113. Laundromats

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Speaker 13 About a decade ago, Jordan Berry was at a crossroads in his career.

Speaker 13 After working for 15 years as a youth pastor, he was looking for a low-effort business that would bring in money and free up time to spend with his two young kids.

Speaker 16 I was

Speaker 16 trying to figure out what to do with my life, and my thought actually was to rent out our house in Southern California and to buy a condo on the beach in Hawaii and,

Speaker 16 you know, sell seashells on the beach or whatever. But a friend of the family ended up buying a laundromat and working five to 10 hours a week.
So I thought, you know what? That sounds good.

Speaker 16 Let's shoot for that.

Speaker 13 Barry knew nothing about laundromats, but he contacted a broker and found one for sale outside of East Los Angeles.

Speaker 17 It had 30 washers, 24 dryers, and a lot of issues.

Speaker 16 It was very run down. Half the machines were out.

Speaker 16 The mismatched wood paneling all over the place, dirty and dingy. It was what we call in the industry a zombie mat.
It's functioning, but, you know, just barely alive on its feet.

Speaker 16 I bought it all cash for about $70,000 and financed brand new equipment and then remodeled the place.

Speaker 7 Since then, Barry has become something of an expert on laundromats.

Speaker 13 He's owned and operated four of them and runs a company called Laundromat Resource that offers consulting services to hundreds of others in the industry.

Speaker 24 And if there's one thing he's learned in the trade, it's that laundromats are no walk on the beach.

Speaker 16 It's fun to see buckets full of quarters. It's really fun to see huge stacks of cash.

Speaker 16 But whenever you have people and you have machines, you're going to have problems that you're going to have to deal with, and laundromats have a lot of both.

Speaker 1 For the Freakonomics Radio Network, this is the economics of everyday things.

Speaker 25 I'm Zachary Crockett.

Speaker 24 Today, laundromats.

Speaker 13 For many centuries, washing and drying clothes was labor-intensive and hygienically questionable.

Speaker 23 In ancient times, dirty garments were soaked in urine, stomped on, and brushed with the skin skin of a hedgehog.

Speaker 13 Over time, a series of contraptions were invented to simplify this process, from washing boards to hand-cranked wooden drums.

Speaker 7 It wasn't until the early 20th century that electric washing machines hit the market.

Speaker 9 Those early machines, which cost the equivalent of $6,000 today, were out of reach for most American households. Business owners saw an opportunity to buy them and rent them out.

Speaker 18 The first launcher bat opened in Fort Worth, Texas in 1934 during the Great Depression.

Speaker 13 It featured four washing machines and charged by the hour to do loads.

Speaker 6 Eventually, the industry shifted to coin-operated machines.

Speaker 7 Today, this business model is still going strong.

Speaker 13 By one estimate, there are around 30,000 laundromats in the U.S.

Speaker 13 And the industry segments itself into two broad categories.

Speaker 16 Traditionally, what people think of when they think of laundromats is what we call self-serve laundry.

Speaker 16 It's the store full of machines and you go in, you bring your laundry, you pay to do your own laundry on self-serve.

Speaker 17 Again, that's Jordan Berry.

Speaker 16 As our society has shifted, we've added a service component to the business that's growing at a rapid rate right now.

Speaker 16 And that would include, you know, drop-off laundry or wash and fold or fluff and fold.

Speaker 16 It's got a lot of names, but essentially people are realizing, hey, the most hated chore that I still do today today is laundry.

Speaker 16 And you're trying to tell me somebody will come to my house, pick it up, and bring it back to me, folded and cleaned and ready to go? Yes, please.

Speaker 27 There are now dozens of services and apps that offer laundry pickup and drop-off.

Speaker 6 Some of them partner with local laundromats and split the revenue.

Speaker 13 In other cases, laundromat owners do the job themselves with delivery vans and dedicated staff.

Speaker 24 But the bread and butter of most laundromats is still the self-service side.

Speaker 13 Customers coming into the store and using coin-operated machines.

