Wal-Mart focuses on private brands, sourcing

Wal-Mart focuses on private brands, sourcing       Wal-Mart Stores Inc. said Thursday it is initiating a “global sourcing strategy” to reduce costs of goods, get them to market faster and improve quality.
      It said it is forming global merchandising centers that would further leverage its global scale when buying both general merchandise and food from around the world.
      Eduardo Castro-Wright, vice chairman, said the core of the company’s overall global sourcing strategy will be to continue increasing direct sourcing for the company’s private brands.
      Wal-Mart said last fall it spends about $100 billion for private brand merchandise, one-third of the money it spends on merchandise overall each year. Wal-Mart's private brands include Faded Glory for blue jeans, Great Value for food, Equate for pharmaceuticals or Ol’   
Roy for dog food.
      Ed Kolodzieski, president and chief executive officer of Wal-Mart Japan Holdings G.K. and Seiyu, has been promoted to executive vice president and will lead global sourcing.
      Wal-Mart also said as part of its new strategy, it has finalized a series of agreements with Li & Fung, the Hong Kong sourcing house. Li & Fung will form a new company called WSG to manage the Wal-Mart account and act as buying agent for goods valued around $2 billion within the first year. The deal is non-exclusive and does not include volume or shipment commitments.
      WSG would provide buying agency services exclusively for Wal-Mart and starting in 2016 Wal-Mart would have the right, but not the obligation to require Li & Fung to transfer all shares of WSG and/or subsidiaries running the sourcing function to Wal-Mart pursuant to a call option.
      Paula Rosenblum, managing partner of Retail Systems Research, said Li & Fung has a reputation for being one of the best sourcing companies. She noted that more retailers are moving away from the use of agents and doing as much sourcing internally as possible.
      She noted that private labeling has become popular across a wide swath of retailing, with examples ranging from Cosco’s Kirkland brands to Publix’s store private label groceries. Publix even holds periodic promotions where they offer to trade brand name products like cereal for their version.
      'Wal-Mart has obviously figured out that Li & Fung can do certain things more cheaply than Wal-Mart can, making this a good move for them,” Patricia Edwards, principal and retail analyst at Storehouse Partners, told the Wall Street Journal. Li & Fung’s clients include Target and Liz Claiborne, among others.
      In a research note, Citigroup analyst Deborah Weinswig said the deal with Li & Fung should help Wal-Mart “reach its goal of lowering product costs by 5 percent to 15 percent over time through its direct sourcing initiatives.”
      At a sourcing conference in Hong Kong in April 2008 that American Shipper attended, Li & Fung Chairman William Fung said the company was looking to expand into arenas beyond sourcing. In its role as an intermediary between manufacturers and retailers, it also provides supply chain assistance.
      Li & Fung designs and produces its own products, managing 10,000 factories worldwide and providing thir- party buying services in Asia to companies who have no presence there themselves. About half of its sourcing comes from China, with other strongholds in Asia and Turkey.
      Li & Fung coordinates sourcing of apparel, toys, home furnishings, shoes and sporting goods. ' Chris Dupin and Eric Johnson