The example of a company seeking to secure future success

The example of a company seeking to secure future successLi-&-Fung-Table-A

A stock listed at Hong Kong’s Stock Exchange has to submit a large documentation, more extensive than a company listed at New York’s Stock Exchange. In this framework, LF Li & Fung Ltd is the Hong Kong headquartered multinational group, recognised – according to in-house information – as the world’s leader in consumer goods, design, development, sourcing and distribution. The company specialises in supply chain management of high volume, time sensitive goods for leading retailers and brands worldwide via an extensive global network. Fashion goods play an important role

The basic factors

LI & Fung provides sophisticated, one-stop-shop supply chain solutions to meet customers’ specific needs, from product design, raw material sourcing and production management to quality control, logistics, shipping and other important functions. Its spectrum of services covers the entire supply chain end-to-end.

After an exclusive arrangement as US Wal-Mart’s buying agent, the company had to readapt to a smaller form of cooperation with the American company. It fell into the period of the last three year plan 2011-2013 and the world’s economic crisis. This was triggering a transformation of the entire company with selling off units, but also with acquisitions to strengthen certain existing business fields. Also a regrouping of activities was conducted and three business networks were created: Trading, Logistics and Distribution. Also 2013 the capabilities were enhanced in design, expanded product offerings, and a fortified foothold in Asia to capture the increasing Asia consumer spending.

In 2013 soft goods accounted for 69 % of turnover in the Trading Network and hard goods mounted to 31 %. In the Distribution Network their shares were 46 %, respectively 54 %. The company reached a total turnover of USD 20745.4 million (USD 20221.8 million) and the margin reached 15.9 % (14.7 %), the core operating profit amounted to USD 870.8 million (USD 511.2 million) and net profit after tax settled at USD 755.3 million (USD622.6 million).

The company’s key export market is still the U.S., representing 62 % (63 %) of total turnover. Europe contributes around 19 % (unchanged), Asia 12 % (unchanged), but total turnover in Asia increased by 5 % against 2012, of which China contributed 7 % (6 %), where as the Rest of Asia accounted for 5 % (6 %), reflecting the continued expansion of Li & Fung Asia and Li & Fung Logistics across China. Turnover in Canada, Australasia, Central & Latin America, South Africa & the Middle East , all amounted to 7 % (6 %) of total turnover , the strong growth was mainly driven by Canada and Australia.

In 2013 acquisitions reached USD 541 million and an annualised turnover of USD 557 million.  The most important acquisition was Whalen Furniture in May 2013. Further the Group complete one joint venture with Iconix in September 2013. And in January 2014 the Group acquired TLC The Licensing Company Ltd., a global licensing agent in Eruo0pe with a portfolio of licensed brands to expand Li & Fung’s brand management capability.

How the company was enhancing Product and Service Offerings and Expertise can be had from Table 1

LiFung-Table-1

 

What the company was undertaking to distributing Brands to Asian Markets is shown in Table 2

LiFung-Table-2

How the expanding of the License Platform is done can be had from Table 3

LiFung-Table-3

How the expansion of the Global Brand Portfolio is enhanced explains Table 4

LiFung-Table-4

 

How the broadening of the Geographical Reach is effected can be had from Table 5

LiFung-Table-5

 

The new Three Year Plan 2014-16

Now the company has adopted a new three year plan up to 2016. The company has carefully reflected on the experience of the past three years plan marked by an uncertain and challenging macro environment, internal restructuring, as well as the evolving changes in its industry. When developing the new plan, the company adopted the same approach as in the former plan and by establishing a zero base from which to adapt LF’s business model, while reflecting and anticipating the future operating and competitive environment.

The firmly established three business Network model of Trading, Logistics and Distribution, allow LF to better support customers and capture a higher market share in the consumer goods supply chain. LF has enhanced its design capabilities and ability to manage a nimble supply chain, and also developed a multi channel sourcing platform to better serve its customers. Also product offering in home furniture and beauty products were enhanced, the brand portfolio enhanced and the Asian foothold strengthened.

The new Three Year Plan is earmarked to address several key global themes impacting the entire industry:

  1. Deflationary era in China has come to an end, driven by changes in the wage and macroeconomic policies, which means that in the long run, prices are tending upwards. This has accelerated the movement of factories to inland China and to lower cost production countries. The impact of this ensuing shift in the supply chain will take time to play out, but it requires that new trusted partners and factories will be needed for LF’s retail and brand customers.
  2. Die to the recent tragedies in Bangladesh, there will be intensified focus on worker safety and factory compliance globally, as well as increased demand for high quality, transparent and ethical sourcing.
  3. The retail industry landscape has changed rapidly. IT and social media have ushered in a new wave of consumer behaviour by allowing consumers to discover products, engage brands, customise features, and make purchases in different ways than in the past. The increased competition from e-commerce is a major challenge for many of LF’s customers and most of these rely on brick-and-mortar channels. As a result, fast response time and multi chancel supply chain management have become critical success factors for LF’s customers.

