Remember when Frank Sinatra caught a cold and couldn’t perform? He might as well have thrown in the towel and joined the crowd outside Nat King Cole’s venue; his voice was his identity. The only difference between Sinatra and nitrile glove manufacturer VIP Gloves (ASX: VIP) is that Sinatra had a personality beyond singing. VIP Gloves’ personality is gloves. And they are not going to be making them from now on.
When Covid began in 2020, the Company anticipated a 50 per cent increase in its average selling price, what with the growing demand and all. In May 2021, when the Malaysian government initiated a total lockdown, VIP boasted about being an “essential service” and said glove production wouldn’t be affected. All was rosy in the medical glove compartment until this year. In its quarterly report in June 2022, the Company reported a 24 per cent quarter-on-quarter reduction in glove production output, a 28 per cent decrease in customer receipts and a 3 per cent decline in price. It went from exercising unhinged glory to cautious optimism.
Now, it has temporarily ceased all of its glove manufacturing operations.
It listed a range of factors to justify its decision: the poor market demand for nitrile gloves, low average selling prices of gloves, rising raw material costs, rapidly increasing gas utility costs caused mainly by international demand for gas due to the Russian-Ukraine conflict, and an increase in the minimum wage set by the Malaysian government—whew—led the Company to this point.
Its June 2022 quarterly report also pointed to increased competition hindering its efforts. As a result, VIP had to halt the construction of the second factory on adjacent land to the current factory, blaming the current and unprecedented global glove oversupply market conditions. Too many gloves, too few wearers.
Nitrile gloves are those typically blue medical gloves you must have seen doctors, nurses and even average citizens wear during Covid. They are meant to protect your hands from bacteria. Naturally, their demand rose during the pandemic as people invested heavily in keeping themselves safe. This urged many other companies to explore the nitrile glove space, too. However, fewer people are interested now that the world is coming out of Covid.
This is not the Company’s first production halt. In the September quarter, too, it temporarily ceased production of its 3.5gm nitrile gloves line whilst it sought to expand into alternative types of gloves and create new glove markets. Compared to the June quarter, as of September, its sales revenue from nitrile gloves fell by a whopping 85%. Moreover, receipts from customers fell by 97% to only $100k.
VIP expects the glove demand to rise again in 2023 once people eventually run out. Since they are disposable, there is a recurring demand for them. Currently, for the Company, it’s a “wait and watch, then pounce” game, wherein it will be waiting with its old stock of gloves once people return, somewhat like a devastated but hopeful lover.
VIP Gloves’s cessation of glove production is a classic case study in humility and thinking long-term because you never know when the tides might turn on you. Sinatra recovered from his cold and returned to the stage, will VIP, too?
Alinda is a Business Reporter for The Sentiment
Latest posts by Alinda Gupta (see all)
- Ovanti’s iSentric signs contracts worth $14.4m with Malaysian commercial bank - June 27, 2024
- Baby Bunting fights back from retail downturn with 5-year strategy, includes Gen-Z focus and self-funded growth - June 27, 2024
- CLEO meets with US FDA to develop strategy for ovarian cancer test launch - June 26, 2024
Leave a Comment
You must be logged in to post a comment.