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Li+_+Fung+A+Factory+Sourcer+Shines - Li& Fang A Factory...

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Unformatted text preview: Li & Fang: A Factory Sourccr Shines — BusinessWeck Page i of 2 MANAGING tVlay 14. 2009. 8:00AM EST Li & Fung: A Factory Sourcer Shines The Hong Kong sourcer is handling factory contracting for more US. brands that find it can do the job better By Bruce Einhorn Looking at the battered retail landscape earlier this year, it was clear to Liz Ciaiborne CEO Wiiiiam i. McComb that he needed to dramaticaily shift his business The New York company was struggiing to deliver high—vaiue. fashionable cioihes on an ever- taster scheduie. with a limited overseas presence to deal with independent iocal suppliers McComb knew there had to be a better way So three months ago he decided to sell his sourcing operations—which handie aii aspects of production, from finding materials to manufacturing garments—to a Hong Kong outfit called Li & Fung Group for $83 miliion Liz Ctaiborne stiii does the design and marketing for brands such as Juicy Couture. Kate Spade. and Lucky Brand jeans But Li & Fung now handles the rest "This economic recession is more Danrvinian.” says iVicComb "Now is the time to reinvent your business model to be more competitive " As U S retailers contend with tough times. more and more are turning to Li 8'. Fung The Hong Kong company. which manages the supply chain for dozens of brands and retailers worldwide, is using the recession to take over a bigger chunk of its clients“ buainesses in addition to helping them find factories or raw materials. it's taking on the manufacturing headaches. ensuring factory partners meet labor standards and delivering finished goods at a set price A month ago. Talbots announced its intention to make Li & Fung its main giobai sourcing agent The $14.3 billionna—year company has also taken over production for Toys ‘R' Us. Timberland. and Sanrio. the Japanese merchandiser of Hello Kitty As retailers took for ways to slash costs. says Li & Fung group managing director Wiliiam Fung. “they are asking themseives, “is having our own buying office the Way to go?" Luckily for Fung. the answer is increasingiy "No " With 80 otfices in 40 countries. Li & Fung uses its economies of scaie to drive down prices for customers Liz Claiborne‘s McCornb. for one, says his staff was impressed by Li & Fung‘s efficiency and global reach Ali his peopie had to do was hand over designs. he says. and the firm bid them out worldwide to the manufacturer "with the best combination of quality. speed-io—market. and price." For Li & Fung, taking over a bigger chunk of client business is part ofa strategy to maintain its torrid growth rate The company doubled revenue to $1 1 9 billion between 2004 and 2007 and wants to reach $20 biliion in sates next year Managing Director Fung. 60, is a Princeton graduate who controis the company along with his MiT~educated brother Victor. 63 Fung's strategy: Buy the entire sourcing operations of U 8 customers and restructure them to make them more profitabie Last year. Li & Fung made seven acquisitions that are likely to add $1 billion in revenue in 2009 On May 5 the company announced plans to raise $348 million in new shares. with the money going in part to fund further acquisitions "They’re the Cadillac of the business." says retail consultant Howard Davidowitz "They offer retailers more vaiue because of their efficiency ” To be sure, the devastation in the U S retaii sector hasn't teft i..i & Fung unscathed The company is trying to diversify away from the U S but stiil gets 62% of its revenue from the American market. it was a mater supplier to now-bankrupt retaiiers such as Mervyns and KB Toys Local vendors had threatened to sue Li & Fung after the KB bankruptcy for failing to pay them for toys already shipped to the U 8 retailer, but the sides reached an agreement and averted a lawsuit TIGHTER CREDIT http://wwwibusinesswcek.com/print/magazinc/contcnllo9_2i/b41320234330480.htm 8/20/2009 Li & Fung: A Factmy Scurcer Shines - BusinessWeek Page 2 of 2 The bankruptcies and the ongoing credit crunch are now forcing Li & Fung and rivals to change the way they finance their operations A iew years ago factories would wait 96 days or ionger‘ to get paid for goods shipped to Li & Fung customers Now, though. "the factories can't absorb such long credii terms anymore." says Li & Fung President Bruce Reckowitz "The world is going back to where it used to be. with much tighter terms " The company wants to branch out further by designing products in- house for clients "We don't want to be just another American importer." says Fling ”We can do things more efficiently " While rising protectionism has made many companies reiuctant to associate themselves with outsourcing. those issues aren't of concern to Li 8: Fung Rockewitz argues that U S consumers know that most of the products they buy from his retaii clients are produced overseas. "These are jobs that are already out of the U S ," he says investors are upbeat about Li & Fung's chances The company's Hong Kongwlisted stock is up 63% so far this year. compared with a 6 7% increase for the Hang Seng Index Credit Suisse predicts earnings this year wiiE grow 33%. to $420 million. on sates of $18 4 billion, up 15% "We are picking up market share," says Fung "We expect to emerge stronger after this " anthem is Asia regional editor in BusinessWeeir's Hong Kong bureau With Aiii McConnon in New York http://Www,businessweeiccoart/print/n'iagazinelcontent/09_2i/b41132054330480.htm 8/20/2009 ...
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