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Clothing Industry in Hong Kong

Overview

  • Starting 1 January 2009, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU. Meanwhile, textile and clothing shipments to the US made on or after 1 January 2009 are no longer subject to any quotas.
  • Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including clothing items, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.
  • Hong Kong clothing companies are reputable for ODM and OEM production. They are able to deliver quality clothing articles in short lead time, as foreign importers and retailers request clothing suppliers to tighten up supply chain management to ensure the ordered merchandise reaching the store floor at the right time. Increasingly, Hong Kong clothing companies, the established ones in particular, have shown enthusiasm for brand promotion.
  • Hong Kong’s total exports of clothing decreased by 12% year-on-year in the first four months of 2016, when re-exports fell by 11% and domestic exports slumped by 41%. In January-April 2016, Hong Kong's clothing exports to the US and EU, the two largest markets that accounted for nearly 60% of the total, fell by 11% and 19%, respectively.

Industry Features [1]

Table: Industry Features of Clothing Industry
Table: Industry Features of Clothing Industry

The clothing industry is a major manufacturing sector of Hong Kong. It is the third largest manufacturing employer in Hong Kong, with 796 establishments hiring 5,773 workers as of December 2015.
 
Hong Kong's geographic boundary has never constrained the development of the forward-looking clothing industry. The majority of clothing manufacturers have set up offshore production facilities in an attempt to reduce operation costs. Relocation of production facilities offshore has, however, resulted in a largely steady decline in the number of clothing manufacturers in Hong Kong. 

Hong Kong is not only a leading production centre but also a hub for clothing sourcing globally. Companies doing garment trade in Hong Kong are experienced in fabrics procurement, sales and marketing, quality control, logistic arrangements, clothing designs and international and national rules and regulations. The professionalism that they command and the combined services offered are not easily matched elsewhere. They altogether form one of the largest groups involved in import-export trade in Hong Kong.

Performance of Hong Kong’s Exports of Clothing [2]

In recent years, traditional markets, such as the US, the EU and Japan, have rendered clothing exporters from developing countries, including ASEAN and Bangladesh, more preferential market access, which has in turn impaired the competitiveness of Hong Kong and mainland manufacturers. Along with rising labour costs and stricter environmental regulations on the Chinese mainland, an increasing number of Hong Kong and mainland clothing manufacturers have relocated their production of lower-end and mass products to Southeast Asian countries like Bangladesh, Vietnam (expected to benefit by 2018 from the Trans-Pacific Partnership (TPP), which is a trade agreement among twelve Pacific Rim countries signed on 4 February 2016), Cambodia and Indonesia. Their manufacturing operations on the mainland are now focused on more sophisticated and higher value-added items or urgent orders.

Hong Kong’s total exports of clothing slid by 12% year-on-year in the first four months of 2016 after a 10% decrease in 2015. In January-April 2016, Hong Kong’s domestic exports of clothing slumped by 41%, while re-exports fell by 11%.

Among the major export destinations, Hong Kong's clothing exports to the US decreased by 11% in the first four months of 2016, while those to the EU plunged by 19%. Clothing exports to major EU markets including the UK, Germany, the Netherlands, France and Italy fell by 9-28%. Taken together, sales to the US and the EU accounted for almost 60% of Hong Kong's total clothing exports. Meanwhile, sales to Japan dropped by 6%, whereas the Chinese mainland market showed a 3% decrease in January-April 2016.

Product wise, Hong Kong’s exports of woven wear fell by 12% year-on-year in the first four months of 2016. Exports of knitted wear subsided by 13%, whereas clothing accessories and other apparel articles declined by 15% and 10%, respectively.

Table: Performance of Hong Kong Exports of Clothing
Table: Performance of Hong Kong Exports of Clothing

 

Table: Performance of Hong Kong Exports of Clothing
Table: Performance of Hong Kong Exports of Clothing

 

Table: Performance of Hong Kong Exports of Clothing
Table: Performance of Hong Kong Exports of Clothing

 

Sales Channels

Hong Kong’s clothing manufacturers have comprehensive knowledge about sourcing and products. They are able to understand and cater for the preferences of the dispersed customer bases. Exporters also have good knowledge of international and national rules and regulations governing clothing exports, such as rules of origin, quota restrictions, tariff rates and documentation requirements. Cut, make and trim (CMT) arrangements are common, although many Hong Kong manufacturers have moved to higher value added activities such as design and brand development, quality control, logistics and material sourcing.

A few well-established local manufacturers have entered into the retailing business, either locally or in overseas markets. Many of them have retail networks with their own labels in major cities around the world including Beijing, London, New York, San Francisco, Shanghai, Singapore, Sydney, Taipei and Tokyo. Some well-known manufacturing retailers include Baleno, Bossini, Crocodile, Episode, Esprit, G-2000, Giordano, I.T, JEANSWEST and Moiselle.