Details of the new plan

The new LF plan is structured around LF’s competitive strengths, and designed to leverage the Group’s existing platform and adapt the business model to address the before mentioned key issues impacting the industry, as well as to meet the ever changing market conditions.

The focus will be laid on organic growth across all areas of the business. After expanding in the last three years the global reach, enhancing the range of product offerings, and strengthening key customer relationships, the Group is poised to accelerate organic growth among the three interconnected Networks. The Trading Network has solidified its position as a world leader in multi channel sourcing, providing good value and high quality products to customers, regardless of their buying process and product categories, through either an agency or principal trading business model. Both, brand owners and retail customers with private brands will continue to need sourcing partners to supply their own brands. LF’s organic growth strategy is to gain market share from existing customers as they develop and grow their brands, as well as to expand new channels, gain new customers, and develop new product categories.

On the extended Value-Added Services to LF’s Vendors, TextileFuture has reported before (see TextileFuture’s News January 15, 2014)

Solidify LF’s multi channel sourcing platform

Another pillar of the plan is the aspect to solidify LF’s multi channel sourcing platform to meet customers’ evolving needs. Customers source their products through multiple channels with different buying patterns to suit their needs. With the increasing importance of e-commerce, the Trading Network is exploring new strategic sourcing opportunities with core retail and brand customers, as well as with e-commerce companies to capture the opportunities from this growing distribution channel.  In addition, the Trading Network will be positioned as the sourcing partner of choice for Asian retailers and brands are increasingly looking for support in designing and sourcing goods for their own domestic and overseas markets.

The logistics platform and separation of brand and private label business

The Logistics platform will continue to focus on footwear and apparel, consumer products, retail, as well as food and beverage verticals, and leverage its unique pick-and-pack logistics to provide country logistics services to existing and new customers, and enter additional Asian countries.

A further step will be the separation of brand and private label business in distribution. The Distribution platform has gained sufficient scale and evolved to become a truly global business, and one of the world’s largest wholesalers in its product categories.

The wholesale distribution business comprises brands and private labels, which are two distinct businesses with different core competences, reqiring specific expertise and management skills.

The brand business, which includes a portfolio of licensed and owned brands for sale to wholesalers, retailers, and end consumers, requires expertise in design, brand management and marketing, contrasting with private label business relying more heavily on sourcing skills.

As part of the new plan, the Group will distinguish private label operations from brand operations globally. LF will aggregate its wholesale private label business and its LF Asia non brand business from the Distribution Network into the Trading network. By combing the wholesale private label business with LF agency and principal trading business, the Trading Network will operate as a global multi channel sourcing platform, providing all manner of products and services to customers across all buying channels.

Other aims

LF Group will continue to invest in its operating platform and infrastructure, as well as in select areas such as vendor support services and logistics, especially over the early part of the new plan to drive organic growth. It is a declared plan target to achieve a standalone core operating profit for the Trading Network being larger than the entire Group’s current core operating profit, a doubling of core operating profit for the Logi8stics Network, and a more than doubling of core operating profit for the Global Brands Group by 2016. While accelerating organic growth as means to gain market share will be the primary focus, the Group will also continue to pursue strategic acquisitions on a selective basis to boost overall competitiveness.

New Global Brands Group will be separately listed on stock exchange

The remaining businesses in the Distribution Network, comprised of owned and licensed brands, will be aggregated under a newly formed GBG Global Brands Group. It will leverage its design capabilities, brand management experience and product expertise in multiple categories to create new product extensions and derivative brands for brand owners. GBG aims to provide fully integrated global solutions to enable licensors of international brands to expand into new product categories and new geographical regions. As part of this reorganisation, it is planned to spin-off GBG as a separately listed entity on the main board of the Stock Exchange of Hong Kong, in order to fully capitalise its growth potential.

If the Stock Exchanger approves the listing of the Global Brands Group, it is expected that Bruce Philip Rockowitz, Group President and CEO, will become CEO of the Global Brands Group upon listing. Spencer Theodore Fung, the Group COO is expected to take over Rockowitz’s position of Group President and CEO. Dr. William Fung K wok Lun will then become non-executive chairman of the Global Brands Group upon listing, and will continue to serve as Group Chairman.

Concluding remarks

We at TextileFuture think that the transformation and adaption of Li & Fung really reflects how this industry has to undergo a continued process of change to adapt to new market conditions. It is a good example of how to act and we would like to underline that fashion and accessories, as well as footwear is playing an important role in the business of Li & Fung that why we think that all in all, there are many hints on today’s and the future marketing conditions in the business activities LF is covering.

www.lifung.com


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