SHANGHAI — Li & Fung, Shanghai Bailian Group and Wangfujing Department Store Group on Tuesday established a joint venture in Shanghai’s free trade zone with registered capital of 48 million yuan, or $7.73 million at current exchange.
The venture, of which Bailian Group and Wangfujing Department Stores hold 40 percent each and Li & Fung owns 20 percent, will see the development and management of private labels and licensed brands.
In its first three years, the venture will focus on product categories including women’s, men’s and children’s wear and home products. It will develop one to three private labels and up to six licensed brands over the three-year period, and may involve the opening of up to 300 stores or shops-in-shop and, its partners hope, could realize up to one billion yuan, or $161.1 million, in sales.
“We know that we need to learn to walk before we run. We haven’t set any specific targets, all we know is we are in a bit of a hurry to develop the private brand and to the extent that all three sides can do it as quickly as possible, we will,” Li & Fung group chairman William Fung said. “I really don’t know what the potential is, it could be quite big. If you look at the experience of other countries – even if we have 10 percent of the turnover being private brand, that’s already quite big.”
Li & Fung’s role in the venture will be to offer their expertise in designing, sourcing and producing private labels and licensed brands tailored to the needs of Beilian Group and Wangfujing Department Stores.
China’s ever-evolving retail landscape has seen traditional retailers come under increasing pressure, leading major players, including Bailian and Wangfujing, to seek to differentiate themselves.
“Most multibrand stores, including department stores, have been under pressure the past 10 years because of the brand strategies, specialty stores and now the Internet,” Fung told WWD at the conclusion of the signing ceremony. “We have seen from the experience overseas that they need to develop the private brand side. Most [overseas] department stores will have between 10 and 30 percent private brand and this is the direction [Bailian and Wangfujing] are taking, and we have some guidance and experience we can offer.”
Despite news of the joint venture, some analysts downgraded Li & Fung.
“Li & Fung is facing increasing headwinds. The softer retail environment in the U.S., lower raw material prices, foreign currency impact from a weaker euro should weigh on margins in financial year 2015,” CLSE investment analyst Mariana Kou wrote in a note. “While we believe return on investment should continue to improve, slower earnings growth in the short-term and further downgrades should put pressure on stock performance.”