How Today’s Labor Market is Impacting the Laundry Business
When Houston laundry owner Rob Maes looks at his 2017 W-2 forms, one number jumps out at him – 600.
As in a 600-percent employee turnover rate.
“In other words,” Maes clarified, “on average, we replaced every single employee once every two months. And, when I talk with other store owners, labor is the topic that comes up the most often. It consumes, by far, the greatest amount of my time.”
Maes’ situation is perhaps not all that surprising, given the current state of labor in the U.S.
The labor market is near full employment. The jobless rate is low. The economy is adding tens of thousands of jobs each month, and wages are increasing for workers at or just above the minimum wage.
Indeed, Walmart recently announced that it would provide a wage hike to and expand benefits for employees across the country, with 85,000 workers with two decades of seniority at the big-box retailer getting a $1,000 bonus and a million workers in total benefitting. In addition, 18 states bumped up their minimum wages for 2018, providing an estimated $5 billion more a year to 4.5 million workers, according to calculations by the Economic Policy Institute.
Over the past few years, the unemployment rate has fallen precipitously for less-skilled and less-educated workers. The jobless rate for workers without a high-school diploma has dropped from 8 percent as of December 2016 to 6.8 percent at the end of last year, while it dropped from 2.3 percent to 2 percent for workers with a college degree over the same time period. Low-wage workers are also seeing big increases in their earnings, compared with middle-income workers, and the poverty rate is declining as well. The “long-term jobless” – those with criminal records and individuals with disabilities – are getting hired, despite some economists’ fears that they would remain structurally unemployed even in a hot labor market.
A number of trends have coalesced to boost the fortunes of the working classes. In announcing that it would move its wage floor up to $11 an hour and expand its paid maternity and paternity leave policies, Walmart pointed to President Trump’s massive corporate tax cut.
“We are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business, all of which should benefit our shareholders,” Doug McMillon, Walmart’s chief executive, said in a statement. “However, some guiding themes are clear and consistent with how we’ve been investing – lower prices for customers, better wages and training for associates, and investments in the future of our company, including in technology. Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.”
“With the labor market tight, most employers have been raising pay, especially now that states covering one-fifth of the U.S. workforce are phasing in $15 minimum wages,” added Christine Owens, executive director of the National Employment Law Project.
Other retail companies with which Walmart competes have already done so. Target, for example, boosted its starting wage to $11 an hour last October and has vowed to move it up to $15 by 2020.
Much the same is happening economy-wide. Businesses are struggling to fill vacancies, with growing signs of labor shortages in a number of industries, among them healthcare and construction.
“As the labor market has tightened, employers need to shift their strategies for hiring workers,” wrote Jed Kolko, chief economist at the job-search firm Indeed.com, in a research note. “Some firms will offer higher wages; some will loosen their hiring requirements or invest more in training. This helps less-qualified workers, who might now be considered for jobs that would have been out of their reach earlier in the recovery. That’s one reason why the biggest gains in employment in 2017 have gone to workers with less education.”
Additionally, there are the states and cities increasing their minimum wages, often under pressure from the labor-backed “Fight for $15” movement or through popular ballot initiatives. California, for instance, passed legislation setting its state minimum wage at $11 an hour, directly benefiting 13 percent of its workforce and pushing $2.7 billion more a year into workers’ pockets, EPI has estimated. Maine added a dollar to its wage floor this year, and Hawaii 85 cents.
Here’s a look at three key statistics from last year’s labor overview:
• The unemployment rate hit 4.1 percent this past October. The last time the unemployment rate fell below 4.2 percent was December 2000.
• The number of job openings surpassed 6 million in June 2017 for the first time since the Bureau of Labor Statistics began measuring job openings – coincidentally, also in December 2000.
• In September of last year, the census bureau reported that median household income reached a record high in 2016. Adjusted for inflation, the 50th percentile household made $59,039.
For some vended laundry owners, can this all be pointing to too much of a good thing?
If the labor market tightens further – or if, as some argue, the market is already so tight that it has little room to grow – what challenges will we contend with? That leads to a big question: How will employers respond to a tightening labor market?
