Trading house Li & Fung saw its share price drop sharply on news that a customer in the United States, KB Toys, filed for Chapter 11 bankruptcy protection on Thursday. The share price of Li & Fung fell 12.69 per cent to HK$14.86 yesterday. 'We have had two big US customers go bust this year, Mervyns and KB Toys. Both are US$100 million of annual business each for us. We didn't like it,' Li & Fung managing director William Fung Kwok-lun said. 'We have just secured big outsourcing deals with Mexx Europe (a European fashion brand). They will be worth more than US$200 million annually and will cover the two lost deals. We can hold the fort for a while,' Mr Fung said. Mervyns, a US department store chain, filed for Chapter 11 bankruptcy protection in July due to the harsh US retail environment, according to press reports. KB Toys had annual sales of US$480 million, with debts ranging from US$100 million to US$500 million, according to Associated Press. It was unusual for KB Toys to file for bankruptcy before Christmas, Mr Fung said. 'Normally, toy companies would go into Chapter 11 after Christmas,' he said. KB Toys' collapse during the traditional peak shopping season in the US is a sign of poor retail sales. One analyst said: 'We've seen quite a number of US retailers go bust, and more retailers are going to go bankrupt in the US. The biggest negative impact on Li & Fung will be the loss of customers and revenue in future years.' Li & Fung was one of the biggest creditors of KB Toys, which owed the Hong Kong firm US$27.2 million, according to media reports. In a statement, Li & Fung said its exposure to KB Toys' bankruptcy protection was only US$5 million, mostly in commissions, because the Hong Kong firm acted as an agent between the US company and toy suppliers. The remainder of the US$27.2 million was owed by KB Toys to the toy factories, Li & Fung said. These factories are most likely in southern China, which makes most of the world's toys, an analyst said. Failure by KB Toys to repay its debts to these southern China factories would hurt their businesses and if they were not strong enough to withstand the shock, bankruptcy may result, the analyst said. 'Our strategy for weathering this financial crisis is to get more accounts. We're still going ahead with acquisitions in the near future. This may be the best time to do acquisitions,' Mr Fung said. Li & Fung management pointed to an 'unprecedented slowdown' and expected the situation to continue next year, wrote Peter Tang in a Nomura International report. 'Conditions in Europe also appear to be deteriorating rapidly,' Mr Tang said. For this year, Nomura cut its earnings forecast for Li & Fung by 7 to 9 per cent, and projected an 18 per cent revenue growth, lower than the 25 per cent growth in the first half. Nomura also forecast Li & Fung's revenue will be HK$109.2 billion this year, while net profit will be HK$3 billion.