Turnover has been hit for global supply-chain management company Li & Fung in a difficult retail environment buffeted by geopolitical uncertainties, global terrorism, technological disruption, deflationary trends, the US election and Brexit.
While the group’s turnover for the half-year ended June 30 eased 6.4 per cent, its core operating profit of US$156 million was supported by an increase in total margin percentage.
Logistics sustained growth momentum for the group, vendor support services were ahead of plan and its Asian distribution business was divested for $350 million. The group is now focussing on its next three-year plan with a focus on speed, innovation and digitalisation of the supply chain.
In a letter to shareholders, group CEO Spencer Fung says Li & Fung made important progress during the first half of the final year of its current three-year plan.
“In 2014 we set out to, one, build a sustainable enterprise; two, simplify our business; and three,  focus on organic growth.
“We have taken a deliberate course of action to minimise short-term actions and instead focus on initiatives that will benefit the long-term foundation of the business, like investing in people, systems, infrastructure and innovation.
‘We have simplified our company by spinning off non-core assets such as our global brands and licensing business, now Global Brands Group, and our Asia consumer and healthcare distribution business.”
“Constant pressure”
Fung says the macro environment, however, has been one of the toughest experienced. “Industry pressures, geopolitical uncertainties, US election concerns, a Brexit reality and the sad rise of terrorist activity have caused uncertainty in the market and affected consumer confidence.”
He describes the retail environment as “almost permanently promotional” with many brick-and-mortar retailers under constant pressure. “Further, many retailers are focussed on working down excess inventory from previous seasons, reducing overall levels of inventory and increasing their speed to market.”
Technological advancements have brought new disruptions to industries at an ever-accelerating pace, and eCommerce players continue to take market share and cause disruption to how consumers spend and how retailers compete, says Fung.
“The sourcing market continues a multi-year deflationary trend, and global terrorism has affected many countries, including key production markets in Bangladesh and Turkey. Our company performance in the first half of the year reflects these challenges, and as a result our business volume decreased.”
Meanwhile, the group’s new Silicon Valley office has been introducing innovation and exploring partnership opportunities in technology. Also, the group’s vendor support services segment has grown from a low base, and is expected to exceed the goal of 5 per cent core operating profit this year.
“We expect the second half of the year to remain challenging, and we will continue implementing our margin enhancement and cost control-measures.”