Falling unemployment and rising wages for people with less education are drawing in job seekers and raising their expectations. On the Indeed.com site, searches for full-time work have increased, but not for part-time work. Good news for workers brings challenges for employers. Companies may have to raise wages, relax hiring requirements or invest more in on-the-job training, and they might struggle to fill part-time jobs. Tellingly, more job-seekers are searching using terms like “no background check” and “felony-friendly” jobs.
In addition, the share of prime-age adults who aren’t working because of illness or disability has risen from 2 percent in 1970 to more than 5 percent today, and the percentages are much higher for adults with a high school degree or less. This long-term trend has worsened with the opioid crisis. However, the tightening labor market – especially for less-educated adults – may be lifting wages enough to lure some of these adults back to work.
So, what does all of this mean for the laundry industry?
“Rising wages will force many laundromats whose prices have been stagnant for both self-service and drop-off laundry service for far too long to finally raise their prices to realistic levels to adequately support their company’s payroll needs, or at least provide a convenient and justifiable reason to do so,” said Brian Henderson, operations manager at Liberty Laundry in Broken Arrow, Okla. “This may force some owners to realize that their current business model may not be viable in the near future. This may be polarizing: Some may fashion their stores and services into a premium experience for their customers, demanding a higher price; others may go for a bottom of the barrel, a cut-all-costs-possible kind of model with increased automation to slash payroll costs.
“I typically look at the pay rate offered by some of the largest employers of part-time workers in our area, such as QuikTrip, a major gas station chain. I feel that they have the best idea of what pay rate is necessary to attract and keep labor for entry-level positions, due to the sheer scale of their operation. I make sure our beginning pay rate at least matches theirs.”
Over the last several years, employee costs have become a major concern for Chicago multi-store owner Paul Hansen – with the city raising its minimum wage from $8.25 an hour in 2015 to its current rate of $11. What’s more, Chicago has two more $1 an hour hikes scheduled over the next two years.
“This has been part of a triple whammy to hit Chicago-based operators over the last several years,” Hansen explained, “with the other factors being a 130 percent increase in water rates and a 30 percent jump in property taxes.
“In the past, I’ve always paid about a dollar above the local wage and included benefits like paid vacation, paid meal breaks and commissions on wash-dry-fold. However, with the increases, some of these have been trimmed back somewhat.”
Daryl Johnson, who owns the Giant Wash laundry chain, based in St. Ansgar, Iowa, pointed out that store operators who offer wash-dry-fold and other full-service products face a significant struggle with the current labor market.
“We are exclusively a self-service operation,” Johnson explained. “So, we’re not dealing with the need for employees to handle wash-dry-fold service or to provide that type of customer care. However, for owners who offer that service, this is a major challenge – because you can’t afford to pay $20 an hour to be able to get qualified help to wash and fold laundry.”
“I believe that, as long as you stay at the bottom end up the job pool, the quality of worker is getting harder to come by,” said Ross Dodds, co-owner of Wash on Western in Los Angeles. “My turnover is very low, and I believe that can be attributed to staying above the low-end of the labor market. I implemented new hiring procedures and started treating my jobs as better, higher-end positions.”
As the labor market has tightened, many laundry owners have seen the competition with fast-food outlets and major retailers increase, as everyone vies for essentially the same labor pool.
“It’s a major struggle,” Johnson said. “I don’t care if you’re Target, Walmart, or a little guy – the market is tight right now. Fortunately, for us, there is a portion of the labor market not interested in working eight-hour shifts or 40-hour weeks, nor are they interested in working in big-box retail or food service. And we seem to offer the desired schedule flexibility some of them want.”
Johnson added that he’s seen his quality employees begin to skew more toward the older side: “The average age is going up. There are enough older people who want jobs and who are reliable.”
“We effectively compete for employees by offering comparable pay with a friendlier work environment,” said Ron Kelley, a multi-store owner in San Jose, Calif. “Employees are treated with respect, and we listen to their needs. We work hard to be somewhat flexible in our scheduling so as not to interfere with their responsibilities to their children, school or other jobs.”
