Li & Fung – one of the retail industry’s largest global sourcing specialists – says “global retail disruption” has presented a mix of challenges and opportunities.
The Hong Kong based business has reported a 23 per cent decline in core operating profit, mainly attributable to the fall in total margin from 2.5 per cent to two per cent, as a result of reduced turnover and a rise in operating costs as a percentage of turnover
Despite the figures, the company said its core customers conitnue to grow and the business had a solid foundation with a “strong pipeline for new business”.
Group CEO Spencer Theodore Fung said the macroeconomic conditions “remain tough” globally for its customers and business.
“While we expected lower oil prices to bolster household income, increase consumer spending and offset general economic softness, these effects have been muted so far as consumer spending continues to be impaired. Retail sales remain lacklustre and have been largely boosted by promotions,” he said.
“Additionally, weakness in the Eurozone and the decline in the European currencies affected our business in the region. We expect this cyclical weakness to reverse as the Eurozone resolves the issues concerning Greece.
“In the meantime, China’s economic growth continues to slow and the recent currency moves have yet to stabilise.
“Contending with all of these challenges, we have been working closely with our customers to adjust their supply chains to find solutions to mitigate these cyclical challenges and add greater value to their businesses.”
Fung also said the global retail industry continues to be disrupted by the rapid growth of eCommerce, which lowers the barriers to distribution globally and increases price transparency across channels and geographies.
“While eCommerce platform operators and pure plays benefitted from the growth in eCommerce, traditional retailers have responded by aggressively investing in their own online channels to regain lost market share. We now see brands and retailers competing both online and offline on a global basis and are using promotions to drive traffic and sales. These highly promotional activities had a negative impact on our customers and, as a result, weighed on margins in our principal business.”
Fung said the company believes competition and promotional activities will eventually normalise and margins will stabilise.
“In spite of this disruption by eCommerce, we believe this provides us with an opportunity. Not only do many of the products we source for our traditional customers end up being sold online, we also have the opportunity to work with our online customers as they develop private labels.”
Li & Fung says that in changing retail environment, product differentiation and speed to market are increasingly important.
“Consumers are no longer limited by who they can buy from. They demand products that are unique and sustainable. Equally, our customers require a higher degree of product differentiation to remain competitive,” said Fung.
“We believe our focus on our core and new customers, key product verticals and innovation meets this need. At Li & Fung, we have the unique ability to apply our expertise in technology, design and development to further innovate products for our customers.”