Influx

While Levi’s brand problems have been much publicized, a little known trading company is using the Levi’s brand to move up the corporate evolutionary ladder.

Li & Fung is the Hong Kong based middleman that helps to orchestrate, manufacture and supply much of the private label clothing we find in our stores in the United States. It doesn’t make anything, it’s a classic middleman, but of a scale that hasn’t really been seen before.

Li & Fung is the classic networked organization, instead of manufacturing specific items in one location, it breaks them down into smaller projects and co-ordinates the execution and process.

As an example, for cases, the company might buy leather in India, ship it to South Korea for tanning and then send it to China for final assembly with the metal fittings made in Japan.

The company simply uses advance IT and logistics to link together the “best of breed” suppliers that can deliver quality items in the fastest possible time.

However, the company is no longer content playing the middleman role and needs to play in the branded arena. The problem, static or declining margins, Li & Fung faces real pricing pressure from its major clients that’s led to on-going price deflation of around 7% a year and increased demand for smaller, faster and therefore less profitable turnarounds.

This is where Levi’s come in, Li & Fung believe they can extract value from the brand and achieve higher margins in the process. To do this, they have acquired the license to manufacture and sell Levi’s Red Label tops and some Signature lines. This isn’t the company’s only venture into the branded space; they also have deals with Disney and Royal Velvet.

Interestingly, Li & Fung is just one example of a middleman who wants to play in the branded world; some months back we highlighted the goals of Ben-Q in the consumer electronics space. A company, once a large OEM, now wants to move into the branded space.

Li & Fung, like Ben-Q faces tough challenges as they to move from a producer focus to a marketing focus. In addition, Li & Fung also has the potential worry that many of its trusted private label clients may now see it as a competitor, the converse is also true, with brands like Levi’s, helping it open doors into large retailers like Target and Wal-Mart.