Low prices could dent confidence in recovery

There are signs of recovery on the horizon for Belgium, the Netherlands and Luxembourg – but it will take some time before full confidence is restored.

In the meantime prices will come under even greater pressure as the laundry industry faces up to budget cuts in healthcare, industry and hotels and increased competition between the major players.

“Certainly the fall of two consumer banks and massive government support for the major banks in Belgium and the Netherlands did not boost morale,” says Marc Woudenberg from Jensen. Business and consumer credit became difficult to obtain. Many companies postponed or withdrew their plans and investments for the future, causing a substantial drop in sales.”

However, 2010 has started well for Jensen with orders from a wide range of laundries wanting to replace old equipment with more efficient, cost-effective machinery and process improvements.

With one of the lowest unemployment rates in the OECD, the Netherlands should be well placed for 2010. However, according to Statistics Netherlands, the Dutch economy shrank by 3.7% in the third quarter of 2009, when compared with the same period in 2008. Household expenditure fell by 2.4% and turnover in hotels and restaurants was down on the previous year, with hotels suffering the greatest downturn at 6.2%.

Employment has declined in a range of industries, impacting on the demand for workwear and business clothing, such as suits, which needs to be drycleaned.

The Dutch government has ploughed money into the economy to try to stimulate the recovery. However, although this provided some support for the textile care industry in meeting its environmental and other requirements, it has increased the budget deficit and so contributed to some nervousness in industry about how it will service the debt.

It is common for many Dutch consumers and businesses to drop off their laundry at a cleaning unit in a local shopping centre or business estate. According to Rob Zeedijk from Laundry BV, which supplies Ipso products in the Netherlands, environmental concerns mean that while it is often very difficult for drycleaners to open a new business in a local shopping centre, it is much easier to open up a shop where consumers can drop and pick up laundry. The launderer can then take that laundry to an industrial estate to process and return it to the customer at very little cost.

In addition, the Dutch government provides subsidies to help businesses meet their environmental targets, including a subsidy for gas heating systems for laundries.

The government also used to provide funding for laundry for elderly care homes but, according to Zeedijk, this has been withdrawn and residents now have to pay for their own laundry. As a result, many residents are giving their washing to family members rather than send it out. Now laundries don’t know how many kilos they will get each week,” he says, where they once had a much more stable business from the sector.

Cinet, the European textile care association, is optimistic about the Dutch laundry market and the ability of small- to medium-sized companies to survive the downturn.

To help those servicing the healthcare, restaurant and hotel sectors meet strict environmental and hygiene requirements, the Dutch association for textile service companies, FTN, has developed the CERTEX quality scheme.

Cinet says more than 50 Dutch textile service companies are now CERTEX certified. “CERTEX distinguishes itself from ISO9001 because its demands are even higher,” the organisation says.

In Belgium, the recovery seems to be slower but there is some confidence that it is on the way.

However, the OECD warns that unemployment is likely to continue growing until mid-2011, to a predicted rate of 9.2%.

Where the impact of the downturn has been most strongly felt, however, is in the laundry market. Hotel business in Belgium fell by around 25% in 2009, as did workwear and construction and the restaurant sector was down by around 15%, according to figures supplied by the Belgian Federation of Textile Care (FBT).

Many Belgian companies have closed, while others have cut their working weeks to three or four days in an attempt to survive the crisis.

Philip Streitz from Kannegiesser Belgium, whose company became part of the Kannegiesser family on 1 January 2010, says that this shorter week has led to a decrease in demand for workwear laundry services. He says “mixed” laundries, which also service the hotel and restaurant sectors, have been able to survive but a few laundries have had to close their doors – a result caused not only by the economic crisis but also by low prices.

According to Marc Broers from Ardennes et Meuse, which provides laundry services for the hotel, restaurant and conference sector, price has become the main driver. “In our sector, and especially in Belgium, prices are too low, mainly because of the private laundries,” he says. This has been exacerbated by competition from the big laundry groups from other countries, such as the Netherlands, which are now operating in Belgium.

It is a similar story in the healthcare sector, where mergers, particularly in nursing homes, have put a lot of pressure on laundries to lower prices. Raf Vanmechelen from St Joris Laundry explains: “Before, you were negotiating with nursing homes with 60 beds each.

“Now there are fewer groups with bigger contracts, so it’s the price that counts – and the lowest price gets the contract.” Costs have been driven so low that laundries are not even covering their costs, Vanmechelen adds.

Larger laundries such as St Joris, Initial, Clean Lease Fortex and Sterima-Vanguard, are big enough to cover their losses but it is often difficult for smaller laundries to compete and family-owned laundries are gradually becoming fewer in number. Many have merged into larger groups.

Another problem, says Michel Richir from Automatic Industries, which distributes Girbau products in Belgium, is the reluctance of the financial institutions to lend money to laundries that want to upgrade laundry equipment.

