Forbes, the fabled publication of the noted businessman and once Presidential hopeful Steven Forbes, suggests Laundromats are a dying industry in a recent publication listing America's Fastest-Dying Industries. Lumping Laundromats with declining beer sales, store production, video stores, pay telephones, tobacco fields, newspaper publishing, music publishing, video game arcades and bowling alleys puts Laundromats in a heady field but I think it more likely the editor wanted ten dying industries and the writers could only come up with nine. They were sent back to come up with one more and Laundromats got the call. Well, Forbes has been wrong in the past, but the swipe is totally without merit.
The full article shows a feeble grasp of our industry including references to the fact that 90% of our businesses have fewer than ten employees and this will lead to "relentless price-cutting" among owners. Actually, if there were more owners with ten employees or more (beyond the cleaning people), price-cutting would be minimal. It is the actual lack of labor costs that allow price-cutting to exist and thrive in certain markets.
The article stumbles again when it references Coinmach and Mac Gray as examples of laundry services in decline. These two publicly-traded laundry service giants are in the laundry services industry (they own loads of washers and dryers in apartment buildings), but to lump locally owned coin and card operated Laundromats together with giant industrial and route operators is a mistake. The picture for the article shows dryers that are clearly part of a coin-operated facility (look at the coin boxes), but the discussion is about the "laundry services" industry are not relevant to the individual coin or card operated facility. There should be a rule that pictures match the story and the story match the headlines.
Lack of facts (see reference to "12,000 establishments nationwide" when the number is over 40,000), inaccurate stories, editorial errors and declining advertising revenue are linked to why the printed media is in decline. The print publishing business made the list as one of "America's Fastest-Dying Industries," and this article on Laundromats makes me question the future of Forbes Magazine. The conclusions and opinions offered by Forbes on this subject are worth a look but not a worry.
America's Fastest-Dying Industries
Joshua Zumbrun and Brian Wingfield 04.11.08, 12:30 PM ET
In Pictures: America's Fastest-Dying Industries
Projected employment decline: -6.1%
Projected revenue decline: -12.4%
Projected gross product decline: -4.7%
How many national laundry chains can you name? Chances are, not many. Of the 12,000 establishments nationwide, over 90% have less than 10 employees. This means relentless price-cutting competition among small firms. Combined with rising rents and utility bills, but not-as-rapidly-rising disposable household incomes, laundry services could be hung out to dry. The two large operators, Coinmach and Mac Gray, rely on their institutional clients--hotels, apartment buildings and universities--for the bulk of their revenue.
If you're being affected by the downturn in housing or financial services, hang in there. At some point, those industries will rebound. Others should be so lucky. Just look at apparel manufacturers in the United States. According to the Labor Department, their ranks are expected to decrease by 54% while their output falls more than 43% between 2006 and 2016. Then there's the ailing printing business. Jobs in that U.S. industry will drop by 22% during the next decade, with output falling by 12%.
They're classic examples of twin death knells for industries: foreign competition and technology. Why make clothes in the U.S. when the labor is cheaper in China? Who wants to publish the old-fashioned way when it's cheaper to use the Internet? So which U.S. industries are dying fastest? It's a crucial question for a host of folks, from investors to workers to government officials looking to avoid economic disaster. For answers, we turned to research firm IBISWorld for projections and analysis of declining industries from 2007 to 2012. We looked at projected changes in industry employment,revenue and gross output. As much as possible, we avoidedmanufacturing since it's widely known to be in decline.
The most surprising find: While technology is changing the face of many industries, the firms within them are often doing quite well. One strategy for surviving a technological onslaught is to control the change itself. AT&T (nyse: T - news - people ) and Verizon (nyse: VZ - news - people ), the largest wired telecommunications firms, are hardly worried that more than 1 million phone "land lines" are expected to be switched off each year between now and 2012. Both of those firms saw their wireless subscriber numbers surge in 2007.
RELATED STORY FROM FORBES
Coinmach Wrings Out A Bidder
It's hard to see the inner workings of a washing machine. Coinmach Services
(amex: DRA - news - people ), which puts washers and dryers in apartment and
dorm basements throughout the United States, said Friday it planning to be
acquired by the Australian investment firm Babcock & Brown for about $713
million in cash, or $13.55 per share. Counting assumed debt, the total value of
the deal is $1.3 billion.
Coinmach class A common stock rose 13.5%, or $1.58, to $13.29, in Friday trading.
Its income deposit securities, each of which comprises a class A share and an 11%
note with a face value of $6.14, were up 5.5%, or $1.06, to $20.35. Babcock evidently
sees something in the service company that other investors missed, perhaps a com-
bination of steady cash flow and the chance to expand Coinmach's footprint via the
Australian concern's growing U.S. real estate interests. According to Babcock &
Brown's global head of corporate finance Rob Topfer, "Coinmach's business has
many of the attributes that characterize Babcock & Brown's principal investment
activities." Some of these characteristics include: long-term customer contracts, low net customer attrition and consistent inflation-related price increases to generate stable cash flow.
What Coinmach doesn't seem to have the ability to do, however, is to earn much money. Since the company began reporting results for the fiscal year that ended in March 2002, sales have risen all of 3.0% -- that's a total not an annual rate -- to $555.3 million in the 12 months through March of this year, from $538.9 million. Over that period the company managed to lose an aggregate $177.8 million, although it turned profitable in the latest year, earning $200,000. That's 800,000 quarters, by the way. It also means Babcock & Brown is paying roughly 3,500 times Coinmach's trailing earnings for the company.
Phil Green, the Babcock chief executive officer, said the acquisition delivers its recently established corporate finance division in the United States "significant opportunities to create a broader platform for growth in that market."
Topfer, the CFO, added that business from the acquisition should be able to "leverage" off the activities of Babcock & Brown Real Estate Division in the residential market in the United States after its acquisition of BNP Residential, which was completed in March. That company was a real estate investment trust that owned 8,000 apartments in Virginia and the Carolinas. If they don't already have Coinmach machines in their laundry rooms, it's a good be that they'll be getting them. Babcock & Brown also has acquired Gregory Greenfield & Associates, an Atlanta-based owner and operator of eight shopping malls. If they have laundromats, it's a good bet that Coinmach will be supplying their machines too.
For now, at roughly breakeven, Coinmach throws off a lot of cash to its investors -- it paid an 82-cent dividend last year, plus the owners of the stapled notes get their interest payments. At the price Babcock is offering, the yield on the plain common shares is almost 13.5%, while the income deposit securities offer 7.4%. If the Australian company can generate sales growth that gets the bottom line a bit more deeply into the black, it could end up with a reasonable deal.
Meanwhile, William Camppell, an analyst at SunTrust Robinson Humphrey, described the offer as representing a "fair value" for current owners of Coinmach stock. With the shares trading near the offer price, it seems that investors agree.
One thing the Babock offer apparently did not do was set off a mad rush to buy other washing-machine-rental companies.
The only similar publicly traded company, according to Revere Research, is Mac-Gray [nyse: TUC - news - people] , which saw its stock fall 7 cents, or 0.5%, on Friday, to $14.81. Mac-Gray has a few other business lines, including reprographic machines supplied to schools and libraries, but it is a lot cheaper than Coinmach at its current price. The company would cost a buyer only 2.0 times the value of its assets, compared with the 7.0 Coinmach is fetching, and Mac-Gray's price-to-sales ratio is 0.7, well below the 1.3 times that Babcock is offering for its competitor.