Blog: Leonie BarrieWal-Mart sourcing shifts

Leonie Barrie | 21 September 2012

In the same way that retail organisations are in a constant state of flux, Wal-Mart's decision to change the terms of its supply deal with Li & Fung shows that sourcing policies, too, have to shift in line with the changing needs of a business.

Back in January 2010, when Li & Fung set up a new sourcing unit for Wal-Mart called Direct Sourcing Group, it was said to have the potential to buy goods worth about $2bn in its first year of operation. The world's largest retailer was focused on cutting costs by consolidating its global sourcing operations, so moving away from the Hong Kong firm's wholesale operations and tapping instead into Li & Fung's vast buying operations around the world was one way of doing this.

But Wal-Mart, with its mix of products, brands and countries of operation, has probably the most complex buying needs of any major clothing retailer. It continues to buy some clothes direct, some own-branded clothes through wholesalers, and some specially developed brands from branded companies. Each is bought in a way best suited to the product concerned, the market it's bought for and the country it's bought from.

And meeting these needs now requires a new change of direction - at least as far as its relationship with Li & Fung is concerned. The Direct Sourcing Group will continue as the main direct resource for the retailer's Sam's Club warehouse format in the US; and it will provide buying agency services to Walmart in the US and some international markets in specific categories.

Another of Li & Fung's subsidiaries will move to a supplier relationship with Walmart's international markets, where it will provide design, replenishment and other services "that could not be provided as a buying agent."

Li & Fung is playing down the change of arrangement. "Wal-Mart is now one of the group's largest customers," it says, adding that the new agency agreement "will allow the group to build on this relationship."


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