Li & Fung Ltd. plans to open as many as 300 stores in a venture with China mall operators to sell new home-grown brands, as the global supplier of clothes and toys seeks to tap the rising Chinese appetite for fashion.
The sourcing company will take a one-fifth stake in the joint venture with Shanghai Bailian Group Co. and Beijing Wangfujing Department Store Group Co., which will each own 40 percent, Hong Kong-based Li & Fung said in a statement Tuesday. The partners are targeting sales of 1 billion yuan ($161 million) in three years, Li & Fung said.
“We’ve traditionally sourced from developing countries and selling to America and Europe, but the sense of gravity is moving toward Asia and especially to China,” Chairman William Fung said in an interview. “This joint venture will help us develop the Asian market further.”
The deal could help Li & Fung make up for some of the Wal-Mart Stores Inc. business it lost last month. It also paves the way for the sourcing company, which derives more than 60 percent of its revenue from U.S. retailers and 20 percent from Asia, tap rising demand from China’s burgeoning middle class.
Li & Fung shares fell 0.9 percent to HK$6.62 by the close of trading in Hong Kong. Bailian ended up 2.2 percent at 23.59 yuan while Wangfujing climbed 4.7 percent to 36.21 yuan in Shanghai trading.
The company warned in March will be a tough year as U.S. retailers compete harder by offering more discounts to attract customers. Core operating profit fell 18 percent in 2014 as margins fell and operating costs rose, it reported.
Under the agreement, Li & Fung will help design and develop as many as three private labels for Bailian and Wangfujing over the next three years. Shanghai-based Bailian operates 47 department stores in China, while Wangfujing, based in Beijing, operates 45 chain stores, according to the statement.
Li & Fung is also scouting for other brands in Europe and the U.S. to acquire or license so the venture can sell them exclusively at physical as well as online stores, Fung said by telephone, after a signing ceremony held in Shanghai. The two retailers are currently selling products on their websites.
The partnership will allow the Chinese retailers to differentiate from competing chains by selling labels that others don’t have, and help counter rising challenge from online stores, the executive said.
The brands will cover clothing for men, women, and children, as well as household products, and some of the new labels may be introduce near the winter season, said Fung.
— With assistance by Jing Jin, and Stephanie Hoi-Nga Wong