As part of its investment in JD.com, Li & Fung will focus on private label initiatives for the China domestic market. Photo credit: Shutterstock.com.
Li & Fung’s recent $100 million investment in JD.com, the second-largest e-commerce platform in China, shows how one of the largest global retail sourcing companies is pivoting to serve private label retailers as its traditional customer digitally evolves.
Li & Fung has seen its traditional model threatened by several factors of late: the rise of e-commerce, fast fashion supply chains that bypass sourcing agents such as Li & Fung, trade disagreements between China and the US, and the COVID-19 pandemic.
Indeed, the retail landscape also faces major challenges. According to the United States Fashion Industry Association's 2020 Fashion Industry Benchmarking Study, among the major challenges facing the industry are increased sourcing costs, supply chain risks and compliance, and diversification.
To address industry challenges, Li & Fung plans to grow its business in China by partnering with JD.com on private label initiatives focused on the domestic Chinese market.
“Our goal to create the ‘supply chain of the future’ and to improve the lives of one billion people in our global supply chain remains more relevant than ever in this turbulent world,” Spencer Fung, CEO of Li & Fung, said in the company’s July 31 statement announcing the JD.com investment.
The focus on private label initiatives in China is an intriguing part of Li & Fung’s strategy and addresses the struggle that retailers face to diversify. According to the Shanghai Licensing Association's private label specialty committee, private labels currently make up less than 5 percent of Chinese sales, unlike Europe and the US, where private-label products account for about 35 percent and 14 percent, respectively, of all goods sold. However, the potential in China is great, and many retailers, including JD.com and fellow e-commerce provider Alibaba’s Taobao, are expanding into premium private labels.
While little data is available on the China private label market, a recent Deloitte article spotlighted the growth of private label brands in the US by finding that the percentage of US consumers willing to pay the same or more for private labels over name-brand products rose from 34% in 2014 to 40% in 2019. The coronavirus disease 2019 (COVID-19) further accelerated the growth of private labels as a number of stores experienced stockouts. More than 65% of US shoppers traded brand preference for brand availability due to COVID-19 stockouts.
Li & Fung is addressing these industry trends and challenges by building an end-to-end collaborative digital supply chain. Designed to manage the entire product lifecycle, the collaborative platform encompasses such technologies as blockchain, artificial intelligence (AI), machine learning, internet of things (IoT), and more. In addition, the platform provides customers and supply chain partners with the ability to share and disseminate data.
Could collaboration with JD.com extend to Walmart?
Walmart has struggled in the Chinese market over the years, but it is finally achieving revenue growth primarily due to grocery sales. According to its 2018 earnings report, Walmart China’s private label sales for both online and offline tripled compared with 2017. As such, Walmart China has focused on expanding and enhancing its private brands.
Walmart’s growth in China is linked to its partnership with JD.com, which dates back to 2016 when it sold its Chinese online marketplace, Yihaodian, to JD.com and took a small stake in JD.com. Since then, the stake has grown to about 12 percent with the two collaborating on e-commerce logistics ventures including investment in Dada-JD Daojia, a crowd-sourced, one-hour delivery platform.
Meanwhile, having severed most of its ties with Li & Fung in 2015, Walmart could look to reestablish them by joining the Li & Fung and JD.com collaboration. If successful, Walmart could globally expand the relationship to manage its entire private label supply chain on a single platform. By doing this, potential cost efficiencies could be achieved, as well as a narrowing of the gap between it and other e-commerce companies.
Contact Cathy Morrow Roberson at Cathy.Morrowroberso@ihsmarkit.com and follow her on Twitter: @cmroberson06.
August 18, 2020 at 01:14AM
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Logistics-Technology: Rise in private label brands creates opportunities for Li & Fung - JOC.com
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