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Dry Cleaners Not Seeing Impact from Hanger Tariffs or Somehow Offsetting Costs: Analyst

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Staff Writer |

RALEIGH, N.C. — Financial information company Sageworks reports that privately owned dry cleaners and launderers anticipating higher costs for hangers due to anti-dumping tariffs are either not yet seeing a major impact or are somehow offsetting the additional costs, based on preliminary analysis.

Trade rulings this summer regarding steel wire hangers made in Vietnam as well as similar tariffs on hangers made in Taiwan could push hanger costs higher.

“Whatever may happen to their costs going forward, our data doesn’t show that increasing costs have been much of a problem for private dry cleaners or laundry services in the past few years,” says Sageworks analyst Libby Bierman. “Profit margins have been increasing or at least holding steady for the past few years.”

There has been an emphasis on recycling programs to help alleviate cleaners’ hanger expenses. For example, members of the Drycleaning & Laundry Institute have reportedly recycled 25 million hangers.

But it’s the economy, not hanger prices, that causes the most concern among dry cleaner owners, says Jon Meijer, DLI’s director of membership. “It’s more expensive to do business as a dry cleaner,” than it was in recent years, he says, “but I wouldn’t say it’s any more than any business entity out there that has to buy materials to operate.”

Privately held dry cleaners and launderers, like most other private companies, saw sales decrease during the recession when consumers cut back on goods and services that weren’t necessities, Bierman says. Meijer says dry cleaners had fewer pieces to clean rather than fewer customers using their service.

But starting in 2011, the private dry cleaners’ sales have rebounded somewhat each year, according to Sageworks’ data. “It’s not been a fast growing industry but has seen modest gains,” Bierman says. Preliminary sales figures for dry cleaners and launderers in Sageworks’ database show that sales increased nearly 5% over the last 12 months, slightly ahead of a 4% increase in all of 2011.

Net profit margin, meanwhile, hovered around 7% in 2011 and around 6% in the last 12 months, according to current Sageworks data. Cost of sales for these private companies, at around 20% for the last 12 months, was nearly the same as it was in 2007.

Sageworks has a proprietary database of privately held company financial statements aggregated by industry. Each day, approximately 1,000 of these financial statements are collected from accounting firms, banks, and credit unions through a cooperative data model with Sageworks’ clients.

A Nov. 15 ruling by the U.S. International Trade Commission is preparing for final levies of about 70% to 125% against Taiwanese hangers. And pending a final ruling on Vietnamese hangers, levies on those will range from about 136% to 188%, according to government documents.

Even if hanger costs continue to climb for these businesses, Bierman notes that owners will still have choices in how to react: “They can cut expenses elsewhere, absorb the loss or try to pass the increase on to consumers through price adjustments.”

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