“There are many people who specifically avoid working for major chains and seek out small, family-owned businesses,” Henderson added. “They appreciate close connections to the business ownership and that tight-knit family feel in their work environment. Flexibility in shift scheduling and personal connections are far more important to the overall happiness of those team members than pay rates and benefits.”
When staffing his three full-service laundries, Maes looks for workers who are “a good fit” – which could involve proximity to the store and schedule flexibility.
“It might be a stay-at-home mom or a student or someone looking for a second job at night,” he said. “And, once we get employees, we try to play to their strengths. For instance, if they enjoy doing wash-dry-fold, we try to make sure they get to do that.
“We also offer our employees free laundry anytime they’re off duty,” he added.
“I compete by offering a better work environment, better incentive programs, and better wages,” Dodds replied. “Here in California, we have businesses with more than 25 employees with one minimum wage and small businesses with less than 25 employees, like my business, with a slower-to-rise minimum wage. I’m staying above both minimum wages.
“Also, for my business model and the level of service we want to offer each and every one of our clients, pairing back to partially unattended just doesn’t work,” he continued. “I believe that’s cutting costs in the wrong way. One of the reasons we have been successful is our friendly and always-present staff, even if it’s just for a friendly ear to listen to what’s happening in their life this week.”
The Minimum Wage
As of New Year’s Day, several minimum-wage employees across the U.S. automatically received a raise in pay. In fact, on January 1, 2018, lawmakers in 18 states and 20 localities upped the minimum wage.
At the stroke of midnight this past New Year’s Eve, the following states increased their minimum wages: Alaska, Arizona, California, Colorado, Florida, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, and Washington. Those states already met or exceeded the federal minimum wage, so the new raises pushed up the bottom even higher. For example, in Ohio, the state minimum wage jumped from $8.15 an hour to $8.30.
In addition, from Albuquerque, N.M., to Tacoma, Wash., many cities took wages to even higher levels than the state minimums. For instance, in California, 11 local governments sent the minimum wage to $13 an hour or higher. In Mountain View and Sunnyvale, the wage floor rose to $15.
The Bureau of Labor Statistics reports that about 80 million workers over the age of 16 are paid an hourly wage – and, of those, about 700,000 earn the federal minimum of $7.25 per hour.
“As a general rule, an increased minimum wage will create more inflationary pressure within the local economy,” Johnson said. “And there is only so much efficiency of operations that can compensate for it.
“When you increase it from $7.25 an hour to $15 – more than doubling it – that’s going to cause inflationary pressure. It’s artificially increasing people’s incomes, which will artificially increase their overall cost of living – groceries, rent, utilities, everything goes up. And it will go up faster than the doubling of their wages. In the end, those who get hurt in this scenario are always those who are actually working for minimum wage. They lose their jobs or they get less hours, and the cost of everything goes up.”
“I don’t believe there are any silver linings in situations where the rising minimum wages are artificially created by the government,” Henderson noted. “In areas where competitive markets force rising minimum wages, it’s a signpost of a thriving market and increased economic activity, which allows for charging more for your company’s services and higher paid employees. Everything is vibrant and healthy, and it all makes sense. In areas where the minimum wage was raised before increased economic activity occurred, it’s like placing the cart before the horse and then being surprised no one is getting anywhere.”
For Bruce Walker of Wash It Kwik in Denton, Texas, the concept of a minimum wage has become “a cancer to our culture.”
“It was never meant for people to live on minimum wage,” he explained. “People need to understand not only how to make a living, but also how to manage their finances better. I offer a free personal finance class called Financial Peace University to all of my employees. With this training, they can learn how to win with money and gain valuable experience in the marketplace while working for me.”
“The rise in the minimum wage has been long overdue, and it’s rising very late to the game,” Dodds surmised. “In this part of the country, I would say that it’s still not a wage one can truly survive on – however, I think people are happier now and feel better about themselves, because they are able to care for themselves and their families a bit more with the higher wages.”
