U.S. DryCleaning Corp. is trying to do what many have failed at.
The Newport Beach-based company is seeking to make a dent in the nation’s $10 billion dry cleaning industry by becoming the largest consolidator of dry cleaners.
It is using a “roll up” strategy to consolidate the fragmented dry cleaning market by acquiring the top operators and running them under one management.
The company buys dry cleaners that generate more than $5 million in yearly sales and are No. 1 in their markets, according to founder and Chief Executive Robert Lee.
“The industry is ripe for consolidation,” Lee said. “We’re only going after the market leaders.”
U.S. DryCleaning has made about a dozen acquisitions since Lee and two partners formed the company in 2005.
Last year the company made an initial public offering on the low-profile, over-the-counter Bulletin Board with a recent market value of about $16 million.
It expects to have sales of about $25 for the year through September, including an acquisition that has yet to close.
The goal is to hit $100 million in sales next year by acquiring more dry cleaners, Lee said.
The company also hopes to move its stock to a bigger exchange, Lee said.
“We’re in our early stage now,” he said.
U.S. DryCleaning counts more than 60 stores in California, Virginia and Hawaii under the brands Boston Cleaners, Martinizing Dry Cleaning, Roadrunner Cleaners, Zoots Cleaners, Young Laundry & Drycleaning and Caesars Cleaners.
The company counts some 500 workers at its stores and four factories in Riverside, Hawaii, Central California and Virginia.
The factories, excluding the Riverside location, span about 30,000 square feet. All serve as central processing plants for laundry, dry cleaning and pressing services.
Lee, a veteran of the video rental store industry, started researching the dry cleaning business in 2001.
He wanted to cash in on the dry cleaning industry’s stability, which is made possible by the constant demand for its services and the recurring revenue that stores generate.
“No matter what happens, people still need their clothes dry cleaned and pressed,” Lee said.
Dry cleaners don’t have to invest money in inventory since they’re service driven, which makes them less susceptible to economic downturns and trends like retailers, Lee said.
“There’s no waste because there’s no inventory,” he said.
Lee spent several years looking at dry cleaning companies to acquire before starting U.S. DryCleaning.
He and his partners raised more than $10 million from friends and family and another $6.1 million from its public offering to fund buyouts during the past two years, Lee said.
More buyouts are on the way including a chain that’s based in Knoxville, Tenn., he said.
Other companies have taken stabs at consolidating the dry cleaning industry before and failed because of timing and lack of technology and experience, Lee said.
Tight credit markets in past economic downturns have made it difficult for companies to fund roll ups, he said.
Lack of technology in years past also made it hard for companies to keep their businesses efficient and keep up with environmental regulations, he said.
The added costs of environmental regulation also have deterred many from consolidating the industry, Lee said.
“We’re green and we’re clean,” Lee said. “We want to keep it that way.”
Streamlining
Companies that have attempted roll ups in the dry cleaning business often face difficulties streamlining and centralizing production, he said.
U.S. DryCleaning believes it can overcome hurdles by keeping experienced dry cleaning executives.
“When we acquire a company, we keep upper management because we want their expertise,” Lee said. “They know the business inside and out.”
The company plans to keep production centralized, Lee said.
“We want to be the most efficient in the business,” he said. The future of dry cleaning is all about centralized processing because there needs to be productivity.”
Keeping the company’s dry cleaning services at factories instead of individual stores allows the company to clean more clothes than their smaller competitors, he said.
Rather than re-branding the companies it acquires, U.S. DryCleaning opts to keep their images intact to keep loyal customers.
“The businesses we acquire often are generational with longtime customers,” Lee said. “We don’t rebrand them because they have loyal followings.”
U.S. DryCleaning faces competition from other dry cleaning chains and the vast amount of independently owned shops scattered throughout the U.S.
Competitors include small franchised companies such as Minnesota’s Dry Cleaning Station and even consumer products giant Procter & Gamble Co., which will open a chain of dry cleaning stores under its Tide brand this year.
U.S. DryCleaning also has to deal with the high cost of materials and insurance.
The regulatory compliance costs of being public also are burdensome, he said. If the company wants to trade on a bigger exchange next year, it’ll have to set aside more money for legal and accounting fees to make that possible, Lee said.
“It’s very expensive being public,” he said.
Labor isn’t cheap either, Lee said.
U.S. DryCleaning opts to pay its workers more than minimum wage and offers them stock options to keep productivity, quality and morale high.
“If you want quality from your workers you have to offer them more,” he said.
Full Circle
The dry cleaning business could give Lee a chance at making it big again.
The Korean-American entrepreneur started and ran Bakersfield-based Video City Inc., a video rental chain that he grew from 18 stores to more than 130 stores in 12 states.
Lee bought his first video store in Mission Viejo in 1983 and grew Video City into the fifth largest video rental chain in the country before leaving the company in 2000. It later went bankrupt in 2004.
Lee was born in Mississippi to parents that fled South Korea in the 1950s during the Korean War and moved to Orange County during the 1970s with his minister father and homemaker mother.
Growing up, Lee spent time helping his uncle run a dry cleaning business.
Lee said he’d never thought he would get into the dry cleaning business when he earned a business degree from the University of Southern California.
“It’s funny how things come full circle,” he said.
