Improving conditions for Li & Fung

Half year 2014 results indicate good news for not only Li & Fung but also perhaps for retail sales in general. The supplier of clothing and other commodities for such retailers as Wal-Mart reported a 3.0% increase in total turnover to $8.7bn. The growth was led by its Trading business and also a 44.0% increase in turnover in its Logistics business. In addition, profit increased 16.0% thanks in part to restructuring and rising sales in the US.

Restructuring activities involved the separation of Li & Fung’s brand-management unit which was then formed as the basis of a separate, publically traded company, Global Brands Holdings in July. In addition, LF USA, which also incurred restructuring, was folded into this company. According to Li & Fung, this spin off allows it to focus on its core businesses of sourcing and logistics.

In fact, regarding its logistics business, the company acquired freight forwarder, China Container Line in March, 2014. According to Li & Fung’s President and Chief Executive, “Our logistics business has been very focused on in-country logistics around Asia – focused on moving and warehousing goods for major brands around this part of the world for US and European companies that come here. With this acquisition, we really bolster our freight forwarding business, which has a lot of synergies with our trading business in the sense of being able to work together.”

Retailer concerns over factory conditions resulted in Li & Fung establishing a new group, Vendor Support Services, which focuses on factory and worker safety. The unit will incorporate Li & Fung’s existing range of support services to factories that include compliance, safety training and audits, trade credit services, as well as the handling of letters of credit, product liability insurance, fabric, trims and accessories procurement, product development and technical and operations support. Additional services will include product testing, provision of logistics support to factories and other practical input.

Meanwhile, retail sales in the US have been sluggish so far this year. The National Retail Federation estimates that US retail sales rose 2.9% in the first six months. However, expectations are not much higher for the rest of the year with projections of a 3.9% increase for the last half of the year.

Despite this, Li & Fung remains optimistic as it gets set to complete the first year of its current three year plan. With the focus now on its core products, it looks to increase cross selling of services to its existing customers as economic conditions continue to improve.