While many American retailers are just one lackluster back-to-school season away from disaster, the malingering recession has been very good to some retail manufacturers -- especially in China.
American shoppers at Wal-Mart have made investors in Hong Kong very wealthy. By one estimate, in 2006 every Wal-Mart store in the United States caused the loss of about 77 American jobs due to Wal-Mart's trade deficit with China. Without knowing it, millions of American consumers have been shopping at Fung-Mart.
A Chinese global conglomerate little known in this county has been 'living better' off of Wal-Mart's sales. Li & Fung is not a household word in Kansas or Arizona -- but it's one of the main beneficiaries behind the Wal-Mart sales numbers. Described as the biggest supplier of clothes and toys to companies like Wal-Mart, Target and Kohl's, Li & Fung has been one of the fireworks of the Hang Seng Index, and its stock has more than doubled this year.
Li & Fung describes itself as "one of the premier global consumer products export trading companies managing the supply chain for high-volume, time-sensitive consumer goods including garments, fashion accessories, toys, sporting goods, promotional merchandise, handicrafts, shoes, travel goods and household items." Its products are sourced through a network of offices in nearly 40 countries for customers in the US, Europe, Asia and the Southern Hemisphere."
Li & Fung is actually a multinational group of companies. The Group has three core businesses: export sourcing through Li & Fung Limited; distribution through Integrated Distribution Services Group Limited (IDS), and retailing through Convenience Retail Asia Limited (CRA). The Li & Fung Group employs more than 35,000 workers worldwide.. Li & Fung Ltd, which is privately held, is the controlling shareholder of the Li & Fung Group.
It's retailing arm operates fashion retailing businesses Trinity and Branded Lifestyle, toys and children product specialty chain store Toys"R"Us, operated by Toys LiFung (Asia) Limited. Li & Fung sits in the emperor's seat for foreign imports to America and Europe, as well as domestic sales in China.
As the company describes it: "With the opening up of China's manufacturing, distribution and retail sectors to foreign participation, China's economy has reached a critical mass for explosive growth and fundamental changes. In the future, China will not only represent a sourcing hub for Li & Fung but also a huge consumer market to tap into."
In recent years, Li & Fung has been poking its head into the U.S. business world through a variety of partnerships and franchises:
- In 1999, Li & Fung Retailing became a franchisee of Toys "R" Us and acquired 100% ownership of the business in Hong Kong, Taiwan, Singapore and Malaysia; with exclusive access to new markets in mainland China. Ten years later, Toys LiFung operates 106 stores across China and South East Asia.
- In 2002, the Coca Cola company appointed Li & Fung as its international supply chain partner for promotional merchandise.
- In 2004, U.S. based subsidiary, Li&Fung USA reached its second licensing agreement with Levi Strauss, in which Li & Fung designs, manufactures and markets certain Levi Premium trademarks. In essence, Li & Fung become the 'brand manager' for this iconic American company.
- In 2007, Li & Fung acquired the global sourcing operations of Tommy Hilfiger.
- This past week, retailer Talbots Inc. announced a deal making Li & Fung Ltd. its exclusive global apparel sourcing agent for almost all of Talbots' apparel.
By 2007, Li & Fung USA had reached sales of $1 billion in U.S. sales, selling private label and licensed products to American retailers. The company hopes to hit $4 billion in U.S. sales by 2010. The leadership of this powerful group of Hong Kong-based companies all have American pedigrees. Dr. Victor K. Fung, the Group Chairman of the Li & Fung group of companies, holds a B.A. and Master Degree in Electrical Engineering from the Massachusetts Institute of Technology, and a Doctorate in Business Economics from Harvard University. The Group's Managing Director, Dr. William K Fung graduated from Princeton University with a Bachelor of Science degree in Engineering and holds an MBA degree from the Harvard Graduate School of Business.
Li & Fung markets itself as "the complete service chain." "We take care of all vital aspects of the supply chain so that our customers -- leading retailers and brands -- can focus on their customers." The Group also manages LF Investments (LFI) its investment arm, which provides equity capital and offers what it calls "strategic guidance on global marketing, distribution, retailing, outsourcing, supply-chain management, and capital markets." Unlike Wal-Mart, Li& Fung can do it all, from sourcing raw material, to production, to marketing: vertical integration in its most complete form.
Although its been a rough recession for the majority of domestic retailers, because of Wal-Mart shoppers, everything's coming up Hong Kong in the supply chain. Sam Walton may have enthralled Wall Street for decades, but Americans may someday be reading in their economics books about Fung Pak-liu and Li To-ming, the founders of Li & Fung, who began trading in porcelain and silk in Guangzhou, in the deep water port of Hong Kong, but ended up in the heartland of America.
Last week, one Li & Fung Executive told Bloomberg news that his company was on the lookout for more acquisitions. "We're sitting with about $1 billion of firepower," the official said. "I see this as a huge window of opportunities, like a kid in a candy store and you want to eat everything."
Compare Li & Fung's manufacturing prowess to the statement by former Wal-Mart Vice Chairman Tom Coughlin, who once told his employees, "At Wal-Mart we make dust. Our competitors eat dust."
Wal-Mart, which makes nothing, depends on Li & Fung to make its imports. In the not too distant future, it could be Wal-Mart that's eating Chinese dust.
Move over, Wally World. Welcome to Fung-Mart!
Al Norman is the founder of Sprawl-Busters. He has been helping communities fight against big box stores since 1993. His second book is The Case Against Wal-Mart. His website is www.sprawl-busters.com