Wal-Mart reduces product sourcing handled by Li & Fung unit

Wal-Mart Stores, the world's largest retailer, says it has decided to bring in-house some of the product sourcing that has been handled by Direct Sourcing Group, (DSG), a unit of Hong Kong's Li & Fung.

The move to buy more goods directly from factories comes as Wal-Mart, hampered by sluggish sales and profits, looks to squeeze costs out of its supply chain.

"We have made a business decision to transfer certain sourcing functions for Wal-Mart in-house, and as such will work collaboratively with DSG to ensure a smooth transition over the next several months," Wal-Mart said in a statement on Thursday.

It said it would continue to use DSG for sourcing products for Sam's Club, a unit that sells products in bulk and competes with Costco Wholesale.

Wal-Mart operates 648 Sam's Club stores, or about 12 per cent of its network of 5,200 stores in the United States, its largest market. Globally the retailer runs about 11,500 stores.

It announced its partnership with Li & Fung in 2010, saying Li & Fung would form a new company to manage the account, expecting it to act as a buying agent for US$2 billion worth of goods in the first year.