As Li & Fung looks to separate its consumer brands and licensing business, called Global Brands Group, the sourcing giant has said the planned spin-off will deliver growth benefits for both businesses.
The company submitted a formal application last week to list the new entity on the Hong Kong Stock Exchange within the next three months. The application has since been accepted by the Stock Exchange and is currently being vetted for approval.
If the spin-off occurs, Bruce Rockowitz, Li & Fung’s current chief executive, will become CEO of the new entity. Spencer Fung, currently the company’s chief operating officer and honorary chairman Victor Fung Kwok-king’s eldest son, will assume the CEO role at Li & Fung.
Li & Fung had announced its intention to spin off its Global Brands Group in March as part of an ambitious three-year plan for expansion. The company said the move would allow each entity to pursue its own focused strategy. Li & Fung will channel its efforts to sourcing and logistics, while Global Brands will be able to focus on fashion-forward design capabilities, brand development, licensing and marketing. As a result of the split, Li & Fung said each business would be able to grow more quickly and have further financial flexibility.
Company chairman William K. Fung said, “Our decision to spin-off and list Global Brands Group as a separate publicly-listed entity on the Hong Kong Stock Exchange is a natural extension of this strategic realignment of our business. We view this as a separation of equals with each company having strong growth prospects, and we believe that separating Li & Fung and Global Brands Group into two distinct companies will deliver meaningful benefits to each of the businesses, our customers, and our shareholders.” William K. Fung will remain chairman following the spin-off.
Rockowitz said Li & Fung’s global network and base in Hong Kong will be the biggest competitive advantage for the Global Brands Group, which will focus on helping its U.S. brands like Coach, Inc. shoes and Michael Kors belts expand in Asia.
According to the South China Morning Post, Rockowitz said, “It’s a much better place to base yourself. We have China on the doorstep. A lot of brands are coming to us because really we’re the only company that’s global…It’s hard to find a company you can licence multi-categories in the fashion space globally. That’s a unique platform.” He added, “In the US, that’s where all the brands below luxury come from in the world. With the opening up of China, there’s a huge opportunity and in Asia to globalise brands.”
In recent years, Li & Fung has taken to acquiring brands in an effort to fuel growth, but many of its acquisitions left investors underwhelmed and shareholders with little added value. And as retailers, like Walmart and Carter’s Inc. for example, began doing more direct sourcing, Li & Fung discontinued brands it was distributing in the U.S.
The company’s core operating profit in 2012 was down 42 percent, with the decline attributed to restructuring the business, reducing the number of brands distributed in the U.S., and some subpar acquisitions.
Earlier this year, Fung said, “A lot of people criticise us for our acquisitions strategy. They say we are just acquiring earnings.” He added, “But I know that if I buy a company for earnings but I can’t make that company grow, it will be a drag on my earnings,” according to South China Morning Post.
Li & Fung has since returned to profitability, reporting a 70 percent core operating profit increase to $871 million in 2013, and a 21 percent net profit increase to $755 million. The spin-off is expected to generate cash for the company and foster further growth.
“All of us at Li & Fung see great opportunity to develop this business further through a growth strategy that will include further building out the portfolio of licensed brands, adding new categories to the current brand portfolio, and increasing the geographic and channel footprint. We believe that allowing Global Brands Group to focus on this strategy as a standalone business will be the best way forward,” Rockowitz said.
In terms of leading the charge, Rockowitz said Spencer Fung has been groomed to take his place during his 13 years working in the business. “This has been a long, long transition–almost from the day I got into this company,” Rockowitz said. “He’s the right age, he has the right training and been all over the world working for Li & Fung,” according to the South China Morning Post.