Zips disrupting more dry cleaning communities
May 08, 2015
The Washington Post
Zips, which calls itself the disrupter of dry cleaners, took a big step toward being a national chain this week when the Greenbelt-based franchisor sold the rights to 104 additional locations. The buyer is ZDC Holdings, a Pennsylvania-based private equity firm that plans to start opening Zips throughout the Mid-Atlantic and Midwest before the end of June. Terms of the deal were not disclosed.
Zips currently has 39 stores stretching across Washington, Virginia and Maryland, and as far west as Pittsburgh. Zips has tried to distinguish itself in the market by charging $1.99 for every garment. “The name of our game is go get more Zips up and be convenient to people,” said Zips chief executive officer Reid Bechtle. “Our five-year plan is to get 350 stores across the country. There is room in this business for everybody. The basic business model is to be disruptive.”
Jon Simon, owner of high-end Parkway Custom Drycleaning in Chevy Chase, Md., said he wasn’t worried about lower priced competition, arguing he offers superior service.“Just like people who want to have a $1.99 hamburger every now and then, I don’t think Morton’s is losing that $40 steak because of that,” Simon said.
Zips began in the Washington area in 2002 when a group of independent dry cleaners banded together. The company was owned by 14 partners until 2013, when JPB Capital of Columbia, Md., bought a large portion of the chain and brought in Bechtle, who had experience as a turnaround artist, to run it. “The original founders wanted to expand, but they didn’t have the money,” Bechtle said. “The founders were dry cleaners. They needed a CEO who was going to be full-time and have the primary responsibility to grow the business.
Bechtle said each Zips store employs between 20 and 30 people and cleans all the garments on location instead of sending them out to a central plant. The average store cleans about 500,000 garments a year, Bechtle said. At $1.99 each, the average Zips store grosses just above $1 million. The highest performer is grossing nearly $3 million annually.
Bechtle said every Zips is profitable. “The beauty of the business is there’s lots of volume, no spoilage and people pay up front, so we aren’t carrying receivables,” Bechtle said. “When we drop into a market, we try to find a market with lots of dry cleaners. It tells us that it’s an area that wants convenience. Dry cleaning is a habit of convenience.”
Bechtle said the company is in talks with investors in Texas, Nebraska, Florida, the Carolinas and Canada about selling more franchises.
Stores cost about $850,000 to build and open. The first franchise costs $50,000 and each subsequent location is $30,000. Royalties are 10 percent of gross sales.
JPB Capital Partners specializes in lower, middle-market companies, mostly in the Mid-Atlantic and Southeast. It seeks to invest in companies with revenues between $10 and $100 million and in which the firm’s principals have operating experience.