High-concept cleaner in tatters
Backers lose millions as Zoots collapses
When Staples founder Tom Stemberg launched Zoots in 1998, during the height of the dot-com craze, it was supposed to be at the cutting edge of all things dry cleaning: 24/7 service and a website where customers could check the status of orders and schedule home deliveries.
A decade later, Zoots has collapsed, closing nine stores in Massachusetts and New Hampshire and laying off about 80 employees at a shuttered plant in Connecticut. In total, investors lost more than $150 million in the failed effort to build the Newton business into the nation's premier dry cleaning operator, according to two investors who asked not to be named because of confidentiality agreements.
At its height early last year, Zoots was one of the country's biggest chains, with about 75 stores and roughly 115 delivery routes across eight states, serving more than 300,000 customers. Now, the $65 million company is in pieces, with stores and delivery routes being sold off to rivals across the country. The private Zoots corporation, which finally turned a profit in late 2006, dissolved quietly in April. Two former execu tives bought 17 local stores and the rights to use the Zoots name.
Investors blame Zoots' unraveling on a combination of a shrinking industry, tightening credit market, and a chief executive who left the company last year in the middle of a fund-raising campaign, just weeks after Zoots forgave a $500,000 loan it had made to him.
"We had the chief executive and chief financial officer abruptly leave to take other jobs as credit problems across the industry happened," said Todd Krasnow, the former chairman of Zoots who co-founded the company with Stemberg. "It forced the company's hand to sell off the business. We're all very frustrated because there was so much time and money that had gone into the business, and it had finally turned a corner."
Stemberg, who had been a Zoots board member until the company dissolved, declined to comment. Kyle Gendreau, the former finance officer, could not be reached for comment.
Jim McManus, the former Zoots chief executive who left the chain last year to run yachting business Hinckley Company, wrote in an e-mail: "In addition to devoting 4 years of my life to Zoots, other investors might not realize that I (unselfishly) invested and lost a substantial amount of personal funds in the company."
McManus added: "After several years of incredibly hard work with a management team that successfully turned Zoots' operating losses to a profit, I was presented with an opportunity to head the pre-eminent luxury boating manufacturer in the U.S. As a life-long boater, the opportunity to head up Hinckley was too good to pass up."
Dry cleaning analysts say Zoots faced an uphill battle from the start, trying to turn a mom-and-pop industry with razor-thin profit margins on its head. When Zoots was conceived, Stemberg brought many of the principles that had made Staples, the Framingham office supplier, a smashing success: make it easy for customers, make it cheaper, and make it efficient. Zoots offered 24-hour service, e-mailed invoices, and built plants that could clean thousands of garments from its many stores and offered pick up and delivery.
By 2002, Zoots had raised more than $50 million in capital and attracted investors, like Unilever, a consumer products giant. But from the beginning, the chain, as it rapidly expanded, had major trouble with quality, spending six percent of revenue on claims for lost and damaged clothes, about six times the industry average, according to company officials. By 2006, Zoots had made progress with the missing items by using permanent garment identification tags, but problems remained.
Over the years, attempts to build large dry cleaning chains with company-run stores like Zoots have largely failed, said Bill Fisher, chief executive of the Dry Cleaning & Laundry Institute, a trade group. Unlike fast-food chains that standardize all the food and cooking techniques, dry cleaners deal with thousands of different garments with unique issues on a daily basis.
"And customers are more attached to garments than they are to a cheeseburger," Fisher said.
Anna Whitten stopped going to Zoots in Auburndale months before the unprofitable shop was shuttered. After Zoots ruined her faux suede winter jacket last December, Whitten said, the store refused to offer any kind of compensation and blamed the coat, even though it had been dry cleaned previously without a problem. "It just seemed unbelievable that they offered us nothing," Whitten said.
In addition, the increasing acceptance of casual work wear and technology advances like wrinkle-free and stain-free garments has contributed to slowing sales in recent years, according to a March report from research firm IBISWorld. In 2008, IBISWorld forecasts the dry-cleaning and laundry industry will generate revenue of $9.4 billion, in constant 2006 prices, representing a decline of 2.1 percent compared to 2007.
Last year, Zoots set out to raise $16 million to infuse the business with more capital to open more stores and pay off debts. But halfway through the fund-raiser, McManus and the company's chief financial officer left Zoots for other jobs. The bank lending Zoots money then cut its line of credit because it did not have enough cash to pay debts coming due, forcing the business to sell off its assets, according to two investors. Since last fall, Zoots has sold stores to rivals in Virginia and Connecticut and elsewhere.
"It was difficult to watch a company that has grown over the last 10 years be split up," said Rick Simoneau, Zoots' former vice president of operations and now one of two investors who purchased in March the 17 area stores in Massachusetts and Rhode Island.
Simoneau moved the headquarters into Zoots' Brockton plant, and tried to accommodate most of the several thousand customers affected by the store closures by consolidating them at existing shops or moving them to delivery routes.
"At least we get to stay in Massachusetts. We believe in the brand. We have profitable stores," Simoneau said. "I want to set out and finish what we started in 1998. I believe we can do it."
Jenn Abelson can be reached at abelson@globe.com. 