Why Global Supplier Li & Fung Is Poised for Retail Domination
Li & Fung, multinational supplier to many of the retailers you know and love, is about to get a whole lot bigger. The 104-year old Hong Kong-based company bought three health and beauty and fashion businesses for $140 million and entered four licensing deals that are expected to ring in $1 billion in revenue in the first year. This, from the management team that just last year was girding its loins for the recession.
The downturn was barely a blip on Li & Fung's radar. Li & Fung's net income last year rose 39 percent to HK$3.37 billion and sales fell 6 percent to HK$104.5 billion. But with this recent slew of deals that add such high-profile names as Sean Combs and Hollywood stylist Rachel Zoe to its growing portfolio, Li & Fung Group Chairman, Dr. Victor Fung, and his brother William Fung, CEO of Li & Fung Limited are not only poised for major growth at a time when others are taking baby steps, they also offer an object lesson in the importance of being a middle man while building an empire.
Indeed, most consumers couldn't name a single brands that Li & Fung has had a hand in producing â€"- but they're everywhere. As one of the world's largest producers of consumer goods, Li & Fung's stamp is on Cannon sheets, Hilfiger polos, Restoration Hardware bathroom faucets, even Hello Kitty plush toys. And it's all done without the company owning a single factory or fabric mill.
In the fashion business especially -- where the trends themselves are actually less important than the time it takes to switch out a failed one -- Li & Fung has risen to pre-eminence not only by delivering at lightning speed but by keeping its own overhead low. It's accomplished this by amassing an enormous group of suppliers (10,000!) who can be deployed to work together on a project basis.
The mix of manufacturers changes with such variables as who has spare capacity, what the costs are, and what exchange rates prevail. Working the entire group in this way thwarts the lazy supplier as well as the retailer who's trying to figure out how to cut Li & Fung out of the equation. The result: more orders and mo' money for the Fungs.
These new deals simply add more weight to Li & Fung's future negotiations with suppliers. For instance, the Sean Jean licensing agreement gives the venerable company an entrée into over 800 Macy's (M) department stores and the acquisition of the Jackel Group scoops an enormous customer base which includes Coty, Elizabeth Arden, L'Oréal and LVMH Moët Hennessy Louis Vuitton, according to Li & Fung president Bruce Rockowitz. Subsidiary LF USA purchased assets of Cipriani Accessories Inc. which has the licenses for Calvin Klein, Michael Kors, Lacoste, and Nine West. Is your head spinning yet?
After this corporate shopping spree, Li & Fung still has about $800 million left to spend and Rockowitz hinted that these announcements are "the tip of the iceberg." It won't be long before Li & Fung achieves world retail domination â€" in the quietest possible way.
Image via Wikimedia Commons CC 2.0
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