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Li & Fung threatened by lower retail prices

Li & Fung Chief Executive Spencer Fung said the company is working more closely with brands.

The migration of shoppers online has been squeezing profits throughout the retail industry—including at Li & Fung Ltd., one of the world’s largest factory middlemen.

The more than 100-year-old company, based in Hong Kong, contracts with 15,000 factories globally to make apparel, toys and other goods. 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.

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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% to $72 million for the first half, while revenue dropped 6.4%.

Li & Fung Chief Executive Spencer Fung said weakness in the global economy and heavy discounting by retailers weighed on the earnings.

Li & Fung reported earnings after trading ended on the Hong Kong stock exchange, where its shares closed at $3.94 Hong Kong dollars (U.S. $0.51). Shares have slipped 23% this year.

Mr. 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.

(Source: WSJ)