Textile rental focus

Coping with the cotton crisis

1 May 2011



Janet Taylor investigates how textile rental companies are reacting to the massive rises in cotton prices


There is little doubt that the ever-rising price of cotton has reached crisis proportions. Prices change almost daily and the impact on the textile rental sector is both immediate and long lasting.

Soaring prices were evident throughout 2010 and supply shortages due to factors such as flooding in the main production areas, changes in land use from cotton to agriculture and increased demand from China have aggravated the situation.

The Textile Services Association (TSA) commissioned the Cain report to clarify the situation and alert both the industry and its customers. The report quoted a rise in cotton prices of 76% (equivalent to 38% in the cost of a bedsheet) from January – November 2010. By early 2011 TSA was quoting USA figures that showed a 150% rise. CEO Murray Simpson says that with margins already squeezed, an increase in textile rental charges is needed and he believes that the crisis will have business casualties.

The seriousness of the situation is underlined by textile rental companies. David Stevens of the Paragon Group says: “The impact of cotton prices becomes more significant on an almost daily basis. This is not the right time to acquire significant new contracts as up to 70% of year one turnover will be needed just to pay for the linen. I believe that laundries without strong funding will disappear.”

Robert Adams, managing director of the White Knight Group, says that the rise in cotton prices has been so rapid that it impact has been immediate and will affect both contract renewals and the negotiation of new contracts.

There is an underlying cost of 4.6% rise in the retail prices index, which excludes cotton, and in addition a 7% cost rise to due to cotton pricing, so a price rise of around 11% is needed.

Discussions with customers will be quite difficult as hotels also have economic problems but Adams says: “We have to include these costs in our pricing if we want to stay in business. It’s an industry-wide problem, not just a White Knight one,” says Adams.

The company has a “profit model” system that includes all variable costs, particularly cotton and diesel, so the situation can be clearly seen.

Both linen and garment rental businesses are affected but particularly linen rental where stock costs for some customers have risen by as much as £150,000 compared with last year.

Textile rental companies are only too aware that while passing on some of their cost increases is inevitable, the hotel and hospitality sectors are facing their own economic problems, so achieving rises will not be easy.

Action to mitigate the effect of the crisis will also need to explore other routes and this applies both to the laundries and to their customers.

David Stevens at Paragon says there is a need to improve the security of assets (rental linen) both at the laundry and at hotels. He says that in Birmingham there have been at least three cases of hotel linen rooms being cleared out overnight and adds that this is likely to become a bigger problem. Paragon is employing an independent security company to help reduce the risk of linen theft at hotels.

Adams at White Knight says that the laundry is looking at improving stock management through controlling stock movement, reducing linen abuse by the customer – another industry-wide concern – and also reducing linen losses.

White Knight operates a bespoke service so it can count linen in and out. “If we can demonstrate that everything that has come in has been returned, the customer must be responsible for any losses,” says Adams.

Whatever action is taken, Adams stresses that White Knight does not want to reduce product quality as it offers a premium service.

However, the company has recognised that there may still be some life in the linen left at the end of a two-year contract and that such products could be re-used in variable contracts to encourage new business, thus sparing some initial stock outlay. The service would still be a dedicated one.

David Johnson, managing director of Bourne Textile Services in Lincolnshire, says that the company monitors all costs month-by-month and year-by-year. Textile costs started rising in 2010.

“We have to make sure we are covering our costs when we take on a business,” says Johnson. The company talks to its customers about pricing and Johnson says that they are aware of the laundry’s problems but he can also see that hotels have problems, particularly in the provinces where occupancy has dropped over the past 12 months.

The cotton pricing problem has been “on the cards” for 7 – 8 months and Johnson’s company has been able to plan ahead. Those businesses that haven’t planned and have not charged correctly could fail, he says.

Bourne Textile Services runs delivery schedules seven days a week and Johnson says that this is a tremendous asset in controlling costs as it reduces the amount of linen in service and makes the turnover rate much better.

It also helps to improve the security of linen at the customer’s premises. Hotels don’t have room for bulk storage and so working on a “little and often” delivery strategy means that linen is not stored outside where it is easier to steal.

William Bell, managing director of the Imperial Laundry and chairman of the National Laundry Group (NLG), says that cotton prices are having a more dramatic impact on textile rental than any single factor has had for a long time. The rise comes on top of heavy increases in costs such as energy and fuel.

Bell says that extra costs will have to be passed on but the question is by how much? TSA is suggesting 11% but that will be very difficult to justify from the customers’ point of view.

Through talking to other NLG members he knows that everybody has been cutting expenditure. At his own business, the first step has been to extend the length of a contract to avoid having to renew linen so often. This is not only because of the pricing situation but because supply has also been problematic and affected both the way that companies deal with new customers and with renewals.

Lead times can be 12 - 16 weeks and this makes it difficult to attract new business.

