Li & Fung Blending Brands and Quick-turn Sourcing
James Mammarella -- Home Textiles Today, October 15, 2010
NEW YORK - Operating a fast-turn, low-markdown business is every retailer's dream, but for clients of global sourcing giant Li & Fung it can be an everyday reality, one that the Hong Kong-based company's president, Bruce Rockowitz, told financial analysts at the Goldman Sachs 2010 Retailing Conference depends on merchandisers' willingness to "change the way they market, change the way they buy."
Rockowitz said roughly 30% of Li & Fung's sourcing business can be considered "quick response" and, "I'm sure that will double over the next three to six years."
He said quick response "used to" mean merchandise sourced on a 60-day order-to-shipping basis. That is still a fairly realistic benchmark, compared to a time not long ago when U.S. retailers were in the habit of planning 7-month lead times for Far East production. But, pointing to Spanish fashion retailer Zara, an exemplary Li & Fung customer, Rockowitz noted, "We have 20- and 30-day turns, but it has to be very well planned; we have to empowered to make a lot of approvals on the spot. It takes a lot of discipline."
"Retailers across the world are struggling to figure out how to do it," he said. "Quick response has to do with empowering the people on the other side of the water."
Walmart, which has generally relied upon wholesalers to supply its vast buying needs, is in the first year of a strategic sourcing partnership with Li & Fung. This customer is expected to do more than $2 billion in business with the trading company in the first year, with the deal applying to all non-food categories and all international divisions as well as Walmart U.S. The goal is simple, Rockowitz said, and it hews to the big merchandiser's core principle: to "help bring lower prices" to the consumer.
That will be accomplished, he said, even in light of the fact that "China exported deflation" for 15 years as a global production hub but is "now starting to export inflation."
For its own goals, Li & Fung is poised to make its largest-ever acquisition, buying Hong Kong-based IDS, giving it a distribution network to 150 cities in China, bringing the ability for Li & Fung to swiftly establish a robust organization to sell into China, fitting into its strategic plan to export U.S. and European brands into Asian markets.
Rick Darling, president of Li & Fung USA, addressed brands stateside with the observation that there has been a growing shift back toward national brands - especially in exclusive derivatives of a parent brand - among U.S. retailers. "That activity has increased dramatically" in the last three or four years, he said, and in particular the designer-driven brands are gaining visibility and business credibility.
By example, Darling pointed to Kohl's, where Li & Fung has helped shape the Simply Vera Vera Wang program. "Vera Wang wanted to show that she can diffuse and maintain her better business," he explained, "and her success has made many younger designers see they can do this earlier in their careers; [the major] stores are giving them the platform to do that."
The payoff for the retail chains, of course is that being the exclusive home of a designer program gives the merchant a stronger differentiating profile to consumers, which can help boost margins. As Li & Fung prepares its next three-year plan, brands and brand development are becoming every bit as vital as its capacity to turn factory production on a dime.
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