Study Analysis

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CASE STUDY

B Pa e a R ck a

A i 14, 2010

FOUNDED in 2004, Hangers Cleaners of Kansas Cit , Mo., as started as an en ironmentall safe dr cleaner. It uses colorless, odorless liquid carbon dio ide instead of the aggressi e chemicals applied at traditional dr cleaners. It has 35 emplo ees and 2009 re enue of $1.6 million.

HE CHALLENGE To sur i e the arri al of a huge ne competitor, Procter & Gamble, hich began testing a Tide dr -cleaning ser ice in Kansas Cit in 2008.

HE BACKGRO ND When Joe Run an started Hangers, he as hoping to bring a fresh approach to hat he considered a stagnant industr . A rst-time entrepreneur ho had left a marketing career at Sprint, he had been dissatis ed ith the local dr cleaners, nding dirt facilities and rude orkers to be the norm.

Then, hile researching the business, he disco ered that the chemicals used b most cleaners ere prohibiting ne entrants. Building o ners refused to lease space to cleaners using perchloroeth lene, or perc, hich is no hea il regulated. B no means as I a tree hugger, Mr. Run an said. But from a

business perspecti e, it as clear this industr had to change.

He found that liquid carbon dio ide as acceptable to landlords and as effecti e as perc in cleaning. Mr. Run an decided to emplo the ne process.

While his business plan had called for 12 to 14 storefronts and dri e-through counters throughout the cit , pick-up-and-deli er ans emerged as Hangers most effecti e sales channel. At a storefront, customers might forget to retrie e garments, and Mr. Run an might ne er get paid. His si ans, ho e er, picked up and deli ered clothes in aterproof bags from patrons porches or garages t ice a eek. Upon deli er , Mr. Run an immediatel charged his customers credit cards. He didn t charge e tra for the ser ice, but he said, It s so much less e pensi e to roll a an.

Better et, he found that if customers ne er put clothes in their o n cars, the ere less tempted b competitor sales. Our bricks-and-mortar storefronts pro ide credibilit , he said, but e encourage our emplo ees to con ert customers to the ans. Our stickiness is so much higher. It s one more errand people don t ha e to run.

A L cal D Clea e T ie C e e Agai P.&G.

B no means as I a tree hugger, said Joe Run an, the o ner of Hangers Cleaners, the rst en ironmentall safe dr cleaner in Kansas Cit , Mo. Ed Zurga for The Ne York Times

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And then, in 2008, Procter & Gamble opened an eco-friendl dr cleaner about 1.5 miles from Hangers headquarters. Using Kansas Cit as a test market for a ne line of franchised Tide Dr Cleaners, P.&G. offered dri e-through ser ice, 24-hour lockers, an on-site tailor and traditional et cleaning, as ell.

I think there s enough business in to n for both, especiall if the focus on storefronts, but the re spending tons of mone marketing and undercutting price, Mr. Run an said. Ho do e o ercome the gorilla do n the road?

HE OP IONS One a to differentiate Hangers from a global brand, Mr. Run an hoped, ould be to increase the quirk messaging he belie ed his patrons enjo ed. Hangers ga e a a T-shirts that sa Sniff me and sent promotional e-mail messages ith riffs on the latest American Idol episode. It returned garments on hangers ith slogans like In the closet and proud and You re the 23rd person I e seen naked. Please rec cle hangers. These efforts had brought positi e feedback in person and through Mr. Run an s social net orking on Facebook and T itter.

Another option as to cast the compan as an integral member of the communit . For e ample, Mr. Run an could tr to partner ith local businesses and charities, picking up from and deli ering to their of ces. A single point of contact might introduce Hangers ser ices to thousands of emplo ees, b passing the cost of traditional media.

Third, Mr. Run an could re-e aluate his storefront strateg , promoting the best ones but placing an e en bigger bet on the ans.

Finall , he contemplated offering ash n fold laundr , too. Ho can e le erage the trust e e built, the pa ment mechanism, and the ans to capture a larger share of allet? he asked. What else can e sell?

HE DECISION Mr. Run an decided to pursue a combination of these options:

Hangers continued to culti ate its offbeat image. We ha e a personalit in a business de oid of it, Mr. Run an said. We can t out-price or out-spend our big competitor, but e can be genuine, funn and edg .

He orked to create a tight-knit culture of ser ice and accountabilit . If a garment as damaged, a store representati e ould call the customer immediatel and offer to replace it. He held a St. Patrick s Da tailgate part for 60 people in a Hangers parking lot and nanced a oat in the local parade. Ma be it s goof and old-fashioned, he said, but it seems to be resonating ith the folks in K.C. Who ould e pect people to part ith their dr cleaner?

He initiated partnerships ith corporations, nonpro t organi ations and communit groups, and he can quantif the patrons gained from each. He also contacted schools and donates 10 percent of the proceeds from parents dr cleaning back to each school.

In 2009, Hangers closed an underperforming storefront. And he concentrated Hangers an ser ice on af uent, densel populated neighborhoods, hiring an additional sales representati e to e plain and e pand the ser ice in these areas. We ere alread focused on the ans, he said, but P.&G. s arri al made us ork e en harder. (So far, Procter & Gamble has not offered an ser ice.)

Additionall , Hangers began offering laundr ser ice at $1.55 a pound (Tide cleans primaril pressed shirts and charges per article of clothing).

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HE RES L S While other local dr cleaners ha e told him that their ear-o er- ear re enue is at or do n as much as 25 percent, Mr. Run an said his re enue gre 2 to 3 percent in 2009 and his pro ts quadrupled, largel as a result of closing the unpro table location. The laundr ser ice pro ed a hard sell to suburbanites

ith their o n ashers and dr ers, but oung professionals and dual-income families responded; it no accounts for 2 percent of Hangers re enue.

Procter & Gamble no has three locations in Kansas Cit , and according to Lisa Pop k, a communications representati e, the ha e been a big in. The compan is ad ertising franchise opportunities in Cincinnati, Columbus and Da ton, Ohio, and in Le ington, K .

Mr. Run an noted, ho e er, that se eral of his customers had tried Tide s ser ice and returned to Hangers; he can tell, he said, because of the bar codes the gorilla lea es on each garment.