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Walmart reduces Li & Fung reliance

Walmart, the world’s largest retailer, says it will take in-house some of the stock sourcing it has previously contracted out to Li & Fung subsidiary Direct Sourcing Group.

It expects by handling its own sourcing, it will reduce costs in its supply chain.

Wal-Mart said in a statement: “We have made a business decision to transfer certain sourcing functions for Wal-Mart in-house, and as such will work collaboratively with DSG to ensure a smooth transition over the next several months.”

DSG retains the business of sourcing products for Walmart’s Sam’s Club operation, which has 648 stores in the US.

The US company has partnered with Li & Fung for almost five years. At the time the contract was announced in 2010 the two companies estimated the sourced products would be worth around US$2 billion a year. They said they would form a joint venture, Direct Sourcing Group.

But two years later Walmart backed out of that plan, deciding not to take up its shares but to retain Li & Fung as a sourcing supplier.

The Hong Kong company has declined to comment on the news, first broken in the Wall Street Journal newspaper and subsequently reported by Reuters.

Reuters quoted a research note by UBS analyst Spencer Leung, saying Walmart’s move was unlikely to have significant financial impact on Li & Fung, but “will most likely trigger other major retailers to review their sourcing arrangements (with Li & Fung)”.

Fashion brand Kate Spade earlier this month said it had taken sourcing of accessories in-house, but would continue to use Li & Fung for sourcing clothing supplies and other services.

 

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