As a global sourcing hub in Asia, Hong Kong attracts a number of international trading houses and major retailers. Buyers sourcing from Hong Kong include American and European department stores (e.g. Macy's, JCPenney, Federated, Karstadt Quelle, C&A), discount stores (e.g. Sears, Target and Carrefour), specialty chains (e.g. The Gap, The Limited), mail order houses (e.g. Otto and Great Universal Stores) and e-tailers (Zalora and YOOX). Many international premium designer labels – such as Calvin Klein, Donna Karen, Ralph Lauren, Tommy Hilfiger and Yves Saint Laurent – source clothes in Hong Kong through their buying offices or other intermediaries.
   
Hong Kong's fashion designers have been gaining worldwide reputation for their professional expertise, sensitivity to current trends and ability to blend commercialism with innovation. In February 2016, three Hong Kong designers, Harrison Wong, Hidy Ng and Polly Ho, were invited to showcase their Fall/Winter 2016 collections at the show of Fashion Hong Kong during New York Fashion Week. In addition, medium to high-priced fashion clothing bearing Hong Kong designer labels is being sold/has been sold in renowned department stores overseas such as Bloomingdale's, C&A, Harrod's, Isetan and  Macy's.

In the 2016-17 Budget announced on 24 February 2016, Financial Secretary John Tsang unveiled that HK$500 million has been earmarked to further the development of the fashion industry through (a) strengthening the promotion of local fashion designers and emerging fashion brands in Hong Kong and overseas; (b) establishing an incubation programme for fashion designers, drawing on the experience of other fashion capitals like London, New York and Seoul; and (c) setting up a resource centre to provide technical training and support for young designers.

Trade fairs and exhibitions remain common places for buyers and suppliers of clothing to congregate. To establish connections and explore market opportunities, Hong Kong manufacturers and traders have involved themselves actively in international shows led by the Hong Kong Trade Development Council (HKTDC), including the ones in Beijing, Budapest, Chengdu, Dalian, Dubai, Dusseldorf, Hong Kong, Moscow, Mumbai, Paris, Tokyo, Warsaw, Istanbul and Jakarta. ‘Hong Kong Fashion Week’ is organised twice a year and attracts international suppliers and buyers to participate in the exhibition. Organised by HKTDC, ‘World Boutique, Hong Kong’ is the first independent event in Hong Kong dedicated to promoting designers’ collection and brands from around the world. To better align the event with the international fashion trade calendar, the fair, from 2016 onwards, will be rescheduled from January to September and re-named CENTRESTAGE, serving as a dedicated marketing platform for international and regional brands, ready-to-wear and designer labels to showcase their collections, targeting regional fashion media, buyers and invited consumers.

Industry Trends

Online shopping is increasingly popular in Hong Kong’s major markets, including the Chinese mainland. Across the board, clothing is among the most purchased items online. With the number of online shoppers soaring by 14% to 413 million in 2015, online clothing sales are estimated to account for 30% of the total online shopping turnover in the Chinese mainland.

The growing variety of online shopping sites such as Taobao (www.taobao.com) in China and ASOS Marketplace in the UK (marketplace.asos.com), plus the bloom of group shopping and mobile retailing, is expected to boost online shopping and sales further. The continuous improvement of third party payment such as Alipay by Alibaba Group also helps popularise online shopping. It is forecast that global e-tailing transactions can see a 16% growth and top US$1,150 billion in 2016. This trend has also encouraged the development of some online shopping technologies such as virtual fitting, video shopping and mobile snapshot for clothing.

Private or house labels, in essence, have become an increasingly effective marketing tool among garment retailers, especially when many consumers in developed markets still remain conservative in view of the sustained economic hardships. In order to differentiate as well as upgrade the image of their products, major retailers have started to put a stronger emphasis on their own labels. Renowned retailers such as H&M, Marks & Spencer, Orsay, Palmers, Pimkie, Springfield and Kookai have owned their private labels. As consumers desire to have private labels on everyday garments like jeans, accessories and T-shirts, the doors are also open to the supply of these clothing items to private label owners.

Consumers are becoming more practical, thoughtful and socially conscious. According to Textile Exchange, market value of organic cotton products is estimated to have grown to US$15.7 billion in 2014. Thanks to the expanding trend, clothing manufacturers have increasingly become certified to traceability standards such as OE Blended, OE 100 standard and the Global Organic Textile Standard (GOTS). Meanwhile, the number of GOTS certified facilities is estimated to have reached 3,814 across 68 countries in 2015. Reputable clothing stores like Nike, Adidas, H&M, C&A, Wal-Mart, Anvil Knitwear also have responded by expanding their assortment of organic cotton clothing.

The rapid expansion of mainland’s economy has drawn the attention of both Hong Kong and foreign clothing companies. While some well-established foreign players including C&A, Uniqlo and H&M are seeking to expand in the lower-tier cities, those which they are not yet present on the mainland are working hard to mark their inroads. For instance, Hollister and FOREVER 21 have opened flagship stores in Causeway Bay, leveraging Hong Kong as a springboard to go across the border. Going hand-in-hand with the market expansion, Chinese consumers are becoming more fashionable and brand-conscious.

