HONG KONG — Li & Fung Ltd. chief executive officer Bruce Rockowitz said Monday the company’s revised contract with Wal-Mart Stores Inc. is “materially pretty much the same.”
The Hong Kong-based manufacturing and logistics giant said last week it had a new five-year agreement with Wal-Mart, superseding an earlier agreement made in 2010. The new agreement drops a call option agreement Wal-Mart had to buy Li & Fung’s direct sourcing subsidiary, Direct Sourcing Group Pte.
“That call option was quite an unusual thing. Wal-Mart had wanted it to make them feel more comfortable,” Rockowitz said in a phone interview. During recent discussions over the last few months, executives on both sides discussed if the call option was still needed and Wal-Mart agreed to drop it, he said. Rockowitz added that Li & Fung did not need to pay anything for Wal-Mart to drop the call option.
Rockowitz emphasized that the direct buying portion of the new agreement “from a scale point” is “the same and growing.” The previous agreement “focused on everything,” even though Li & Fung’s direct sourcing group only did business with certain parts. Under the new agreement, Li & Fung’s direct sourcing group will continue to be the primary direct buyer for Sam’s Club and will also provide buying services to certain categories in Wal-Mart USA and International. The new agreement addresses duplicated efforts on the part of Li & Fung and Wal-Mart, he explained. The new agreement also includes some higher-margin, principal business such as design and replenishment.
Rockowitz said an earlier article in the Wall Street Journal which stated that Wal-Mart had canceled much of a deal with Li & Fung in favor of buying directly from factories was inaccurate and “a confusion.”
Li & Fung’s stock price declined after the company revealed the revised Wal-Mart contract last Thursday. Shares closed at 12.08 Hong Kong dollars, or $1.55, on Monday, down 3.5 percent from Thursday.