Global Brands’ spinoff listing on the Hong Kong Stock Exchange took place with more than the usual pomp and ceremony on Wednesday, with Bruce Rockowitz, the CEO and vice chairman of Global Brands, and William Fung, chairman of Li & Fung, striking the gong to ring in its debut trade.
The listing also saw the appearance, in front of a crowd of journalists and bankers, of Hong Kong-born singer Coco Lee, who is also Rockowitz’s wife (both pictured below).
However, behind the glitz, the spinoff listing takes away the conflict that existed between Li & Fung’s role as a middleman, sourcing materials for customers such as Wal-Mart and Target, and its own growing brands business, which includes licences for global brands Guess, Michael Kors and Nautica.
“Li & Fung is behind other people’s brands,” Rockowitz told FinanceAsia in an interview. “If you are a production company and you build up a big brand business, there might be some concern from your customer base.”
As a result of that conflict, Li & Fung tried to keep its brands business low key and shied away from advertising its own brands, Rockowitz said. He added that it was now also big enough to go it alone.
Li & Fung no longer owns a stake in Global Brands as its shares were distributed to other existing shareholders and no fresh capital was raised. As a result, Li & Fung is now a "pure-play" sourcing and logistics company and Global Brands a pure-play on fashion brands, Rockowitz said.
He added that Li & Fung had considered retaining a stake in Global Brands but opted for the share distribution as they wanted a full separation. Global Brands is now a customer of Li & Fung.
Global Brands' stock opened at HK$2.09 on Wednesday and closed the day at HK$1.80. Shares in Li & Fung's slipped by HK$0.24 to HK$10.10 from the previous day.
Succession
Rockowitz, a Canadian who grew up in Boston and moved to Hong Kong in 1979, joined Li & Fung in 2000 when the latter bought Colby, a sourcing company that Rockowitz jointly owned with Canadian entrepreneur Allan Zeman, the "godfather of Lan Kwai Fong" thanks to his ownership of numerous properties on the popular Hong Kong drinking strip.
"We were partners in Colby and we grew the business up and in 2000 we merged with Li & Fung. The deal was I’d stay for three years and I liked it so much I never left," Rockowitz said.
Li & Fung, which is controlled by the Fung family, has historically been run by Fung family members. So Rockowitz was made an exception when he became chief executive officer of the century-old company in 2004.
The spinoff resolves nagging questions over the company's succession. Spencer Fung, who was previously Li & Fung's chief operating officer, is now CEO of Li & Fung. Spencer is Victor Fung's son.
Rockowitz has since stepped down as president and CEO of Li & Fung and describes himself as a "brands guy" at heart. "I was always going to do it until Spencer was ready or if he was ready and now he is ready. The timing was very good for both of us," Rockowitz said.
During his tenure as CEO of Li & Fung Rockowitz grew the company's sales from $6 billion to $20 billion. According to Rockowitz, the Fung family gave him a free rein.
Focus on organic growth
Global Brands, whose customers include some of the world's leading department stores and retailers, has been built up since 2005 through a string of acquisitions. Rockowitz now plans to grow the company organically by scaling up and adding brand licences.
"In 10 years we built a company that normally would take 40 to 50 years to grow organically," Rockowitz said, justifying the firm's previous penchant for purchases whilst flagging its planned change of direction. "There will be some acquisitions along the way but it’s definitely not a focus of Global Brands [now]," he said.
The company's capital expenditure needs will be modest in the next few years amounting to about $20 million to $30 million a year, according to Rockowitz. "We don’t need funding, if we did we would have raised money on the spin-off."
Global Brands' revenues are predominantly from the US, which accounts for 85% of sales, while Asia only accounts for 5%. The brands' business margins came under pressure in 2012 as the cost of raw materials such as cotton and leather rose. During that period, Li & Fung sold off some of its brands and restructured the US business amid sluggish growth.
"US generally has been slow growth," said Rockowitz. "It still hasn’t rebounded at any point in the last five to six years to anything like before 2008," he said, but added that the outlook is improving.
Rockowitz said that the contribution of sales from regions outside the US will grow in time. "Ultimately, we’d like to get to 60% [from the] US and 40% [from] the rest of the world," Rockowitz said, adding that this would it take at least six years.
