Macy’s Forms Joint Venture with Fung Retailing to Test e-commerce in China

Macy’s, Inc. (NYSE:M) today announced it has formed a free-standing joint venture with Hong Kong-based Fung Retailing Limited (a privately-held enterprise; see footnote below) to explore retailing in China, one of the world’s largest and fastest-growing consumer marketplaces. 

(Editor’s Note: Macy’s, Inc. this morning also issued separate news releases announcing second quarter 2015 sales and earnings, and a real estate agreement in Brooklyn.) 

The joint venture, which is 65 percent owned by Macy’s and 35 percent owned by Fung Retailing, will start with an e-commerce pilot. For Macy’s, already a popular destination for Chinese-Americans and Chinese visitors to the United States, the joint venture is expected to develop significant new learnings on customer preferences and buying patterns within China. 

Under the joint venture, Macy’s plans to begin selling in China in late 2015 through an e-commerce presence on Alibaba Group’s Tmall Global, their premiere marketplace that connects overseas branded retailers to Chinese consumers. To be based in Hong Kong and called Macy’s China Limited, the Macy’s-Fung joint venture will curate a Macy’s online merchandise assortment especially for Chinese customers and fulfill Tmall Global orders from Hong Kong through local logistics channels, including LF Logistics, an affiliate of Fung Retailing. Alipay will be a primary payment channel for Macy’s e-commerce offerings in China. 

“Millions of Chinese have come to know and love Macy’s when they live in the United States or travel to New York, San Francisco, Chicago and other American destinations. By making Macy’s accessible in China, we have an opportunity to deepen our relationship with domestic and international customers and to grow sales. We have been closely following the development of the Chinese marketplace for many years and have learned that success requires that we have the right partners to help us navigate the unique needs and characteristics of consumers in China,” said Terry J. Lundgren, chairman and chief executive officer of Macy’s, Inc. “Fung Retailing has deep experience and expertise in Chinese retailing, and the Macy’s-Fung partnership will be instrumental to helping set up and operate our test.” 

Peter Sachse, Macy’s, Inc. chief innovation and business development officer, said, “We have had initial success in partnering over the past year with Alibaba on various projects, including accepting Alipay on macys.com and conducting a special promotion during Black Friday 2014. We believe that, through the joint venture, Macy’s online presence on Tmall Global will give us insight that will serve us well in evaluating future international initiatives.” 

The Chinese Internet population of some 668 million is the driving force behind China’s e-commerce and online shopping boom, along with the rise of a middle class forecasted to number 630 million by 2022. Fung Retailing complements Macy’s leadership in U.S. omnichannel retailing with its own retail and wholesale experience in Asia, where it has more than 3,000 stores across a wide product range in various formats, including more than 1,000 stores in China. In addition to accumulating invaluable on-the-ground experience of the product preferences and shopping habits of Chinese consumers, Fung Retailing has focused intensely in recent years on the application of technology to the Chinese retail market, in particular to omnichannel retailing. 

Fung Retailing’s Chairman Dr. Victor K. Fung said he was delighted with the formation of the joint venture. “Macy’s is not only a premier retailer in the States but also a frontrunner in omnichannel retailing. I am confident that the joint venture will be fruitful and mutually beneficial.” 

Fung Retailing’s Executive Director Ms. Sabrina Fung added: “The potential for growth is significant. While the Chinese online consumer is already one of the savviest in the world, there are untapped ‘white spaces’ to fill,” Ms. Fung said. “There is demand for the quality and variety of power brands and authentic products associated with the world-famous name of Macy’s. Many Chinese are attracted to the American lifestyle, of which shopping at Macy’s is the ultimate symbol.” 

“Macy’s is one of the most iconic brands in the world, and we are honored they have chosen us as their exclusive partner to grow their business in China,” said Daniel Zhang, chief executive officer of Alibaba Group. “Macy’s exclusive Tmall Global flagship store is a major win for consumers across China. It reinforces Tmall Global’s status as the premiere solution for brands and retailers in their strategic online presence and direct engagement with customers in China.” 

Macy’s China Limited will be led by Kent Anderson, who will serve as managing director. Anderson is a veteran Macy’s, Inc. executive and long-time president of macys.com. Ms. Fung will represent Fung Retailing’s interest on the board of the joint venture company. 

“As is always the case with Macy’s, we will test and learn as we progress and grow our business in China. We will take one step at a time,” Sachse said. “We intend to be a long-term player in this region of the world, and that requires we understand the customer so we can deliver an online shopping experience that Chinese shoppers will appreciate, value and love.” 

Macy’s began selling overseas into China and about 100 other countries with an edited assortment on macys.com in 2011. These goods are shipped to international customers from the United States. In the upcoming e-commerce test, Macy’s China Limited will ship to Chinese customers from inventories in Hong Kong, which is expected to improve speed, flexibility and pricing for the customer. 

No physical Macy’s stores are planned for China at this time, but may be considered in the future based on the company’s experience in its e-commerce pilot. 

Macy’s China Limited is expected to invest approximately $25 million in the operations of the joint venture over the next 18 months, of which Macy’s, Inc. will fund 65 percent. Macy’s, Inc. expects no material impact on its earnings in fiscal 2015. Current plans call for Macy’s e-commerce sales of approximately $50 million in China in 2016. Future sales levels and investment, including potential stores, will be determined after evaluating Chinese shopping patterns and results in the initial e-commerce phase.