Speaker 16 Typically, what we're looking for is a renter demographic, below median income, larger household sizes are better. Kids, we all know, are filthy, disgusting creatures and create a lot of laundry.

Speaker 18 Only around 50% of apartment dwellers in America have a washer and dryer on premises.

Speaker 19 So the demand for laundromats is still pretty robust.

Speaker 2 And customers who use them tend to use them a lot.

Speaker 16 One of the great things about laundromats is that they're what I call habitual business. People get in the habit of doing their laundry at the same place,

Speaker 16 usually on the same day, usually around the same time.

Speaker 16 And it's one of the things that makes this business really strong is that sort of predictable recurring revenue.

Speaker 24 Laundromats also have a lot of commercial clients.

Speaker 16 Airbnb management, short-term rental management, companies, local small businesses, restaurants, small hotels, motels, salons, those types of things.

Speaker 27 What kind of things were restaurants bringing in?

Speaker 16 Tablecloths, napkins, aprons, sometimes uniforms. You know, anything that needs washing, laundromats can do it.

Speaker 6 Historically, many laundry facilities in America have been owned and operated by Asian immigrants.

Speaker 26 For many decades, laundry wasn't a desirable line of work.

Speaker 13 And many of the entrepreneurs who started these businesses did so as a way to survive after encountering discrimination in the workplace.

Speaker 3 But these days, a new wave of owners is coming into the trade.

Speaker 16 This has traditionally been a mom-and-pop industry, a lot of onesie twosie store owners.

Speaker 16 However, over the last just two or three years, we've seen the profile of Laundromass as an investment class rise thanks to a lot of social media presence.

Speaker 16 We've been a very tech-averse industry up until recently and we've just started getting some tech introduced to our space that is allowing us to manage our businesses in a more sophisticated way.

Speaker 16 We're able to accept digital payment options, credit cards, loyalty cards, Apple Pay, Google Pay, those types of things.

Speaker 16 And we're also able to utilize software that allows us to manage more locations much easier.

Speaker 16 So we're seeing a business owner come in whose goal is not to necessarily only own one or two, but to actually build a portfolio of locations.

Speaker 9 If you go on YouTube and type in laundromats, you'll find dozens of videos of influencers collecting quarters from washing machines.

Speaker 30 I own this laundromat. Let's see how much money it made in the past eight days and in the entire month of September.
These are my largest machines.

Speaker 30 They can can deal with 80 pounds of laundry at once and my customers love them.

Speaker 3 This attention has made buying a laundromat more competitive than it used to be.

Speaker 16 There's a lot more buyer interest than laundromats that are for sale right now. So finding them is actually quite tricky.

Speaker 16 There are websites like a biz buy sell or a loop net that lists laundromats for sale. But a lot of laundromats get sold before they end up online.

Speaker 16 So in order to find those deals, you have to build relationships with brokers and maybe even reach out directly to store owners and try to catch them before they've put them on the market.

Speaker 25 What might you expect to pay for a laundromat?

Speaker 16 Anywhere from $50,000 to multimillions. I'd say you're looking at maybe around $400,000 to $500,000 for that average deal.

Speaker 6 When you buy a laundromat, a big part of what you're paying for is the machines.

Speaker 16 Your run-of-the-mill laundromat is probably going to have between 30 and 40 washers and you know a comparable number of dryers, give or take a little bit.

Speaker 16 The two main categories of machines are top-load machines, the door swings open from the top and you throw everything in there.

Speaker 16 The water fills up three-quarters of the way, so it uses a lot of water and it's expensive to run.

Speaker 16 And then you have front-load machines, which which only fill up maybe a quarter to a third of the way, so a lot less water. And you can have a lot larger machines.

Speaker 13 These machines come in different sizes, measured in how many pounds of laundry they can hold.

Speaker 7 And they don't come cheap.

Speaker 16 The cost for these machines varies pretty wildly. One of the issues in this industry is that there's not transparent pricing.

