How to Value: Dry Cleaners

Industry Description

The Drycleaning and Laundry Services industry in the U.S. provides dry cleaning and laundry services with companies in this industry also providing drop-off and pick-up sites and offering specialty cleaning services for garments and textiles to its customers (NAICS 812320). Coin operated laundromats and companies that generate most of their revenue from rentals are not included in this industry.

  • Dry Cleaners industry has a combined revenue of $6.5 billion, with a growth rate of 1.3% in 2021-2026
  • There are approximately 14,125 businesses as of 2021
  • The Dry Cleaners industry employs approximately 231,000 people

Industry Trends

The dry cleaning industry is highly fragmented with the largest sector being small family-owned retail dry cleaning locations. Most dry-cleaning facilities are in densely populated areas with increasing income levels. These facilities have less than five staff who carry out various activities such as waiting on customers and cleaning. The industry is highly decentralized: large-scale firms in the dry-cleaning industry account for less than five percent of the total revenue collected from this industry.

The dry cleaning industry is faced with multiple challenges. Over the last five years dry cleaning operations have been greatly affected by declining demand, increased competition from coin-operated laundromats, and the establishment of substitute products. The Covid-19 pandemic has also impacted this industry. The need for dry cleaning services declined since most businesses were shut down and people worked from home.

Multiple factors contribute to the growth and success of the dry-cleaning industry. For instance, shops in areas experiencing high population growth and increasing level of income are likely to excel. Technological advancement has revived the dry-cleaning industry, especially in major cities such as Chicago and New York. Customers can now schedule pick-up and delivery of clothes through a mobile app. This trend allows small-scale businesses to reduce operating costs and reach more clients. According to research the global dry cleaning industry is expected to grow to approximately eighty billion dollars in the next five years, a compound annually at a growth rate of 3.4%. The growth will be accelerated by people returning to offices after the post-pandemic quarantine.

The environmental and health risks posed by various solvents in the dry cleaning industry exposes the sector to increased legal risks. The reason is the continued evolution of environmental legislation has led to changes in the industry. In December 2022, the EPA determined 1-bromopropane (a primary solvent) poses an unreasonable risk to human health. This means the industry is under operational changes due to the regulatory environment. Changes like these necessitate continuous innovation and evaluation of alternatives to enhance sustainability.

Key Performance Metrics

In evaluating dry cleaning and laundry services companies, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:

  • Location, location, location
  • Garments processed per day
  • Operating costs
  • Customer satisfaction
  • Safety

Industry Organizations & Publications

The following organizations publish useful information:

  • Drycleaning & Laundry Institute International
  • National Cleaners Association
  • Cleaner and Launderer
  • American Drycleaner
  • National Clothesline
  • Fabricare
  • United States Environmental Protection Agency
  • Occupational Safety and Health Administration

Guideline Information: Private Purchase Transactions

Most dry cleaners are privately owned, so disregarding the sale of 100% of closely held dry cleaners is generally the best source of information to appraise a subject company.

The following are typical appraisal multiples from sale of dry cleaners and laundromats:

  • Revenue multiple between 0.26 and 0.95 times
  • Gross profit multiples between 0.32 and 1.32 times
  • EBITDA multiples between 1.8 and 6.0 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.

Guideline Information: Publicly Traded Companies

The Drycleaning and Laundry Services industry is dominated by smaller businesses, with no major industry participants that have a large market share. There are no dry cleaner companies that are publicly traded, meaning it is not possible to compare a subject company based on industry metrics and appraise using industry multiples.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Dry Cleaners are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.