One issue Maes has with the minimum wage in general is that it provides employees with no incentive to stick with a job.
“If you’re working for minimum wage on a Saturday night and you want to go to a party, you can simply quit your job, because you know you can go down the street on Monday and apply for another job making the same wage,” he explained. “On the flip side, if the minimum wage rose to $15 an hour, Walmart and Target would have no advantage over the local laundromat – so, in that sense, it helps us compete with the big guys.”
For Maes, one clear positive to be gleaned from a rising minimum wage is the fact that “our customer base tends to be lower income, so we get a direct benefit from the minimum wage increase. A majority of our customer base is receiving a wage increase. As long as you raise your vend prices to accommodate the increase in labor costs, you should be able to profit.”
Finding and Training Employees in 2018
At Liberty Laundry, Henderson recently started using online talent acquisition software offered by the online payroll service they use, which has made application handling easier and more secure than paper applications lying around the store with personally identifying information on them.
“For future rounds of hiring, we will be able to mass email those who applied in the past but were not hired, which we hope will speed up recruitment,” he said. “We also had a ton of applications come in through a Facebook job post; but unless you make the applicants jump through some hoops to help with screening, the results are not worth much, since Facebook users just have to click a button to apply. They’ve got nothing invested in their application, so their follow-through is atrocious. You need some process to filter them and find the ones who will, for example, respond to an email with specific instructions. I was pleasantly surprised at the tools now available through Facebook for applicant screening and will further investigate what’s possible the next time we need to hire.”
Walker uses a platform from Indeed.com to find new employees.
“I find that most candidates are just clicking ‘apply’ without knowing what they’re actually applying for, so I make them do some research on our company and answer a few questions before I waste any time calling them,” he said. “If they respond, I know they’re interested in working for me, rather than just looking for a J-O-B.”
After a phone interview, Walker asks the candidates to email him one more time if they are interested in a working interview.
“I’ve found that people can’t tell me no on the phone,” he said. “They’ll agree to an interview and then not show up. This is discouraging to me and my team, so if we make them reply to an email, we have a much better chance of them coming to the interview and, ultimately, becoming a good team member.”
Dodds explained that he has had good luck using Facebook to find new hires, along with posting signage in his stores and soliciting employee referrals.
“When I have someone interested in working, I invite them in to work a two- to four-hour shift with me and one of my attendants who has been with us for a while,” Dodds said. “I give them a crash course on how we do many things and also give enough time to see if they can handle talking to clients, or if they go right for their phone and a stool to sit. It can be surprising how quickly someone will show you how they will work after a couple of weeks in just the first two hours. This has saved me many bad hires and a lot of paperwork.”
With new hires, Maes has developed a three-tiered approach to training them.
“We offer basic training for new hires,” he noted. “If they stick around a few weeks, we provide additional training. And, if they’re still here after a month or so, we offer remedial training. We’ve had to do this because it was getting too expensive to invest a full week of training into someone and then lose them.”
Tools of the Trade
More and more laundry owners are using human resources tools and technology to help them manage their staff members.
At Liberty Laundry, Henderson has been using a password-protected company intranet website that he developed using WordPress in 2012 to post messages from management, create and post work schedules, and to receive time-off requests.
“It has been a remarkably effective tool to manage our team across multiple locations and shifts throughout the day,” he said. “Since we have an internet-connected point-of-sale computer system sitting at the service counter at all three locations, every team member has access to this communication tool and we are not dependent on them using personal devices to access important company information.”
Henderson also recently invested in team management software offered by the online payroll service he uses. It includes some useful, time-saving features, such as allowing employees to access their own payroll stubs and W2 information online at any time.
Dodds and his staff utilize an app called WhenIWork for scheduling, requests off, and shift preferences and swapping.
“It has saved us a lot of time and confusion on schedules and changes to schedule,” he said.
Johnson recently switched his business model from fully attended stores to being partially attended, retaining only his highest quality and most reliable employees.
“Instead of them being attendants, we’ve converted them to janitorial staff,” he explained. “They travel from store to store, cleaning the laundries.”