Speaker 16 It's very difficult to go online and find out how much these machines cost.

Speaker 15 So the prices are sort of gatekept by the distributors?

Speaker 16 Yeah, absolutely. But the typical range for the machines is anywhere from around $4,000 or $5,000 for some of these smaller front-load machines all the way up to $25,000 plus for the larger machines.

Speaker 14 At a laundromat, machines can last from 5 to 15 years, depending on size and usage, before they need to be replaced.

Speaker 19 When Barry remodeled his laundromat a decade ago, new machines set him back far more than the $70,000 he paid for the business.

Speaker 16 To retool that 1,800 square foot store was about $230,000.

Speaker 16 But nowadays, as we're building larger stores, we're using larger equipment and more equipment, those quotes get much higher than that.

Speaker 16 For that size store, if you had to replace all the equipment brand new, you're probably looking at $500,000 to $600,000.

Speaker 1 Part of the appeal of a laundromat is that it's a fairly simple business.

Speaker 13 Owners make money by charging a set amount per load, which might range from $3 to $12 or more, depending on the size of the machine.

Speaker 16 The big boy machine is the big boy money.

Speaker 29 Laundromat owners often measure the efficiency of their business in turns per day, or the number of cycles each machine gets every day.

Speaker 16 On average, three to three and a half turns is what a typical laundromat is is doing. Once you hit eight to 10 turns per day, your store is really doing well.

Speaker 16 You probably want to start thinking about, do you want more turns per day? Because that's more wear and tear on your machines and you're probably better off raising your prices.

Speaker 14 The machines need a rest like us too.

Speaker 26 That's right.

Speaker 16 That's right.

Speaker 29 But it's not just about turnover.

Speaker 28 Operators are also tracking the total capacity of their machines, how many pounds of laundry they can collectively wash.

Speaker 2 And sometimes it's more financially beneficial to have fewer machines that are larger in size.

Speaker 16 If an 80-pound machine takes the footprint of three 20-pound machines, well, we just gained 20 pounds of wash capacity for the same footprint. And the larger machines tend to be more profitable.

Speaker 16 We're seeing more and more laundromats with larger machines, 100-pound machines, 120-pound machines, 80-pound machines where you can just throw all of your clothes into one washer, get it all done at once.

Speaker 13 In the laundromat business, the revenue generated by these machines is often measured in quarters because despite the rise of technology, touch screens, and payment apps over the years, a lot of laundromats still use coin-operated machines.

Speaker 16 I'm going to shoot straight with you, Zach. A lot of people prefer a cash business, and that might be because they just prefer to deal in cash, and that might be because they prefer

Speaker 16 there not to be a paper trail of how much money their business is making. And I'll let you draw conclusions on that, but I tell you, quarters get real heavy real fast.

Speaker 17 When you put a quarter into a washing machine or dryer, it falls into an internal metal box.

Speaker 14 The typical washer might hold between $100 and $200 in quarters at full capacity.

Speaker 13 That's anywhere from 5 to 10 pounds in weight per machine.

Speaker 21 And collecting all of them can be a pain.

Speaker 16 Yeah, so quarters are a real problem.

Speaker 14 What do you do with all the coins?

Speaker 16 Typically what you do is you collect your quarters, you count them all out, so you know how much money you collected, how much money came in, and then you just dump them right back into your change machine and you pull the bills out of that and take that to the bank with you.

Speaker 16 So usually you're recycling quarters. Some laundromats operate on a surplus of quarters.
So they do have to take quarters to the bank, just not as many as you would expect.

Speaker 16 And some laundromats operate on a deficit, so they'd have to go buy quarters.

Speaker 22 And is that something you have to do every couple days, empty out those coins?

Speaker 16 It depends on the area that you're in. If you're in a rougher area that's more prone to

Speaker 16 shenanigans, you really don't want to keep a lot of money in those machines for too long.

Speaker 16 It might be every two days or so, but I'd say a typical laundromat, you probably need to collect once or twice a week.

