The Situation of the Laundry Industry in Japan

Author: Ankyu Tetsuo (Japan)

Ankyu Tetsuo joined Yōkadō after graduating from university in 1993 and worked there for three years. Later, he inherited his father's business and joined Shinkō Co., Ltd., where he worked at the grassroots level and held positions such as public relations, store manager, and factory manager. In 2009, he became president and actively participated in various research groups, dedicating himself to his own management philosophy.

After reaching its peak in 1990, Japan's laundry demand has been decreasing year by year. Coupled with the economic downturn caused by the recent subprime mortgage crisis, not only the laundry industry but also related sectors including commercial washing machines and related materials and equipment are facing very severe conditions. In China, the "world's Mitsubishi," a brand built as a symbol of excellent laundry machinery and deeply trusted, announced its withdrawal from our industry in June this year. Many Japanese laundry companies, including myself, started their businesses relying on Mitsubishi's laundry machines and have great trust in Mitsubishi. Its withdrawal will undoubtedly further intensify the atmosphere of uncertainty permeating our entire industry.

Laundry demand is still decreasing and is expected to continue to decline in the future. One reason is the retirement peak of the "baby boomer generation." The baby boomer generation refers to the large number of people born during Japan's first post-war baby boom who supported Japan's period of high economic growth. This generation once supported a large amount of consumer demand in Japan. As they approach retirement, they will no longer bring main items such as shirts and suits to laundry shops, which will be a major blow to our industry. By category, gentlemen's items, also known as business wear, account for the largest proportion of laundry demand in Japan. The number of shirts taken to laundry shops for cleaning is estimated to be unmatched by any other country in the world. In China, the final finishing of shirts is rarely done mechanically and is mostly done on platforms. This approach is probably costly and expensive. In Japan, starching shirts is the standard for quality, with relatively high quality requirements, but the pricing is comparatively reasonable, so the demand for shirt laundering is far higher than in other countries. It cannot be denied that the decrease in demand for these main items is a heavy blow to Japan's laundry industry.

The second reason is changes in clothing styles such as "casualization" and "COOL BIZ." In Japan, among young people, especially those under their 30s, a large amount of casual dressing can be seen. Opportunities to wear suits and shirts in business settings have sharply decreased, and almost no women wear women's suits to work anymore. On days off, people over 50 still pay some attention to their appearance at home, wearing shirts, casual pants, and tops, while young people naturally dress in jeans and T-shirts. Additionally, regarding "COOL BIZ," due to global warming causing temperature rises, Japan has experienced higher temperatures and urban heat island effects, making summers very hot every year. Some companies have implemented "casual dress days," and the number of people wearing ties to work has sharply decreased. In this way, in real life, clothing and fashion have also created very severe challenges for the laundry industry.

The third reason is customers' potential dissatisfaction with our industry's technology. Every year, we conduct a survey on "reasons for choosing a laundry shop," and the top answer is always "because it is close." This shows that customers choose laundry shops based on "proximity (geographical location)" and "convenience including store systems" because they cannot find laundry shops with satisfactory technical levels. With advances in fiber technology and diversification of fashion products, there are more and more clothes that traditional laundry technology cannot handle. In short, it seems that our laundry industry is falling behind the progress of clothing and fashion, causing customers to increasingly "stay away from laundry shops." If this is true, our industry may be facing a situation where customers are demanding technological innovation since the realization of "popularization of dry cleaning."

On the other hand, from a management perspective, "building a high-profit business model" and "adopting dynamic costs for factory expenses" are key to overcoming this severe period. When reviewing the history of Japan's laundry industry from the business format perspective, we cannot avoid the "dealer store and centralized factory system."

The dealer store system entrusts store management to dealer store owners, thereby reducing operating expenses and achieving very high profitability at the time. Without this system, the leap development of our industry during Japan's period of high economic growth would not have been possible. During the same period, the overall demand for laundry also grew sharply. Under these circumstances, we had ample opportunity to increase the number of dealer stores and the volume of factory purchases, thereby expanding profit margins. Also progressing smoothly was the increase in laundry unit prices. With Japan's economic growth and a long-term inflation trend, raising unit prices was easily accepted by consumers. Thus, without significantly increasing operating expenses, sales increased, factory operation rates improved, and greater profits were created. In that era, reinvesting the huge profits generated into expansion strategies was a very successful cycle. The key is that the "dealer store and centralized factory system" is a business model that can create very high profits from both sales and factory aspects. In this model, the "sales increase curve far exceeds the operating expense increase curve," resulting in "just by improving factory operation rates, labor productivity per person can be increased, making the profit increase curve far exceed the factory cost increase curve (after surpassing the break-even point, the excess is almost direct profit)."

So, what exactly are "building a high-profit business model" and "adopting dynamic costs for factory expenses"? First, "building a high-profit business model" depends on "maintaining high unit prices (high value-added work)" and "cutting operating expenses." Competing for sales by participating in low-price competition may have short-term advantages but will cause difficulties in the mid to long term. Price-sensitive customers tend to switch to other stores and cannot become loyal customers. Moreover, no matter how advanced mechanization is, our laundry industry is ultimately a special industry that relies heavily on human judgment for a considerable part of its technology, which is rare in other industries. We must charge corresponding fees by providing high value-added work, technology, and services. Also, we should maintain business formats like the dealer store system that require relatively low operating expenses. Although the dealer store system itself shows signs of decline due to aging store owners and lack of successors, even when conducting business cooperation with directly operated stores and business partners, profitability depends on rent negotiations and the setting of business cooperation fees (so-called cost issues). These matters are certainly very important, but if sales are increased just to improve factory operation rates, there is a high risk of huge problems in the future.

