing in 2005, anticipates selling into Germany a greater proportion of its machines for use with hydrocarbon–based solvents.
According to Jürgen Tagge, head of the competence centre for drycleaning at the Forschunginstitut Hohenstein (the Hohenstein Research Institute) the German textile drycleaning sector has lost around 65% of its outlets during the last 15 years. The Institute is the country’s foremost research and service centre for the textile, clothing, and textile-care industries and generically related areas.
According to Tagge, the drycleaning industry enjoyed a “golden age” in the 1970s and 1980s when the sector grew to 10,000 companies. But since the beginning of the 1990s, the number has declined rapidly.
Today numbers have fallen to 3,600, with no sign of this decline halting, he says. He blames the falling turnovers on five factors.
Strict environmental protection laws came into force in Germany during the early 1990s. Drycleaners were forced to invest in new machines, which were 100% more expensive than the previous generation and clearly had a lower production performance due to prolonged batch times. Environmentalists have dominated consumer advice centres and officially recommended consumers to avoid textile drycleaning.
Retailers have been actively promoting home care for textiles. The fact a garment can be washed at home is a strong sales argument and concentrating on such items has become trade policy.
Some dealers will not purchase garments that are marked with a “dryclean only” label.
Disposable income drop
Average disposable income has been falling since 1992. Since the 1970s and 1980s, income per household has declined in real terms, largely through a rise in taxes, especially in social security contributions.
Therefore net income is mainly spent on necessities or on leisure activities. Textile drycleaning does not belong to either category, and we have seen expenditure for textile drycleaning falling from Euros17.90 per capita in 1990 to Euros8.75 in 2002.
Specialist role declining
In the past caring for clothes at home was difficult. In the 1950s there were very few washing machines, few gentle detergents, and few spin dryers or steam irons.
Clothes were made of natural textiles that reacted with water by swelling and changing their physical features. Solvent drycleaning avoided this fibre swelling.
So when customers picked up their clothes from the drycleaners, they looked good and customers could wear them for a long time.
But times have changed. Textiles are easy to care and also fast to water. Households have washing machines, dryers, ironing stations and even shirt finishing machines.
Consumers no longer see the necessity to take the clothes for professional textile drycleaning, because the results of both care methods are closer to each other.
This is the competence problem facing the drycleaning industry.
Additionally the quality of service provided by drycleaners has worsened. Textile drycleaners have had to cope with seriously increased costs, at a time of continuously decreasing quantities of clothing to be cleaned.
Quality analysis of the drycleaning work in these years showed very few companies reacted constructively to the situation by offering excellent performances to their remaining customers.
Instead, customers found that increasingly cleaners failed to remove stains from garments and they also had problems producing a good finish when they ironed the clothes.This was especially true in the case of the high quality garments worn by the high-income classes.
The industry is concentrating into larger companies, a process that Friedrich Habermeyer at the DTV expects to continue.
Around 90% of German companies have annual revenues of less than v0.5m, but they generate only about 30% of the industry’s total revenues.
“The non-stop stream of new regulations affecting our sector makes the situation more difficult. The only solution is via increases in productivity. This means the loss of jobs is pre-programmed for our sector, too,” says Habermeyer.
“In the future, the drycleaning sector will only have a chance if it succeeds in taking account of operational aspects of the relationship between costs and prices within the framework of the corporate decision-making process. Only then can we expect an improved development, especially in the private customer segment, for the future.”