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Footwear Industry in Hong Kong

Overview

  • The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including footwear, tariff-free treatment starting from 1 January 2006.
  • Hong Kong produces a wide range of footwear suitable for indoor and outdoor activities. The industry is particularly strong at manufacturing women's shoes, including dressing shoes and casual shoes of real and synthetic leather such as boots and mules. Some companies specialise in men's casual shoes, like boat shoes, moccasins, loafers and canvas shoes, while others in sports shoes. Meanwhile, more companies are paying attention to children’s shoes.
  • Hong Kong’s footwear exports decreased by 7% in the first five months of 2017. Re-exports, accounting for nearly all footwear exports from Hong Kong, fell on a par with total exports during January-May 2017, while domestic exports slid by 59%.
  • Hong Kong footwear companies, such as Le Saunda, Mirabell, Staccato, and Joy and Peace, are enthusiastic about brand development. They sell their branded products through their own retail outlets and by means of franchising or joint ventures with local partners in some markets, including the Chinese mainland. In addition, some footwear companies also explore niche markets with their own brand products, for instance, Dr. Kong Footcare in health footwear.

Industry Features [1]

Table: Industry Features of Footwear Industry
Table: Industry Features of Footwear Industry

The latest official statistics show that the footwear manufacturing industry had a total employment of 40 workers as of December 2016. The majority of footwear manufacturers have set up offshore production facilities on the Chinese mainland to reduce operating costs and stay competitive, leaving only limited capacity in Hong Kong to meet small and quick orders. Some manufacturers, after the relocation of production facilities offshore, are classified instead as import-export establishments. At the end of 2016, there were altogether 1,310 import/export establishments hiring 6,570 workers.

Hong Kong produces a wide range of footwear suitable for indoor and outdoor activities. The industry is particularly strong at manufacturing women's shoes, including dressing shoes and casual shoes of real and synthetic leather such as boots and mules. Some companies specialise in men’s casual shoes, like boat shoes, moccasins, loafers and canvas shoes, while others in sports shoes. Meanwhile, more companies are paying attention to children’s shoes, like funky boots with embroidery, shoes with cartoon characters, rubber boots and school shoes.

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

Table: Performance of Hong Kong’s exports of footwear
Table: Performance of Hong Kong’s exports of footwear
Table: Performance of Hong Kong’s exports of footwear (by markets)
Table: Performance of Hong Kong’s exports of footwear (by markets)
Table: Performance of Hong Kong’s exports of footwear (by categories)
Table: Performance of Hong Kong’s exports of footwear (by categories)

After a fall of 20% last year, Hong Kong’s footwear exports decreased by 7% in the first five months of 2017. Re-exports, accounting for nearly all footwear exports, fell on a par with total exports during January-May 2017, while domestic exports declined by 59%.

Playing a leading role, the US, sharing 28% of the city’s total footwear exports in the first five months of 2017, saw a decline of 10%.Trailing the US were the Chinese mainland, the EU and Macau, accounting for 16%, 13% and 6% of the total exports, respectively. In January-May 2017, footwear exports to the EU fell by 19%, with Germany, the UK, the Netherlands and Italy seeing respective slides of 23%-32%. Meanwhile, sales to the Chinese mainland and Macau both increased by 6%.

Sales Channels

Many footwear companies in Hong Kong engage in OEM arrangements to produce for leading brands and retailers in North America, the EU and Japan. With improving capabilities in product design and development, engineering, modelling, tooling and quality control, more and more Hong Kong footwear companies engage in ODM projects. Many companies have their own R&D and QC specialists to strengthen the quality of their products. Some Hong Kong footwear companies, such as Le Saunda, Mirabell, Staccato and Joy and Peace, have also succeeded in building up their own brands with the retail network in Hong Kong, Macau, the Chinese mainland and even Europe. While some footwear exporters prefer selling to overseas importers and distributors, many of them are selling to mass merchandisers, such as Walmart, Target, Costco and Kmart.

A number of Hong Kong companies, some with Taiwanese stakes of interest like Yue Yuen Industrial Holdings Limited, produce world famous brands, including Adidas, Asics, Tiger, Bass, Converse, Le Coq Sportif, New Balance, Nike, Reebok and Timberland. A few have been granted licences to produce and distribute foreign brands for the Chinese mainland or Hong Kong market.

To recognise the creative excellence of local footwear design talent and encourage more Hong Kong footwear suppliers to enhance the design components of their products, the Federation of Hong Kong Footwear, co-organised by Hong Kong Trade Development Council (HKTDC), organises the Hong Kong Footwear Design Competition every year. Not only is the competition an incubator of talents, it is also a new driving force behind local footwear design and product development. In 2016, the competition garnered more than 800 entries, displaying a great deal of creativity while promoting the sustainable development of the industry. On the other hand, International Footwear Design Competition, organised by the Confederation of International Footwear Association (CIFA), is also a platform for footwear designers to showcase their talents.

To establish business contacts with overseas buyers, Hong Kong manufacturers and traders have involved themselves actively in international trade shows led or sponsored by the HKTDC, including the ones in Budapest, Dongguan, Dusseldorf, Dubai, Guangzhou, Istanbul and Jakarta.

Industry Trends

In pursuit of lower production costs, expanding capacity and product range extension, footwear manufacturers in Hong Kong have shifted a significant part of their production facilities to the Chinese mainland and South-east Asian countries. As the leather industry is highly specialised and vertically integrated, relocation may also provide the advantage of being more accessible to the raw materials and facilitating retail and distribution. In view of soaring production costs, manufacturers, in addition to relocation, have further invested in advanced automated machinery and operation systems to streamline the whole production process.

