Supply Chain Matters notes an important update to our previous late August commentary, What’s Up with Li & Fung.
The Wall Street Journal has reported that Wal-Mart Stores has canceled its supply contract from Li & Fung supporting the global retailer’s international stores. In a filing with the Hong Kong Stock Exchange, Li & Fung indicated that Wal-Mart had terminated its option to buy Direct Sourcing Group, a separate business unit setup two years ago to expressly serve Wal-Mart. Wal-Mart had an option to acquire Direct Sourcing in 2016 and now appears to be opting to do its own direct sourcing for international stores. Li & Fung clarified that it would continue to supply products for certain categories for Wal-Mart’s domestic and Sam’s Club business units. While Li & Fung did not disclose the revenue impact of this decision, the WSJ characterized the announcement as another blow for the company. Direct Sourcing recorded revenues of $1.7 billion with an overall operating loss in 2011.
In our previous commentary, we note that Li and Fung had reached an important checkpoint in its growth strategy. This latest news regarding the Wal-Mart contract adds to the speculation of where next in growth