11th November 2020
UK government still hasn’t produced a lorry drivers’ guide
Li & Fung senior management dismissed as "not true" a claim by the Wall Street Journal (WSJ) that Walmart had cancelled most the arrangements between the companies announced in early 2010 and will increase the amount of its direct sourcing it does from factories. But it is agreed that buying under the deal fell short of the quantities targeted.
Li&Fung announced on September 20 that Walmart had terminated, without being paid compensation, its option to buy Direct Sourcing Group, the special division L&F had set up in 2010 to handle Walmart purchases. The new arrangement would last for five years with an option for a two-year extension and beyond. The WSJ claimed this followed an internal memo at Li & Fung telling employees it was losing the sourcing business for much of Wal-Mart’s international stores. UBS analyst Spencer Leung wrote in 2011 Li & Fung likely was probably sourcing goods for stores in Wal-Mart’s minor international operations, such as South America and Japan, while Wal-Mart was using its own staff to procure more than 70% of the company’s product volume in its major US, Canada and UK businesses.
Wal-Mart US President Bill Simon said at an analysts’ conference in New York this month that they used Li & Fung to "do things that are complicated for us but less complicated for them."The unit was planned to handle $2 bn buying a year, and Goldman Sachs said at the time Goldman Sachs in January 2010 called the deal a "transformational" agreement that could double Li & Fung’s business.
The division turned over $1.7 bn in 2011 and recorded an operating loss, though Bruce Rockowitz, L&F CEO, said it broke even in the first half of 2012, will make a profit in the second and be "very profitable" in 2013. Rockowitz dismissed as "not true" the WSJ claim that the new deal would cut L&F’s Walmart business substantially, pointing out that new arrangements allowed L&F to pitch for other services, such as design.
But "The termination of the…option indicates that Walmart itself is not giving enough orders to DSG to make it very profitable," said Gabriel Chan, a Hong Kong-based analyst at Credit Suisse.