Regarding "factory costs adopting dynamic expenses," as mentioned above, traditional centralized factories required very large fixed costs to accommodate peak period equipment and personnel. These two factors account for a significant portion of the initial cost and running cost. Currently, some Japanese laundry companies have begun to average equipment and personnel to adopt dynamic expenses in factory costs. Specifically, by obtaining cooperation in business operations to balance and adjust the annual and weekly procurement quantities, equipment and personnel do not need to meet peak period demands individually but maintain averages below peak requirements. In summary, the lower portion ensures a tangible increase in revenue. This idea partially aligns with the "Just in Time" production method from the automotive industry, specifically Toyota's production system. In our industry, it means reducing factory costs and adopting dynamic expenses by achieving "Just in Time" laundry delivery. In Japan's laundry industry, procurement quantities on Saturdays and Sundays each week and during seasonal clothing changes each year are 2.5 to 3 times those of other periods. The solution to revenue loss caused by uneven procurement quantities is "averaging to adopt dynamic expenses for factory costs."

In a world where situations and backgrounds undergo drastic changes with the times, managers must adopt corresponding business methods and explore new business models. However, is that enough? I believe the root of the problem lies deeper and more fundamentally. The management guru Peter Ferdinand Drucker once said, "The purpose of business is to create a customer." Precisely because we are in such a severe business environment now, we should reaffirm the mission and vision of companies, organizations, and industries toward customers, further clarifying "Who are our customers, what value should we provide to satisfy them, and what are the results?" I believe the future and development of our industry lie here. This requires our laundry industry to "transform into a true service industry." We need to seriously investigate what customers truly want and demand. Based on this, store clerks must have a certain level of knowledge and education to clearly explain the services provided to customers and gain their trust. We must clearly explain and practice "professional work done by professionals" to satisfy customers.

What is the finished product of our laundry industry? Taking manufacturing as an example, it might be defined as "a uniform product that meets the value and functions the product should have." This uniform part is set as a quality standard, and manufacturing processes follow it. The fundamental difference between our industry and manufacturing is that even if a company sets some quality standards, the work objects are diverse clothes that are almost never identical, and the task is very challenging to approach the product requirements that vary from person to person. Manufacturing finished products only need to meet the initially specified product requirements, while our laundry industry includes a considerable processing component and can be said to "co-create finished products with customers" in a sense. We can hardly find a similar industry. If we must list one, it would be barbershops and beauty salons. Like laundry shops, customer evaluations vary from person to person because customers have different requirements and impressions of the finished product. After Japan's bubble economy burst, prices at barbershops and beauty salons continued to rise, while prices in our laundry industry have been declining, which only indicates that customers do not highly evaluate our entire industry, a very regrettable result.

So, what is indispensable for "co-creating finished products with customers"? I believe it is "communication" and "trust relationships." To demonstrate excellence compared to other companies, our laundry industry cannot rely solely on professional laundry technology but must also establish solid trust relationships through professional communication skills in customer reception. For this, our industry also needs professionals with certain knowledge in customer reception.

To cultivate such talents, Japan began establishing the Laundry Consultant (hereinafter referred to as CA) qualification system in 2006. The organizer of CA is the Textile Care Research Association (hereinafter referred to as TeMA), which collaborates with our Japan Laundry Productivity Council. Its purpose is to train and popularize consultants who provide laundry consultations to customers who agree with the philosophy of the TeMA Laundry Consultant qualification system and enjoy fashion life, appropriately respond to demands, offer reasonable suggestions, and enable them to use laundry services with confidence.

Based on this purpose, the qualification system has been recognized in our industry. To become a CA, one must pass TeMA's qualification certification exam, which covers basic knowledge related to "customer reception," "washing," "fibers," and "fashion" required for laundry clerk duties, as well as practical reception skills to convey this knowledge to customers. Only those who pass the exam can obtain the corresponding qualification.

To promote TeMA's CA qualification system nationwide, the Laundry Assistant Consultant (hereinafter referred to as CAA) qualification system was established starting in fiscal 2009. This system is organized by the Laundry Consultant Committee, a collaborative organization formed by local cooperative groups including TeMA. This qualification is not only for laundry shop customer reception staff but also widely targets fashion sales personnel, housewives, and students interested in laundry professional knowledge, aiming to deepen the understanding of our clerk duties among the broader consumers and partners of the laundry business. To obtain the qualification, one must participate in correspondence courses and submit assignments. In this way, Japan's laundry industry is attracting consumers and related industries to jointly undertake various attempts.

To "transform into a true service industry," we must strengthen "communication" and consolidate "trust relationships," shifting from focusing on the key factors that have supported the laundry industry's development so far—namely "technology" and "productivity"—to truly meeting customer needs. We have entered such an era. This requires us to clarify the conditions of being professionals, that is, "excellence," and become indispensable friends to customers.

Japan's laundry industry, as a mature industry, is facing a situation where it must change direction and undergo transformation. The economic outlook is not optimistic, and the business direction is difficult to determine. However, depending on how work is carried out, there are still many opportunities. We will certainly strive forward with determination.