Speaker 27 There's probably easier robberies to pull off than lugging like 400 pounds of quarters out of a laundromat.

Speaker 16 Yeah, there are, but people try it anyways.

Speaker 17 From the outside looking in, it may seem like a pretty chill gig to sit back and watch the quarters roll in all day.

Speaker 22 But just because a business is simple doesn't mean it's easy.

Speaker 17 At a laundromat, every day comes with a surprise.

Speaker 18 That's coming up.

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Speaker 20 A few years after buying and fixing up his first laundromat in Los Angeles, Jordan Berry was doing around $27,000 per month in revenue.

Speaker 13 Around $17,000 of that came from the coin-operated machines inside the shop. Another $8,000 came from a laundry delivery service he ran.

Speaker 18 And around 2,000 came from snacks, drinks, and detergent, which he sold out of vending machines at a 50% profit margin.

Speaker 26 But that revenue had to cover some pretty substantial overhead, starting with the upkeep of the machines.

Speaker 16 A lot of times the door locks jam, so people like to put as much clothes as possible in these machines, and they really lean on the door locks to try to get it to latch so those break a lot the quarters getting jammed in machines happens a lot a lot of quarters are bent a little bit or a little grime builds up

Speaker 16 one issue in particular drove barry a bit nuts the bane of my existence was the underwire in a bra.

Speaker 16 A lot of times these underwires would come out of the bras and they would go through the little perforations in the drum of the washer and they'd get lodged in the drain and then they just become a magnet for lint.

Speaker 16 You'd have to take the front of the machine off and pull off the drain and fish out this underwire and anything that was caught on it.

Speaker 17 Laundromat owners often learn how to deal with these things themselves because getting the machines repaired has become increasingly difficult.

Speaker 16 If anybody out there is looking for a new business, being a service technician on commercial washing machines would be a great one because we have a huge drought.

Speaker 16 We have a huge need and it's nationwide.

Speaker 16 Some distributors have service departments where they have in-house service techs, but usually they're pretty overworked and it can take a week, two weeks, or even more than that to get them to come in.

Speaker 16 These are your money-making machines. If they're down, they're not making you money.
And so you want to get those things repaired as quickly as possible.

Speaker 15 Barry says many operators budget around 3% to 5% of their monthly revenue for repair work.

Speaker 3 That's just to keep the machines in operation. And it's a footnote compared to the cost of the water and power it takes to run them every day.

Speaker 16 Typically, we're looking at somewhere between 15 to 25%

Speaker 16 of your gross revenue goes to utilities. It depends on the size of store and how much business is doing, but you're probably in the $1,500 to $2,500 a month month range just for the water bill.

Speaker 23 Think about what it takes to run a single washing machine or dryer in your home.

Speaker 21 The power, the water, the ductwork, and then multiply that by 50 or 60 times.

Speaker 17 Behind the walls at your local laundromat, there is some serious infrastructure in place.

Speaker 16 So typically what you have is there's a wall that has some system to heat water for your hot water. Traditionally, it's been a huge boiler.
It's like the size of a tank.

Speaker 16 And then there's a holding tank back behind a wall somewhere. This boiler heats up water, pumps it into the tank, and then into the washing machine.

Speaker 16 And between the washing machines or behind them, if they're along a wall, there's what we call a bulkhead. Inside the bulkhead, there's a little panel you could lift up and peek down in there.

Speaker 16 And inside there is all the cold water plumbing, all the hot water plumbing, and then the electrical to each machine.

Speaker 16 The drainage goes out into the bulkhead and there's either a pipe that catches all the water drained from the machines or there's a trough system. So it's really fascinating.

Speaker 14 So all the dirty water gets sucked out and sort of just goes down a central drain.

Speaker 16 Yeah, exactly. Along with anything else that the bra underwire didn't catch.

Speaker 26 Where does all the lint go?

Speaker 16 There's a screen that filters the lint that needs to be cleaned daily, if not more often than that.

