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The world’s largest middleman isn’t faring so well

Garment workers present creations during the "Fashion Show of the Beautiful Clothes, Ugly Reality made by us in Cambodia" in Phnom Penh May 25, 2014. Garment factory workers in Cambodia are staging a fashion show to ask for a minimum wage of $160 per month and also to call on the government to end the violence.
Reuters/Samrang Pring
Garment workers in Cambodia.
By Lily Kuo
Published Last updated This article is more than 2 years old.

The numbers: Not amazing. Hong Kong-based Li & Fung, which connects retailers to suppliers around the globe, saw first half-profit rise 16% to $111.4 million (pdf). Sales at the world’s biggest middleman rose 3% to $8.71 billion, slightly missing analysts’ estimates of $8.73 billion. Operating profits fell 9% to $227 million.

The takeaway: Li & Fung, which works with retailers including Walmart, Target, and Kohl’s, is something of a bellwether for global retail, and an especially good indicator of the US retail landscape. Lackluster earnings at Li & Fung may mean that US retail still struggled for the first half of the year, despite a slowly recovering economy. The fact that the company spun off its brands-management unit earlier this year to focus on its core business of supplying clothes and toys may have also affected its earnings.

What’s interesting: Some retailers , such as the children’s clothing company Carter’s and Walmart, have considered cutting out middlemen like Li & Fung to work with suppliers themselves, but growing anxiety over the safety of garment factories in Bangladesh and elsewhere could bring more business to Li & Fung. The company set up a safety consulting unit to advise factories. Concerned retailers “will feel more comfortable about using a sourcing agent that makes guarantees and performs checks” on factories, Aaron Fischer, an analyst at CLSA Asia-Pacific Markets, told the Wall Street Journal.

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