CHICAGO — Deciding where to place a drycleaning plant or drop store can be a crucial step in determining how successful the business will be, and mistakes made in this phase can be difficult to overcome.
In Part 1 of this series, we examined some of the considerations dry cleaners should keep in mind when deciding whether to buy or lease space for their companies.
In Part 2, we explored the balance between visibility and cost when finding a location in today’s drycleaning landscape, along with how perceived environmental concerns can impact landlord relations.
Here, we’ll finish by exploring methods dry cleaners should use to protect their business interests in agreements, and common mistakes made when securing business spaces.
Protecting Business Interests in Agreements
Dry cleaners eager to lease a location and get their business started should temper their enthusiasm and make sure the agreement they sign today won’t harm them in the future.
For Robert Strong, president of Country Club Cleaners in California, the primary protection in a lease agreement is simple.
“I don’t personally guarantee them,” he says, explaining that without this clause, “they can come after the equity in your home if you default on that lease.”
There are clauses that might allow a landlord to move a drycleaning business if they consider another business potentially more valuable to them. This is something cleaners need to be aware of, advises Wayne Wudyka, CEO of The Huntington Company, a Michigan-based business that includes Huntington Cleaners, Wesch Cleaners, Camelot Cleaners and the Certified Restoration Drycleaning Network (CRDN) franchise.
“A lot of real estate leases will have a relocation clause where the landlord can move you within the center and move your facility,” he says. “For instance, if they’ve got a big anchor tenant that needs more space, they can suddenly relocate you somewhere else in that shopping center that may not be as desirable.”
Steve Rettler, owner of All Seasons Garment Care and Tailoring in Minneapolis, recommends focusing on lease terms.
“If you’re signing a lease and it’s for a production facility,” he says, “you want a long-term lease that has a favorable rent rate and that doesn’t have big escalation costs year over year. And then you want first right of refusal if you’re leasing. If it’s a five-year lease, you want the option to renew.”
Common Mistakes in Real Estate
When it comes to leasing or buying a space, there are several pitfalls to avoid. One of the most frequently cited mistakes is making capital improvements on leased property, beyond necessary customization for the dry cleaner’s business.
“Building out property that you don’t own can be a costly mistake,” Strong says. “Be careful about improving someone else’s property as a tenant because it could be money down the drain.”
Rettler cautions against choosing properties that can be quickly outgrown as the company builds.
“If you’re looking at a production facility,” he asks, “what are your long-term needs? Is it going to fit your needs in the future? Don’t buy it just because it may be a good deal today.”
Wudyka highlights utility considerations: “Are the utilities sized appropriately for that center? Is there a large enough gas line? Is there a large enough water line? Is there enough power in the building? If you go into a shopping center with 110-volt electricity wiring and you need 220 to drive your motors and your drive-thru machines, that can cause a lot of problems.”
Andrew Rivkin, owner of New York’s Embassy Cleaners, warns about dry cleaners making financial miscalculations when it comes to purchasing or leasing a particular property.
“This means overpaying rent due to an inaccurate understanding of the potential business for you in that particular location,” he says. Rivkin recommends dry cleaners “accurately assess what the flow of business is going to be — not just ultimately, but incrementally, from a quarter-to-quarter basis, as you’re growing the business.”
Future Trends in Real Estate Strategy
Looking ahead to the future of dry cleaning and the real estate market, Wudyka is direct: “I think you want to own property, because that gives you control over the long-term destiny of your operation. You control the payments, and you’ll build wealth.”
“The drycleaning industry is going through a long-anticipated reset, where dry cleaners are going out of business, and in fairly hefty numbers in certain areas,” Rivkin says. This opens both business and real estate opportunities. “And the more sophisticated, better-run and better-financed dry cleaners are really picking up some of the wayward customers who are out there because other dry cleaners are closing.”
Rettler believes the traditional hub-and-spoke model of drop stores and production plants will persist, but with more strategic deployment.
“I think that mix of plant and drop stores is always going to be important, and then you have delivery,” he says. “Ask yourself, ‘Is this an area where I want to have a brick-and-mortar store with delivery to complement it?’ That might be a case for leasing property. If I’m putting in a production facility or a laundromat, then I definitely want to consider owning the commercial building and the land.”
For Part 1 of this series, click HERE. For Part 2, click HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