Rather than each laundry being attended for 16 hours, the stores are attended for six to eight hours, depending on the size and volume of the particular location. In so doing, Johnson has instituted a cloud-based timeclock.
“We have high-quality security cameras,” he added. “We can easily communicate with customers and employees through the security cameras, and the cameras give us control of occupancy monitoring. Also, our employees have limited access to the cameras, so they can determine for themselves if they need to readjust their schedules, based on the condition of a store.”
All of Johnson’s laundries open and lock down automatically through a remote security system.
“It’s going to be a requirement,” Johnson predicted. “Operators are going to have no alternative but to be able to have remote accessibility to pretty much everything in their stores, simply because you can’t pay $20 an hour 16 hours a day.”
Getting What You Pay For
In San Jose, Kelley faced an increase of the minimum wage to $12 an hour last July, and another $1.50 boost this past January, taking the minimum to $13.50.
“And, on January 1 of next year, it will increase another $1.50 an hour to $15,” he explained. “Since we have always paid above minimum wage, my employees received a raise in June and another $1.50 on January 1. Currently, my lead attendants with more than five years of service earn $16.75 per hour.”
At Wash on Western, Dodds had four pay increases last year, and he planned to boost employee wages once more before the end of January for much of the staff that had been with the company for more than six months.
“As the business grows and we do better, I pass that on to the employees because, being a multi-store owner, I can’t be open and running without them – and I want them to always have great things to say about their job,” Dodds explained. “It trickles down through them to our clients and how they are handled consistently, and it’s what keeps everyone coming back.”
Maes starts all new hires at $9 an hour. After their first 100 hours of working for the company, employees receive a $100 bonus and a $1 an hour raise.
When Johnson restructured his operation, he gave his staff, on average, a $2 an hour to $2.50 an hour raise, as well as a vehicle stipend for mileage, due to the fact that each employee is now traveling from laundry to laundry.
“I’m always looking at my labor to try to keep the percentages in line and to make sure my labor isn’t eating up my profits,” he said. “I want my labor percentage to be about 10 percent to 12 percent of the gross receipts for the store.”
Not everyone is increasing wages.
“In fact, we actually lowered our starting wages about a year and a half ago, because we felt the results in employee longevity and work performance we were getting for offering higher-than-average starting pay were not justifying the added expense,” Henderson explained. “And we saw no significant change in turnover when we adjusted the starting pay downward. We still start new team members at a rate that is higher than the minimum wage in our area, and we offer a raise after an initial 90-day probationary period.”
Where is the labor market for laundromats headed?
“This is an industry filled with entry-level positions,” Henderson said. “I feel that any change in government-enforced minimum wages will have profound direct effects on laundromats and, in turn, have a direct effect on laundromat customers through higher prices, reduced staffing and service, or both.”
The prevailing wisdom is that, with the unemployment rate so low and the job market tightening, it’s harder to find employees. However, that’s not been the case for Hansen’s business.
“I have not seen that happen,” he said. “In fact, with the higher minimum wage, more people are willing to work in these jobs, so it actually seems to have expanded the market for us.
“Overall, wages are just part of keeping current employees,” Hansen continued. “If you treat them with dignity and respect, you can get very loyal employees. These increases in costs are a perfect time to raise prices – in addition, I try to time them to go up at the same time as the wage is increased.”
“I’m optimistic that, as fresh new energy chooses the laundry industry as a career path, they will bring a fresh look on how to staff and write a new mantra replacing the old one that says, because you are a laundry, you can’t afford to pay more than minimum wage,” Dodds said. “It’s a bit of ‘what you put out in the universe is what the universe returns to you,’ and I, for one, want to be a large employer for my size of business – and I want to be a well-paying employer with some additional benefits for my employees.
“I’ve been saying it since opening on January 1, 2017. And I can confidently say that, as of January 1, 2018, it’s working. If you pay better, you get better in return. Stop the excuse that you can’t afford it, and look at what else can be changed in your business so that you can afford it.”