CEPA

On 18 October 2005, the mainland and Hong Kong agreed to further liberalise the mainland market for Hong Kong companies under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). Along with other products of Hong Kong origin, the mainland has given all products of Hong Kong origin, including clothing items, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin, will enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. But non-Hong Kong made clothing products will remain subject to average tariff rates of 14-16% when entering the mainland.

The promulgated rules of origin for clothing items to benefit from CEPA's tariff preference are basically similar to the existing rules governing Hong Kong's exports of these products. Generally speaking, the principal manufacturing process of cut-and-sewn garment is sewing of parts into garments. If linking and/or stitching is/are required, such process/processes must also be done in Hong Kong. For piece-knitted garment, if it is manufactured from yarn, the principal process is knitting of yarn into knit-to-shape panel. If the piece-knitted garment is manufactured from knit-to-shape-panels, the principal process is linking of knit-to-shape panels into garment. If stitching is required, it must also be done in Hong Kong. Detailed information is available from the following hyperlink: : http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2016.pdf.

General Trade Measures Affecting Exports of Clothing

Despite the elimination of textile quotas among WTO members in 2005, the US and EU had subsequently imposed safeguard measures against imports from the Chinese mainland. Starting 1 January 2009, however, textile and clothing products originating in China no longer require any import licence or surveillance document before entering the EU. Meanwhile, textile and clothing shipments to the US made on or after 1 January 2009 are no longer subject to any quotas.

Product Trends

Consumers gradually resume spending on fashion products, but still opt for items that offer comfort, function and value-for-money – and nothing too radical. Longevity remains an important element, while items with recognisable brands and decent quality are still highly sought-after.

One of the major driving forces of clothing market appears to be the children in the coming years, particularly in the traditional markets. The global market for children’s wear is projected to reach US$174 billion by 2017. In light of the economic recovery, parents are becoming more willing and able to pamper their children with more exquisite apparel.

Men are increasingly concerned about the clothes which come to their wardrobes. According to Mintel, global luxury men’s wear sales will reach US$18 trillion in 2016 compared with US$16 trillion dollars in 2012. As per Euromonitor, men have been spending more on their outfits each year for more than a decade now, with the sales of men’s wear (adjusted for inflation) rising by 70% since 1998. Moreover, given the outperformance of men’s wear over women’s wear during the recent economic slowdowns in such markets as the US, the UK and Germany, the trend is going to further develop in the era of recovery.

Ageing population becomes a common phenomenon in many developed countries in Europe, Japan as well as the US. United Nations projects that population aged 60 or over in more developed regions will grow from about 200 million in 2000 to about 300 million in 2025. Elderly people constitute a major market segment called the ‘silver market’. Supported by savings, social security benefits and pensions, many elderly people have rather strong spending power. A survey conducted by the Japanese government also shows that people who are 60 years old and above possess almost three times the financial assets of those in the 40-50 age group.

The plus-size market has been an area of growth for many years, and the trend is expected to continue, particularly in the US and UK. For instance, it is estimated that the average American woman is about 25 pounds heavier than she was in 1960, whereas the population of obese Americans is forecast to reach 42% by 2030. To tap the trend, some renowned brands such as Liz Claiborne, Ralph Lauren, Tommy Hilfiger and H&M have already responded by offering merchandise of larger size.

Clothes made of stain-resistant and wrinkle-free fabrics are well received in the market. It is estimated that over a quarter of apparel is now made of easy-care fabrics, and its popularity is expected to continue. While major apparel brands like Dockers and Liz Claiborne have already marketed extensively easy-care clothes, major hypermarkets, like Wal-Mart, also offer more merchandise of such quality.

Thanks to the growing awareness on health and quality of life, the demand for functional clothing is climbing. Along with the rapid development of functional clothing innovation, apparel with various functions can easily be found in the market. Anti-UV, anti-ray, good sweat management, thermal insulation, self-cleaning are examples of how material technology is being applied to the garment industry.

The growth of technology allows consumers to search the internet and find a way to create their own custom made outfits. This is the modern way to express their creativity on making their own fashion designs and clothes. In response, some reputable clothing stores like Nike, Adidas, and Wal-Mart have started to sell personalised apparel, while companies in smaller business allow consumers to customise clothes and accessories with their own design online.

Concerns over both dressing green and product comfortability are always on the rise, making clothes made of natural fibers popular among consumers, especially in the developed markets. According to a survey by Cotton Incorporated in 2015, 79% of US consumers believed that better quality garments are made from all natural fibers and 54% of them were willing to pay more for it.

Besides, more and more fashion brands adopt green techniques/designs to increase efficiency and reduce waste in the production process. For instance, H&M has initiated ‘H&M Conscious’, promising more efficient use of natural resources and adoption of 3Rs principle in production, while fashion brand Svilu has claimed to utilise organic fabrics and minimise pollution arising from transportation by choosing local production.


[1] Industry statistics cover activities in Hong Kong only.

[2] Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Content provided by Picture: Louis Chan
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