Two weeks ago Wal-Mart announced a push to more direct sourcing. And I wondered if the trend was still toward direct sourcing (and the elimination of sourcing/trading agents).
Then yesterday Li & Fung, the largest sourcing company (who owns zero factory), announced a new deal to supply Wal-Mart:
The arrangement, signed yesterday, may generate an additional $2 billion of sales in the first year, helping Li & Fung meet its $20 billion revenue target for 2010.
Walmart will have the option to acquire WSG Pte, the buying agency involved in the arrangement, after Jan. 1, 2016, from Li & Fung, the outsourcer said in a statement yesterday, without setting a price for the unit.
WSG, the unit supplying Walmart under the new arrangement, will be based in Hong Kong and “over time will employ hundreds” of employees, Rockowitz said. Li & Fung started supplying the U.S. retailer in about 2003, he said, declining to place a dollar value on the amount of goods on how much his company currently earns from clients.
The margins for WSG will be “in line with those of a very high volume business,” Rockowitz said, without providing more details.
“[Li & Fung has] reached a level of scale in the universe of the sourcing world that it’s become the automatic go-to for retailers,” Matthew Marsden, who heads consumer research at Samsung Securities Co., said in a phone interview late yesterday.
Most articles talk about the deal’s impact on Li & Fung’s stock price. But what about Wal-Mart? What’s in it for them?
Fortunately, another article gives us an element of response:
The deal is expected to help Wal-Mart by reducing the number of importers it deals with, enabling the retailer to squeeze cost savings across its supply chain.
“We are redefining how we source products that are imported into Wal-Mart retail markets around the globe,” the Wall Street Journal cited Wal-Mart vice chairman Eduardo Castro-Wright as saying Thursday.
So it seems Wal-Mart will mostly substitute this new sourcing division to the job of “small” importers.
Are you an intermediary currently selling private-label goods from Asia to Wal-Mart? You’d better have a few other solid customers…
Will the Wal-Mart & Li Fung s deal will cause a shut down of Wal-Mart Global Procuremnt office in Shen Zhen? Will new suppliers follow Li Fung’s supplier cirterias or Wal-Mart?
These are good questions and I don’t know… I have no inside information about the deal or Wal-Mart’s strategy.
How will this effect Walmarts competitiveness? Target and Walmart both rely on Li & Fung for sourcing, and they are major competitors, correct? Also, where can more information about this deal be obtained?
Tiffany,
Good questions. But I don’t think Wal Mart or Target relies on Li & Fung for a large par of their procurements. And the divisions of L&F that work for these competitors probably don’t communicate much.
The details of the deal are not public…
Oh, I’m beginning to understand. So just because Walmart has signed a deal with L&F for being the only source doesn’t mean that there is only one purchaser? Do you have any suggestions for more articles or resources I can acquire for learning more about L&F’s operations, servicing their subsidiaries, or their quality control/management? Surely the mass amounts of customers and suppliers will cause the quality of their products to drop?
Wal-Mart did not give any exclusivity to L&F, from what I understand.
And L&F tries to keep its divisions (relatively) small, with a lot of freedom for the divisions GMs.
I suggest you read the book L&F’s bosses recently wrote (not very interesting, but it will give you an idea of how they are organized): http://www.amazon.com/Competing-Flat-World-Enterprises-Borderless/dp/0132332906/ref=sr_1_1?ie=UTF8&s=books&qid=1277106766&sr=1-1