China is not only the world’s largest shoe exporter and manufacturer but the biggest footwear consumer (surpassing the US since 2011). According to General Administration of Customs of the People’s Republic of China, exports of footwear reached RMB311 billion in 2016, while footwear sales in China exceeded RMB360 billion.

Footwear manufacturers nowadays focus more on value-added service. Quick response in sample making, prompt delivery and high quality are widely required. They are also tapping the global green trends towards a sustainable economy by producing shoes made with recycled, eco-friendly and vegan materials (i.e., materials containing no animal-derived products or by-products). Popular footwear brands including Reebok, Melissa, Bobux, Terra Plana, Nike and Timberland have adopted environmentally-driven manufacturing processes and increased their assortment of “green” footwear items such as shoes made with natural latex rubber and recycled plastic. Nike has launched a product line called ‘Considered’ where designers are encouraged to design shoes using less harmful adhesives and more recycled materials, while Timberland’s flagship ‘Earthkeepers’ collection promotes eco-friendly production processes by working with tanneries that have good energy, water and waste management. Most of these brands have developed eco-friendly packaging solutions by utilising eco-friendly, bio-degradable and sustainable materials such as soy-based ink, recycled cork, nylon and foam. For instance, Puma has replaced its original shoe box with a simple cardboard sheet and a special bag made of non-woven polyesters consisting of recycled PET.

Furthermore, online shopping has been growing in popularity along with ascending internet usage. Most of the renowned brands such as Nike, Crocs and Adidas have responded by setting up online stores where shoppers can choose from a wide variety of shoes in different sizes, colours and styles at different price points. Nike and Timberland even allow customers to customise and design their own shoes online. In addition, footwear and clothing e-retailers like Zalora and Shoebuy are expanding their offers to include renowned brands. Like clothing and clothing accessories, shoes are one of the most-browsed product categories among online shoppers.

Increasingly, ethical sourcing is a common practice among international footwear companies. In response to the social demand for protecting human rights in workplaces, many leading companies have introduced measures to monitor the working conditions in their own factories as well as the contracted factories overseas. For example, most, if not all major footwear brands, have established their code of conduct in relation to labour conditions for their contracted factories to abide. To follow suit, Hong Kong companies such as Taizin have introduced their own code of conduct to ensure safe and healthy working conditions.

CEPA Provisions

The mainland and Hong Kong agreed in October 2005 to further liberalise the mainland market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Under CEPA III, the mainland agreed to give all products of Hong Kong origin, including footwear, tariff-free treatment starting from 1 January 2006.

Detailed information, including the origin rules for footwear, is available from the following hyperlink:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2017.pdf
.

General Trade Measures Affecting Exports of Footwear

Overall speaking, trade measures for footwear are quite prohibitive. While footwear exports to the US are subject to tariff duties of 0-48%, import tariffs of the EU are around 3-17%. Meanwhile, Japan applies the tariff quota system with tariff duty ranging from 3.4 to 30%. Tariff rates on leather footwear are broadly classified by shape, materials of soles and uppers, and country of origin.

Following the expiry of the EU’s controversial anti-dumping duties on leather shoes on 1 April 2011, Hong Kong exporters nowadays are free to export footwear to the EU without being subjected to burdensome anti-dumping duties.

Table: Tariff Rates of Footwear in Major Countries
Table: Tariff Rates of Footwear in Major Countries

Product Trends

Despite the steady economic recovery, many recession-induced shopping habits still prevail. Consumers continue to seek greater value for their money. Mass market retailers such as hypermarkets and supermarkets will remain popular shopping destinations among bargain-seeking shoppers, while manufacturers are pursuing strategies aiming to enhance their price-to-quality ratios. As a result, basic, durable and functional footwear items are expected to be more marketable than fancy and luxurious designs/brands.

To cope with the demand for more comfortable, durable and adaptable footwear, manufacturers are working closely with technology and material companies to develop products that can mix modern technology with sustainability and comfort. For example, footwear made of lighter materials and trans-seasonal footwear featuring adaptive designs and durable materials to resist wear and tear under different climate conditions are increasingly popular. Besides, edgier footwear such as mules, sneakers, slipper shoes, colourful soles, sports shoes with metallic elements and thick-soled rock ‘n’ roll-inspired creepers is also fast fanning demand and becoming the new normal.

To share a slice of the ever-growing market of baby products, especially on the Chinese mainland, footwear giants like Nike and Adidas, and many other Chinese domestic brands such as Li Ning, ANTA Sports and 361 Degrees, have started to dip their toes in the children’s footwear market. To stay competitive and guarantee a healthy profit margin, their products are of higher quality and more value-added elements such as wearable technology functions to improve balance and gait performance.

Given the ever-rising health consciousness, items such as health and comfort footwear products like reflexology massage sandals and foot care products such as pads, toe spreaders and separators are gaining popularity. For instance, the local brand Dr. Kong is particularly renowned for its healthy footwear products and has been expanding its footwear business in China since 2007. On the other hand, highlighting the universal norm of green consumption, there is growing demand for earth-friendly footwear. Shoes that are made of recycled and natural materials and free from animal-derived materials are good examples, while some infant shoes brands are promoting chrome-free leather shoes to mitigate the potential hazard of causing cellular damage.

 


[1] Industry statistics refer to production in Hong Kong only.

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

Content provided by Picture: Louis Chan
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