If you want any more evidence that commerce has been globalized, just cast a glance at Wall Street this morning where analysts have been scanning the half-year financial figures published by a Chinese trader, Li & Fung, hoping to glean some wisdom about the future of Main Street, USA.
The feng shui from Hong Kong is distinctly bearish. Li & Fung Ltd. is a logistics and supply management firm, in simple terms a middle-man that bridges the gap between big fashion and apparel retailers, such as Target Corp., Wal-Mart Stores Inc. and Marks & Spencer Group PLC and their largely Asian suppliers. Owning no sewing machines and employing no seamstresses, it nonetheless is at the cutting edge of global retailing, making $8.7-billion (U.S.) in revenues over six months. It is no more nor less than the back office for some very big brands, organizing the supply of raw materials, the manufacturing, the distribution and warehousing of the frocks you see in the shops.
Core profits were down by 9 per cent for the six months and margins clipped, a disappointing result but the real worry is the message from Li & Fung about the autumn back-to-school retail season and beyond. The view from Hong Kong is that retail markets will be challenging.
Worse still, customers are "buying closer and closer to the season" and the firm admits it has little idea what orders will be like for periods as close as the fourth quarter, not to mention spring. The absence of Russians in Europe is affecting sales and at home, the Chinese government's anti-corruption drive is putting a damper on shoppers.
The message from Hong Kong chimes with what we heard from the U.S. Commerce Department about retail sales in the doldrums in July. That story was echoed in the U.K. where July high street sales grew by just 0.1 per cent. It seems baffling when both countries continue to boast employment growth.
Joblessness is falling; people are working but where is the spending? The British answer was provided last week with data showing anemic wage growth despite continuing falls in unemployment. In response, the governor of the Bank of England, Mark Carney, slashed the Bank's earnings growth forecast for 2014 to 1.25 per cent, well below inflation.
Small wonder that Li & Fung's business lacks "visibility". Europe is in the doldrums, the Chinese and Russian shopaholics have lost their mojo and even in those countries experiencing recovery, consumers feel skint.
There is a wider, long-term concern for global retailing, exhibited by Li & Fung's warning about shorter lead times. If retail conglomerates feel unable to order with confidence seasons ahead, they will become more reluctant to deal with distant suppliers who need time to organize production and distribution.
Meanwhile, the well-publicized disasters in Bangladeshi sweatshops are encouraging some apparel retailers to take more control of their suppliers. It could prove to be a business opportunity for the Hong Kong firm in providing assurance that suppliers meet standards but inevitably it will add cost to the supply chain at a time when margins are being cut to the bone.
Globalization is not going away but the world of pile 'em high and sell 'em cheap may be disappearing over the horizon.
Carl Mortished