HONG KONG — Li & Fung, the Hong Kong-based sourcing company that’s seen as a bellwether for the U.S. retail sector, said Thursday that it anticipates 2016 will be yet another challenging year as it reported annual profits that fell 4.6 percent from a year earlier.
Net income for the 12 months ended Dec. 31 was $421 million, compared to $441 million a year ago. The company, which sources goods for about 8,000 retailers in more than 100 countries including giants such as Wal-Mart and Nike, saw sales decrease by 2.4 percent to $18.8 billion from $19.29 billion.
“The global economy looks challenging,” chief executive officer Spencer Fung said at a press briefing at the company’s Kowloon headquarters. “The poor holiday sales from the end of 2015 have resulted in high inventory in the system.”
The firm’s logistics business, which grew 6.7 percent to $923 million, helped balance out the weak global retail environment while its vendor support services, launched in 2014, broke even last year.
Fung said operation costs in China, where the group does more than half of its sourcing, should ease up. On Wednesday, Beijing rubber-stamped its 13th Five-Year Plan, aiming to maintain growth between 6.5 and 7 percent a year through to 2020.
Fung noted that while minimum wage increases were stipulated in past national Five-Year Plans, that wasn’t the case in the most recently ratified initiative and provinces would be allowed to set wage levels themselves.
“Hopefully [it is] tied to the export. We all know what happened to the export — in January and February combined it was down around 17 percent,” he said. “Guangdong, as soon as they heard this direction, is freezing the minimum wage for two years. This is a huge effect on the prices that are going to be seen out of the factories.”
Fung anticipates other provinces may follow.
“We’ll see what happens in the months to come. This is a big thing in the market,” he said.
Fung reiterated the changes taking place among Li & Fung’s customers as well as in consumer shopping patterns. As a result, he said, the group is focusing more on its key customers “to offer even better solutions and to increase our overall market share of their business.” Li & Fung also is expanding in key vertical product categories, including sweaters, beauty and furniture “to help our customers differentiate their product offerings and increase their margins,” he said, adding that, “Organizationally, we continue to simplify our structure and business to allow our teams to improve their speed and flexibility as they serve customers. Finally, we have introduced processes employed by startup companies — rapid prototyping and rapid experimentation – to move fast, act on new ideas and create a culture of innovation.”