A dozen machines at U.S. Hanger Co. LLC’s Gardena factory bend and twist steel wire into hundreds of thousands of hangers that sell to dry cleaners for 4 cents or 5 cents each.
Sounds cheap? U.S. Hanger executives think so. In fact, the company said it’s selling hangers at rock-bottom prices – yet still has trouble competing with manufacturers in Asia that sell hangers for even less.
So the company and some other American hanger makers have petitioned the federal government to levy tariffs against Taiwanese and Vietnamese hangers, which the companies believe are being dumped here for less than their value. They also say Vietnam’s government is improperly subsidizing hanger makers.
“We can’t have a level playing field, especially with countries with communist governments,” said Gene Livshin, managing partner of U.S. Hanger, a subsidiary of Compton dry-cleaning supply distributor United Fabricare Supply Inc. “We have to go ahead and sell our merchandise at lower prices. We are selling for probably the break-even point just to keep customers.”
The complaints have prompted the Commerce Department and the International Trade Commission to start investigating hanger makers in those countries, and tariffs that might double the price of imported hangers could be in place by this summer.
While that may be good news for U.S. Hanger and other American manufacturers, Asian companies – which dispute the dumping charges – point out that tariffs could make it more difficult for some U.S. companies to get hangers. And it could put small distributors out of business.
One such distributor is Sam Monempour, vice president of 3 Hanger Supply Co. in Hawthorne. He said U.S. Hanger’s parent company, the largest dry-cleaning supply distributor in Southern California, is trying to squeeze out other suppliers, none of which has its own hanger-making operations.
“They’re just trying to figure out how to drive out the rest of the market,” said Monempour, who sells hangers, chemicals and other supplies to about 1,300 cleaners in Los Angeles and across the country. “They won’t sell hangers to me. They’re my competition.”
Born from tariffs
U.S. Hanger started making hangers in 2008, less than a year after the Commerce Department started collecting tariffs on hangers imported from China. Earlier in the decade, low-cost Chinese hangers had decimated American hanger makers, leaving the market wide open.
At that time, there were no large-scale hanger makers west of Texas, said Milton Magnus, president of M&B Metal Products Co. Inc., a Leeds, Ala., hanger maker that asked for the investigation that resulted in the Chinese tariffs.
“We had to close a plant in Virginia in 2005 because of Chinese imports,” Magnus said. “Since we won that case, U.S. Hanger opened. Production came back to the U.S.”
By early 2009, U.S. Hanger employed 50 workers in Gardena. But the ramp-up in American hanger manufacturing was brief. Not long after the Chinese tariffs went into effect, hangers started pouring in from other Asian countries, ones not hit by the levies.
“Pricing was good and all that, and then hangers started coming through Vietnam and Taiwan, and everything went to hell,” said U.S. Hanger’s Livshin.
The 4 cent or 5 cent price for his company’s basic shirt hangers includes hardly any profit margin, but similar Vietnamese hangers sell for at least a penny less. Thanks to those low prices, even United Fabricare, U.S. Hanger’s parent company, buys about 70 percent of its hangers from abroad, mostly from Asia.
“U.S. Hanger is in real trouble. They have a very hard time competing against this unfair competition,” said United Fabricare General Manager Mike Fahar.
Since its peak in early 2009, U.S. Hanger cut its work force to 40 and now uses just 12 of its 35 hanger-making machines.
At Metro Supply Co., a small hanger maker in Montebello, General Manager Kal Patel said that the company in 2008 was running as many as 13 of its 40 machines and had six workers. Now, it has three workers and runs just five or six machines, mostly making hangers for uniform companies, which need special hangers that can be run through laundering and drying equipment.
Patel said he wouldn’t be able to survive if he had to compete with Asian hangers in the dry-cleaning market.
“I could sell at those prices if I didn’t want to make any money. But we’re a small company and you can’t sell stuff at a loss and survive,” he said.
Dumping investigation
In 2010, the most recent year for which figures are available, Vietnam and Taiwan exported $52 million worth of hangers – roughly 1 billion of them – to the United States.
Neither country had exported large numbers of hangers before the Chinese tariffs, said Fred Waite, of Washington, D.C., law firm Vorys Sater Seymour & Pease LLP, who is representing U.S. Hanger, M&B and another manufacturer in the trade case.
Under U.S. trade law, the Commerce Department and the International Trade Commission can impose tariffs on foreign products if the agencies find the imports are injuring U.S. industry and are either being dumped – meaning sold for less than fair value – or are being subsidized by a foreign government.
The commission and Commerce Department started investigating claims of dumping and subsidies last month, and this month, the commission concluded hanger imports are hurting American manufacturers – a critical step toward making a case for tariffs. The agencies are investigating a handful of manufacturers in Vietnam and Taiwan for evidence of dumping and subsidies.
The investigations might not wrap up until early next year, but if the agencies find preliminary evidence supporting the claims, importers could start paying tariffs on Vietnamese hangers by June and on Taiwanese hangers by August.
The American hanger makers are hoping for tariffs as high as 125 percent on Taiwanese hangers and as high as 221 percent on Vietnamese hangers, meaning a hanger that might sell for 3 cents now could sell instead for 6 cents to 9 cents.
The government could impose smaller tariffs, but Cu Hoang of Westminster, the U.S. sales representative for Ho Chi Minh City manufacturer Vietnam Hanger said any tariff would kill his company.
Hoang said his company has to ship hangers across the Pacific, and those transportation costs plus tariffs would make his hangers uncompetitive. He denies dumping and said his company receives no unusual government subsidies.
“The government sells gas and electricity for less than what they get it (for),” he said. “But Vietnamese businesses, they will all have the same benefit. Other than that, there’s nothing.”
Rival claims
If tariffs are imposed, hanger prices are certain to rise. Suppliers and dry cleaners noted that prices increased dramatically after the Chinese tariffs went into effect.
“Hangers that were 5 cents shot up to 10 cents. It doubled overnight,” said Gary Ohanian, owner of Fabricare Solution, a Northridge distributor of dry-cleaning supplies.
However, advocates of the tariffs point out that prices gradually fell to a reasonable level once U.S. companies ramped up production. They assume that will happen again.
“About eight or 10 years ago, there were nine different plants in the U.S. manufacturing hangers,” said U.S. Hanger’s Livshin. “Today, there’s us and M&B on a large scale. I would assume that with the equipment available, people are going to step in and start manufacturing.”
But distributors of Asian hangers fear tariffs on Taiwanese and Vietnamese hangers will drive up their costs or make it difficult to buy hangers.
“The supply is going to be decimated. When there’s less product, the price goes way up,” said 3 Hanger Supply’s Monempour, who buys Vietnamese hangers.
He estimates prices for individual hangers could rise from 5 cents to nearly 8 cents and insists those cost increases will drive some cleaners out of business.
But Scott Bell, owner of Bryan’s Cleaners & Laundry in Pasadena, said that even if prices of hangers do rise significantly, the situation isn’t that dire –at least for dry cleaners and their customers.
A penny or two more per hanger translates to a big percentage price increase, but Bell said hangers and other supplies are a relatively small part of an average cleaners’ budget.
“Typically, supply costs are somewhere between 5 and 7 percent, and then hangers would be some portion of that. Labor is probably more like 35 to 55 percent,” he said. “If hanger prices go up, I’d probably just absorb it. I can’t see any dry cleaners getting up in arms about this. There’s far more onerous problems in dry cleaning.”
