Li&Fung: Factory Sourcer Shines

Li & Fung: A Factory Sourcer Shines

Looking at the battered retail landscape earlier this year, it was clear to Liz Claiborne CEO William L. McComb that he needed to dramatically shift his business. The New York company was struggling to deliver high-value, fashionable clothes on an ever-faster schedule, with a limited overseas presence to deal with independent local suppliers. McComb knew there had to be a better way. So three months ago he decided to sell his sourcing operations—which handle all aspects of production, from finding materials to manufacturing garments—to a Hong Kong outfit called Li & Fung Group for $83 million. Liz Claiborne still does the design and marketing for brands such as Juicy Couture, Kate Spade, and Lucky Brand jeans. But Li & Fung now handles the rest. "This economic recession is more Darwinian," says McComb. "Now is the time to reinvent your business model to be more competitive."

As U.S. retailers contend with tough times, more and more are turning to Li & Fung. The Hong Kong company, which manages the supply chain for dozens of brands and retailers worldwide, is using the recession to take over a bigger chunk of its clients' businesses. In addition to helping them find factories or raw materials, it's taking on the manufacturing headaches, ensuring factory partners meet labor standards and delivering finished goods at a set price. A month ago, Talbots announced its intention to make Li & Fung its main global sourcing agent. The $14.3 bilÂlion-a-year company has also taken over production for Toys 'R' Us, Timberland, and Sanrio, the Japanese merchandiser of Hello Kitty. As retailers look for ways to slash costs, says Li & Fung group managing director William Fung, "they are asking themselves, 'Is having our own buying office the way to go?'"

Luckily for Fung, the answer is increasingly "No." With 80 offices in 40 countries, Li & Fung uses its economies of scale to drive down prices for customers. Liz Claiborne's...