Although the company has been trying to cut back on replacing stock, extending stock life has to be balanced against the need to maintain quality standards and make sure the linen is serviceable.

Imperial is trying to pass on some of the extra costs and is now pursuing a policy of putting in two price rises per year to lessen the impact on the customer, but as yet such rises have still to come through.

Bell feels strongly that customers must pay a charge if linen in their care is misused or abused (used for general or kitchen cleaning). He feels that imposing a charge for misuse should apply right across the board and every company should include an ”abuse” clause in the contract. That is workable but the industry as a whole has not encompassed it.

The National Group does maintain fairly stringent and consistent standards on this problem.

Security is clearly a concern both at the customer’s premises and at the laundry – thieves had recently tried to steal cages of linen from outside the building but luckily a member of staff had stopped the attempt.

Keeping stock secure on the customers’ premises is also difficult. Store rooms are often insecure in themselves and located in insecure areas such as the back of the building and this makes stock difficult to control.

In theory customers would be willing to work on this but in practice Bell feels the co-operation might not be wholly successful. Auditing stock would be helpful but would the amount gained in reduced losses make the audits cost effective?

The impact of the cotton price hike is immediate, so a solution in six months isn’t that helpful says Anthony Moore, managing director of Fresh Linen , which serves hotels in London and the South East, and a director of the Brilliant Group, which acts as a marketing operation for members offering a national service. He continues:”We have to continue buying replacement linen. We import directly and have done for a long time.”

Speaking at the end of February, he said the cost of container of sheets had more than doubled.

At the time he was still setting costings for new contracts and he said that they would probably be 10 – 12% higher than they would have been otherwise. He believed some hotel buyers were taking cotton pricing on board and preparing for higher charges but that others were just looking elsewhere. Like the other textile rental companies that LCN spoke to, Fresh Linen is trying to preserve its stocks both at its own premises and at hotel customers’ premises.

As a result, the company has a ”fairly aggressive” policy towards customers that misuse linen and will add a charge, which may have a deterrent effect.

“It’s amazing what an impact an invoice can have,” says Moore.

The company also hopes to reduce abuse by supplying discarded linen, marked as such, cheaply for use as general cleaning cloths.

“If we can stop linen being abused it will have a good effect,”says Moore.

Vicki Hughes is sales director at TTH laundry service in the Wirral, a family-owned business that has evolved from handling domestic laundry to be involved in the linen rental market and became a fully-fledged commercial laundry in September last year, moving to a bigger site and installing a six-stage batch washer.

Speaking in February, Hughes said she was well aware of the cotton pricing situation. Installing the batch washer has helped to reduce running costs. The company has also tried to give the linen a longer life, and has worked with chemical suppliers to help achieve this.

TTH also has a clear policy on charging for linen misuse and makes this clear at the start of a contract. It also keeps a tight control on stock and TTH spends a couple of hours each day checking linen in and out and will talk to customers if discrepancies are spotted.

Guy Other, director at Stalbridge Linen, says that the company has to manage the effects of dramatic increases in cotton pricing while operating in a very competitive market. Much of the customer base is in catering and these customers are concerned with increases in food and utility costs and are looking to the non-food sector to reduce costs.

“So it’s up to us to negate some of the increases in our raw material costs and cotton is the most significant,” says Other. “We’re going to be able to achieve this with some customers but not with all.”

Other says that the company is looking at areas such as stock use, encouraging customers to take care of their linen and not to abuse or to hoard stock but in the end, such measures won’t negate all the increase. The company does not work on a contract basis and pricing will be considered individually.

Other says it will be very difficult to avoid passing on some of the increase. The company insists that it cannot compromise on quality.

Although in the main the focus in dealing with the cotton crisis has been on the hospitality sector, areas such as workwear are also affected. Chris Jackson is CEO of Giltbrook Cleaners, which operates in the workwear rental sector. Jackson says that it is difficult to get manufacturers to say how much of the price rise is due to cotton pricing and how much to demand exceeding supply as people held off buying in 2010.

So while there are pressures, it is difficult to identify the precise cause. Jackson says that the company will always manage the garments and with the customer’s consent work to extend the life of garments so that they remain fit for purpose as long as possible.

Giltbrook is talking to customers and explaining the situation, but Jackson says the reality is that: “We’ve got to get the price back to a sensible level. In the meantime we have to make sure that we’re picking the right product in terms of fabric to give us a chance to manage the situation.”

Pricing has to be seen in the context of companies having to reduce costs as both workwear rental companies such as Giltbrook and customers are facing price pressure and the reality is that there’s less room to sustain business. Jackson says there are two main fabric types in use, cotton-rich 60/40 cotton to polyester and polycotton 65/35 polyester to cotton.

The type of fabric used will depend on the customer’s sector – garments for medical and food sectors might tend more to polycotton garments while the engineering sector might focus more on cotton-rich.

But in very general terms there may be an option to move to fabric with a higher polyester content, and possibly even 100% polyester, in some cases.




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