Speaker 16 And if it's not cleaned out regularly, that lint can get all throughout your store and the coin mechanisms or behind the dryers and get sucked into the components back there as well so it can be a really big problem what do you do with all the lint do you collect it in like a giant garbage bag and throw it out every day yep that's pretty much what we do with it it's another business opportunity out there if you can find out how to monetize lint hit me up and we'll make a fortune together after accounting for maintenance rent labor utilities and all the other costs that go into running this elaborate system, a typical laundromat might see a profit margin in the range of 20 to 35 percent.

Speaker 13 That's roughly on par with the average dentist's office or boutique law firm.

Speaker 6 And some people find the work more entertaining.

Speaker 3 Over the years, Barry has seen people try to clean all kinds of things at laundromats, including many things that don't belong in washing machines.

Speaker 16 Two women, they brought in a large rug that they rolled up. It was probably, I don't know, 10 feet long.
And they were trying to shove it into a washing machine, right?

Speaker 16 Obviously, it didn't work, but you know, A for effort on trying to get that in there.

Speaker 17 You get a lot of shoes?

Speaker 16 Yeah, shoes. One of the bad ones, actually, that you wouldn't really think is those bath mats.
And the bath mats have like the rubber underside.

Speaker 16 You know, maybe they're fuzzy on top of the rubber underside. And that rubber underside disintegrates a lot of times in the washing and in the dry.
It makes a huge mess.

Speaker 9 Then there's the stuff that people leave in their pockets.

Speaker 16 We see all kinds of stuff that show up in the drains, if they're small enough, or in the lint screen.

Speaker 25 What kind of stuff are we talking about?

Speaker 16 Well, my favorite is money. We'll see 20s, 50s, 100s, ones, or change.
A lot of like jewelry, bracelets, necklaces, you know, notes, paper, stuff like that.

Speaker 31 Sometimes people even put in a load, leave, and never come back for their clothes.

Speaker 16 If we can look and see who it is and we know them, we'll try to reach out to them. If we don't know whose clothes it is, we'll keep it for two weeks and then we'll donate it.

Speaker 29 All of this makes laundry a highly personal business.

Speaker 16 To hand your dirty clothes over to somebody else is a big step for a lot of people. And not even just intimates.
Maybe I went to the gym and my clothes smell. It could be kind of embarrassing.

Speaker 16 So it is very intimate.

Speaker 3 The intimacy goes beyond the clothing in in the machines.

Speaker 23 Many customers tend to hang out in the store while their clothes are being washed.

Speaker 7 And the laundromat can become an unexpected community center.

Speaker 16 There's not too many places left where we just go and we hang out for an hour and we talk to people in our community that we don't run into anywhere else.

Speaker 16 It's a really fulfilling part of the business.

Speaker 29 These days, Jordan Berry doesn't spend much time inside of laundromats with customers.

Speaker 22 A decade after buying his first business, he moved to Hawaii with his family.

Speaker 29 But he's still not selling seashells on the seashore.

Speaker 3 He stays busy advising other laundromat owners, guiding them through the challenges of the trade, from quarter collection to bra underwires.

Speaker 16 There was a period of time there in those first couple years where I was not glad that I bought a laundromat.

Speaker 16 It was not the path that I probably ever would have dreamt of and aspired to, But looking back now, it's tough to beat.

Speaker 1 For the economics of everyday things, I'm Zachary Krackett.

Speaker 5 This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston.

Speaker 10 We had help from Daniel Moritz-Rapson.

Speaker 23 And thanks to the many listeners who wrote in to suggest this topic.

Speaker 1 Adam Bentley, Lauren Leydenson, Laura Richter, Jose Munoz, Matthew Adler, Christina Columbus, and the Smucker family: Holly, Matt, Grace, Abby, and Nathan.

Speaker 5 If you have an idea for an episode, feel free to email us anytime at everydaythings at freakonomics.com.

Speaker 10 Our inbox is always open.

Speaker 1 All right, see you next week.

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