Exporter Li & Fung has signed an agreement to source goods for the world's largest retailer, Wal-Mart Stores, in a multibillion-dollar deal that will give it a much-needed income boost. WSG, a Li & Fung subsidiary, will source exclusively for Wal-Mart over the next six years, although the United States department store giant will also be able to use other agents or buy directly from suppliers, according to the agreement. In the first year, Li & Fung will source about US$2 billion worth of merchandise ranging from apparel and shoes to cosmetics. A key term of the deal gives Wal-Mart the option to acquire WSG when the agreement expires. Li & Fung executive director Bruce Rockowitz said the deal and the takeover option were mutually beneficial. 'We will bring lower prices to Wal-Mart and they will deliver a big sales volume to us,' he said yesterday. The deal marks a big step forward for Li & Fung's business ties with Wal-Mart, with some analysts saying it would also boost the Hong Kong firm's bottom line significantly this year. 'It is positive for Li & Fung,' an analyst with a European brokerage said. 'But the terms favour Wal-Mart more, given the option of taking over WSG.' She pointed out that Wal-Mart is neither committed nor obliged to any amount of shipment volume throughout the contract period. 'This is also a breakthrough for Wal-Mart, which has been procuring goods through an internal division,' she said. Rockowitz expected this year would be 'a good year' for Li & Fung despite a slow recovery in global trade. The group's managing director, William Fung Kwok-lun, said two days ago that uncertainties continued to surround overseas markets such as the United States and Europe, Li & Fung's core export destinations. He said high unemployment and a weak property sector in the US prompted retailers to be cautious in ordering. Li & Fung recorded a 2.32 per cent decline in turnover to HK$46.29 billion in the six months to June last year, but a sharp cut in costs helped lift net profit 12.84 per cent to HK$1.4 billion. The stock rose 30 HK cents, or 0.93 per cent, to HK$32.30 yesterday before the announcement of the deal.
