Online shopping is squeezing profits throughout the retail sector, hurting such industry heavyweight as Li & Fung Ltd., one of the world’s largest factory middlemen, the Wall Street Journal is reports.
The 100-year-old Hong Kong company, contracts with 15,000 factories globally to make apparel, toys and other goods.
But Its core business has been connecting Western retailers such as Abercrombie & Fitch Co. and Target Corp. with factories around the world.
But as consumers increasingly shop online for the best deals, retailers have been forced to offer lower prices, putting pressure on factories and intermediaries alike.
Middlemen need to “either figure out ways to create value, or they will be going out of business,” said Edwin Keh, chief executive of the Hong Kong Research Institute of Textiles and Apparel.
“The bigger question is whether middlemen can still exist in a globalized economy.”
On Thursday, Li & Fung reported that net income dropped more than 50 percent to US$72 million for the first half, while revenue slumped 6.4 percent.
Li & Fung chief executive Spencer Fung said weakness in the global economy and heavy discounting by retailers weighed on the earnings.
“The environment is bad,” Fung said. “It’s probably the toughest we’ve seen.”
Li & Fung reported earnings after trading ended on the Hong Kong stock exchange, where its shares closed at HK$3.94 (51 US cents).
Shares have slipped 23 percent this year.
Fung said the company is working closely with brands to win more of their business.
Brands often work with multiple intermediaries and increasingly, some are sourcing directly from factories to cut costs.
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