By  on October 30, 2007

HONG KONG — Li & Fung Ltd., the publicly held global consumer goods exporter and sourcing giant based here, has made its first forays into the health, beauty and cosmetics sector, and is looking at the category as its next growth platform.

The company recently acquired CGroup and PB Beauty, securing two established companies to build a foundation in the sector. CGroup, one of the leading health, beauty and cosmetics supply chain companies, was established in Hong Kong 20 years ago by French brothers Yan and Guy d'Auriol. Li & Fung purchased shares of the family-run company in June for about $120 million, with up to an additional $80 million payable to the family if certain profit targets are met.

The second acquisition came in August, when Li & Fung paid about $96 million to acquire Peter Black International Ltd., the U.K.-based supplier of footwear, accessories and personal care merchandise for leading European retailers such as Marks & Spencer, Tesco, Sainsbury's and Boots. PB Beauty, a division of the company, is a significant player in the HBC industry.

Bruce Rockowitz, president of Li & Fung Trading Ltd., said the entry into the HBC business is logical and timely.

"Our objective is to create a one-stop shopping service for retailers," Rockowitz said. "For over 100 years, Li & Fung has been in the apparel business. For the last 10 years, we have been a hard goods exporter, with home accessories, furniture and toys comprising one-third of our business. We look at HBC as the third leg of our business. In fact, like our soft goods and hard goods businesses, it has similar infrastructure, problems and opportunities. It is a sector with enormous potential and we believe it will be one of the major growth drivers of our business in the future."

CGroup was an attractive prospect for many reasons, Rockowitz said.

"Not many companies out here in Asia have the experience and expertise in supply chain management in the HBC sector," he said. "CGroup is a relatively small but solid company with a very good management team already in place, not to mention an existing customer base we will be able to tap into."CGroup coordinates and manages the supply of HBC products to premier cosmetics brands and retailers globally. It offers a fully integrated range of products and services, from primary pack and promotional components to secondary packaging and containers, travel amenities and point of purchase materials for customers, which include Christian Dior, Hermès and Lancôme.

In addition to its Hong Kong head office, CGroup has production offices in Hong Kong and China, as well as sales and marketing offices in New York and Paris. Its manufacturing facility in the city of Dongguan in southern China sprawls over more than 100,000 square feet and is dedicated to cosmetics filling and assembly lines for full service projects. Last year, CGroup reported sales of $120 million.

Rockowitz said Li & Fung is completing the company's next three-year plan that ends in 2010.

"We're looking at a starting point of $250 million in sales," he said, referring to the combined figures from CGroup and PB Beauty.

PB Beauty, he added, was a complementary addition to Li & Fung's expansion plans in the HBC sector.

"It allowed us to double our HBC business overnight," Rockowitz said.

Apart from the extensive customer bases of both companies, CGroup brings to the table a completely integrated supply chain, which includes production facilities in China, while PB Beauty offers strong technical support from its chemists and researchers based in Europe.

The HBC business is primarily produced in Europe and the U.S. But Rockowitz said having CGroup in the fold will allow the company to open more factories in China so that production can be moved offshore.

"And with PB Beauty, we will be able to bring more of the European technical knowledge to Asia," he said.

Rockowitz will be looking to capitalize on other synergies that he believes can extend into Li & Fung's existing soft goods and hard goods business.

"There are tremendous opportunities to leverage the new HBC sector over a much larger business, which includes our existing customers," Rockowitz said.

As part of the purchase agreement, CGroup's management team will remain in place.

"We don't buy companies with the intention of paring them down and replacing their people," Rockowitz said. "In all our acquisitions, we keep the top guys. We keep all the people, if we can. And with the same people, we work together to grow the company at a much faster rate with our combined network and resources."Rockowitz is speaking from experience. His own apparel export company, Colby Group Holdings Ltd., was acquired by Li & Fung in 2000, in a deal valued at almost $282 million.

For the year ended December 2006, the Li & Fung Group reported sales of $8.7 billion, a 21.8 percent growth from the year before. Interim results for the first six months ended June 30 were even more robust. The Group's turnover was $4.84 billion, 35 percent higher than the same period last year.

The Fiber Price Sheet
The last Tuesday of every month, WWD publishes the current, month-ago and year-ago fiber prices. Prices listed reflect the cost of one pound of fiber or, in the case of crude oil, one barrel.
Price on 10/29/07*Price on 9/24/07Price on 10/30/06
Cotton62.50 cents59.85 cents52.35 cents
Polyester staple85 cents85 cents85 cents
Polyester filament78 cents78 cents82 cents
September Synthetic PPI114.5114.4115.1
Crude oil$91.86$81.62$60.75
*The current cotton price is the September average on fiber being delivered to Southeastern region mills, according to Agricultural Marketing Services/USDA. The wool price is based on the average price for the week ended Oct. 26 of 11 different thicknesses of fiber, ranging from 15 microns to 30 microns, according to The Woolmark Co. Information on polyester pricing is provided by the consulting firm DeWitt & Co. The synthetic-fiber producer index, or PPI, is compiled by the Bureau of Labor Statistics and reflects the overall change in all synthetic-fiber prices. It is not a price in dollars but a measurement of how prices have changed since 1982, which had a PPI of 100. Oil prices reflect last week’s closing price on the New York Mercantile Exchange of future contracts for light, sweet crude oil to be delivered next month.

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