Coin-op laundries are still attracting small investors from other areas. Some are trying to find a way to bring in revenues from commercial premises they have been unable to rent. However, the market is now becoming saturated in the major cities and shops are beginning to close, says Richir.

Government subsidies for ironing shops continue and as a result the number of shops offering these services has multiplied.

Richir comments: “Should the government subsidies be reduced, many of these shops will not be profitable any more.”

Great pressure

The drycleaning sector in the Netherlands is mostly made up of small family-run businesses but their numbers are decreasing.

This started before the economic crisis, as consumers changed the types of clothing wore, but was exacerbated as they tried to make further savings.

According to Cinet, the Dutch economy is still in crisis and hardly any sector remains unaffected.

However, it says that while the market for consumer clothing is declining, business markets are growing and customers are becoming more demanding.

Netex, the Dutch drycleaners association, offers a certification scheme for its members, called FashionCare, which aims to deliver high-quality textile cleaning and services. It includes weekly quality controls, environmental measures and staff training.

Although the number of drycleaners is declining, figures supplied by Cinet (from market research conducted by Netex) show that, in 2008, turnover had increased in 37% of drycleaners and fell only in the healthcare and government sectors.

“People are still hesitant about going for long-term investment,” says Gerry Wientjens from industrial drycleaning and water recycling equipment firm Wientjens. “They’re not sure if they are seeing the light at the end of the tunnel or if it’s just the train coming.”

Businesses are responding by trying to reduce costs wherever they can and in particular by looking to make energy savings.

Wientjens is currently developing a new recycling product which Gerry Wientjens describes as “low hanging fruit”, enabling the customer to make savings without having to build a totally new plant.

In Belgium, Maarten Van Severen from the Belgian Federation of Textile Care (FBT) says that despite the rise in unemployment, he thinks that drycleaning has not been particularly affected by the economic crisis. “This is because we are a “recycling” industry – people bring their clothes to the drycleaner to freshen them up so they can wear them a bit longer,” he explains.

However, as in the Netherlands, the number of drycleaners had begun to fall before the recession and is continuing to fall. Those that remain are moving more and more into wetcleaning as it is cheaper and more environmentally friendly.

One of the challenges in dealing with Belgium, says Frans Sijmons from Netherlands-based laundry and drycleaning equipment supplier Polymark, is that environmental requirements vary in each of its three regions – Flanders, the Walloon region and Brussels.

“What’s allowed in one region is not in another,” he says. In some areas, there is a requirement that a perc machine be supplied with absorption equipment, while in other regions (and in the Netherlands) the onus is on the drycleaner to find their own way to achieve a certain level of emission.

Ronald van Vliet, also from Polymark, comments: “If the legislation were clearer, it would help drycleaners make a good investment decision.”

Luxembourg has a population of just 450,000 but it is unique in that around half of its workforce comes in to work in the city from the surrounding countries, such as Germany and Belgium, swelling the population to around a million.

It is a relatively wealthy country with a GDP that the OECD predicts will reach around 2.4% in 2010 (compared to 0.8% for Belgium and 0.7% for the Netherlands).

Unemployment in 2008 was less than 5% but rose to 6% in 2009 and is expected to rise to 7% this year. However, it is important to note that this number does not count those who lost their jobs who live outside the country, so the real unemployment rate and the impact on local businesses is much higher.

When these “cross-border” workers are made redundant, says Laurent Surmont from drycleaning group 5àSec, their business also leaves the country. But, he adds, those who are still working continue to use drycleaning services.

The 5àSec group is the largest drycleaning business in Luxembourg with a market share of around 50%. Most others are small family-owned shops, and there is one other family-owned chain with around six shops. Although only one drycleaner has closed down so far as a result of the economic crunch, Surmont thinks that others may soon follow suit.

The Luxembourg government has strict environmental regulations which, says Surmont, can make it difficult for those who are thinking of opening a drycleaning business. Perc machines are not allowed and floors must be constructed to prevent solvent leakage. If existing businesses change their equipment, they can no longer replace old equipment with another perc machine. It must be hydrocarbon or another environmentally friendly solvent.

This year 5àSec launched a customer loyalty card, the first drycleaner in Luxembourg to do so. Offering discounts to customers who regularly use the group’s services, it has proved popular with 15,000 customers signed up so far.

Most drycleaners offer shirt services but expanding further into laundry is not yet common and Surmont believes 5àSec is the only drycleaner in the country to currently be offering a broader range of laundry services.

In all three countries of the Benelux region, there are still challenges to be overcome, particularly for small businesses. However, there are also opportunities.

As Massimo Sanvito from Pony says: “The current economic situation may not be as good as it was years ago, but there are signs that it will improve in 2010.”