What is a reasonable profit for work glove industry?

The profit is quite different from company to company. Companies with well-known brands can harvest a higher profit; For those who are new in this industry, they get into this market with low prices and low profit because that’s the best way they can find to compete with well-known brands. The profit also varies for different type of gloves. Some regular gloves with big sales volume have a lowest profit compared with some special purpose and expensive gloves. Special and expensive gloves are made of higher cost materials and with more manual works in it, so only a higher profit can make suppliers do it.

As for Chinese suppliers, the following is the case. When you purchase work gloves from China, you either cooperate with traders or factories. If you do business with traders, you might find the traders’ price is not necessarily higher than factories’. Why? That’s because of two reasons. One is that many traders rely on small cheap glove factories. These factories specialize only on making cheap gloves. And traders can deal with these cheap gloves with low profit because the operating cost is almost zero. The second reason is that they leverage their big volume to discuss a lower price with cooperated factories. Based on factories’ price, they add only a small profit. In a summary, traders’ profit is lower than factories’ that’s how traders survive in this industry. The profit is also different among factories. Most small-size factories have a lower profit than larger factories. Large factories typically operate for many yearns who mainly make gloves with higher quality; Small factories, as I have mentioned above, they specialize in cheap gloves. Making cheap work gloves means you will find yourself in competition with hundreds of competing factories in China. The competition for cheap gloves is very strong so that your profit is kept in a very low level. In a sense, we can say the cheap gloves do not necessarily have a low profit but a strong competition brings it down. Although small factories can only earn a low profit but generally speaking, it is still higher than what traders have.

After our discussion, let us see how Ansell’s profit rate in year 2017. The following picture is a partial income statement for 2017 I got from their website.

 

Income statement of Ansell

 

In this table, their business are classified into two categories, continuing operation and discontinued operation. Work gloves and other safety products are put into continuing operation that is what we are going to discuss. Work gloves are Ansell’s main business, so we thought the sales revenue and expense are all about gloves neglecting other safety products business. From this table, we can make a calculation of what their profit rate is. Please be aware of that this profit rate excludes financial cost and tax in order to make it comparable.

( Sales Revenue $m1374.5 – Expense $m1196.7 ) / Sales Revenue $m1374.5 = 13%

As you can see, Ansell has a overall profit rate 13% that includes all types of work gloves. Is this a higher rate or a lower rate? In cases of China,  It is a rate that is hard to reach for both small factories and traders, but a piece of cake for large Chinese factories. I don’t know what profit rate foreign customers suppose to have. Maybe for them, 10% is the bottom level they can accept. No matter what rate you think you deserve, the competition is the final deciding factor.

 

 

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