Li & Fung Ltd. plans to form a joint venture with two Chinese department store operators to help the retailers develop their own brands of clothing, according to a person familiar with the matter.
Li & Fung, which supplies Wal-Mart Stores Inc., will also help source their products, license the brands and manage them, according to a person familiar with the matter, who asked not to be identified as the information is private. The company said in an e-mail it will have a signing ceremony in Shanghai on Tuesday to announce a partnership with Shanghai Bailian Group Co. and Beijing Wangfujing Department Store Group Co.
The deal may help Li & Fung, which gets more than 60 percent of its revenue from the U.S., make up for some of the Wal-Mart business it recently lost. The partnership also paves the way for the Hong Kong-based company tap demand from the growing middle class in China.
Li & Fung “brings to the Chinese retailers their experience with overseas retailers,” said Catherine Lim, an analyst at Bloomberg Intelligence. “One of the challenges of building private labels in China lies with the marketplace, which is highly fragmented and already crowded with many brands.”
The apparel brands will be for menswear, womenswear, children’s clothing and home products, said the person.
Media officials at Bailian and Wangfujing couldn’t be immediately reached on Monday, a Chinese public holiday. Li & Fung also couldn’t be immediately reached.
Li & Fung shares rose 1.8 percent in Hong Kong to close at HK$6.68 to the highest level since May 29. The benchmark Hang Seng Index gained 1.2 percent.
About 70 percent of department store operators in China are developing their own private labels, including Golden Eagle Retail Group Ltd., and some are limited by their geographical presence, Lim of Bloomberg Intelligence said.
“It’s a fairly new business for them,” she said. “It’s easier said than done because it requires investment. Until there’s enough scale, it probably wouldn’t make a lot of money.”