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Li & Fung's William Fung said the new joint venture, based in the Shanghai Free Trade Zone, was integral to the firm's strategic shift. Photo: Edward Wong

New | Supply chain giant Li & Fung signs deal to build in-store brands for China

Sourcing giant teams up with mainland department store operators to build own-brand products in strategic shift to supply Asian consumers

Global sourcing giant Li & Fung has signed its first mainland joint venture to develop own-brand product lines in a move that will help drive the firm's strategic shift towards supplying Asian consumers, group chairman William Fung told the

"We've always said that as the economic centre of gravity moves towards Asia we will be putting more emphasis on developing the Asian market as not just a place to source from, but to sell to," Fung told the in a phone interview after a signing ceremony in Shanghai.

Li & Fung, through its Li & Fung Trading (China) Holdings subsidiary, is partnering with department store operators Shanghai Bailian Group and Beijing Wangfujing Department Store to source and produce private labels and licensed brands.

"We have Chinese customers where we just sell them our supply chain and sourcing services. This is the first time where we have a joint venture company which will own the brands that we develop," Fung said.

The joint venture, called BaiFuLi Co with registered capital of 48 million yuan (HK$60.7 million), will develop clothing and home ware products.

It will create one to three private labels and up to six licensed brands over three years and may involve the opening of up to 300 stores or store-in-stores to realise up to 1 billion yuan in sales, Li & Fung said in a statement.

Li & Fung, which generated 14 per cent of its US$19.3 billion in global revenues from Asia in 2014 while 78 per cent came from the US and Europe, said in March it was refocusing on its core business as a supply chain management firm. It is the world's biggest sourcing and supply chain firm.

An increasingly competitive market and rising pressure from the internet that has eroded margins at traditional retailers has seen some Li & Fung clients, such as Wal-Mart and Kate Spade, bring some product sourcing in-house.

Fung told the that the new joint venture, which had been 12 months in the making and is based in the Shanghai Free Trade Zone, was integral to the firm's strategic shift.

"We are going to help [our partners] design and source and then manage the supply chain for the goods that constitute the brands," he said, adding that the new product ranges would be sourced from across the global Li & Fung network, not just within mainland China.

"It is not particularly big given our total size, but the fact that we are a partner in a joint venture which will actually own the brands we develop, that is quite interesting," Fung said.

The move was also indicative of a further maturation of the mainland retail market, he said.

Mainland department stores have typically not developed their own brands, earning more instead from selling foreign labels or domestic products developed by other companies. Own-label products typically generate 10-30 per cent of sales for major retailers in the US and Europe.

"This is a strategic imperative," Fung said, adding that an attempt to differentiate by brand - an area in which mainland retailers have struggled to excel despite the rapid development of the domestic consumer market which has boomed in the last decade - could be the start of a trend that creates globally recognised Chinese labels. "Macy's, Cole's, Harrod's, they all have their own brands. You've got to start somewhere and this is just a starting point," Fung said.

This article appeared in the South China Morning Post print edition as: Li & Fung inks deal to develop China brands
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