5 Sept 2019
Leather Consumer Goods Industry in Hong Kong
- Table: Industry Features (Leather Consumer Goods)
- Table: Performance of Hong Kong Exports of Leather Consumer Goods
- Table: Performance of Hong Kong Exports of Leather Consumer Goods (by Markets)
- Table: Performance of Hong Kong Exports of Leather Consumer Goods (by Categories)
- Table: Tariff Rates of Selected Leather Consumer Goods of Hong Kong or mainland China origin
- Hong Kong's leather consumer goods manufacturers and suppliers export a wide range of products to the global markets, including footwear, travel goods, handbags, wallets, briefcases, clothing, gloves, mittens, belts and other miscellaneous fashion accessories. Overseas buyers regard Hong Kong as an important sourcing centre for leather consumer goods. They are attracted by the industry’s high quality products, flexibility, production with short lead-time, quick response to fashion trends and ability to meet customer specifications.
- In face of rising operating costs in Hong Kong, the majority of local manufacturers have shifted a significant part of production to mainland China and South-east Asia, leaving only limited capacity in Hong Kong to meet small and quick orders. Many Hong Kong companies are engaged in the trading of leather consumer goods. Some of them are appointed by foreign brands as their agents in the region, including mainland China. A number of Hong Kong's leather consumer goods companies have expanded their foothold to the mainland and overseas.
- 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 leather consumer goods, tariff-free treatment starting from 1 January 2006.
- Hong Kong’s exports of leather consumer goods saw a 4% year-on-year increase to HK$14.1 billion in the first half of 2019. Re-exports, accounting for almost all exports of leather consumer goods from Hong Kong, also rose on par.
- While mainland China remains as the major source of Hong Kong’s re-exports of leather consumer goods, its dominance has reduced significantly in recent years. Instead, more leather consumers goods from Italy and France are shipped to mainland China and Macau, through Hong Kong.
Industry Features 
In face of rising operating costs in Hong Kong, the majority of local manufacturers have shifted a significant part of production to mainland China and South-east Asia, leaving only limited capacity in Hong Kong to meet small and quick orders. Some manufacturers also have invested heavily in advanced automated machinery and operation systems to streamline the whole production process. The latest official statistics show that there was a workforce of 80 people in the leather consumer goods manufacturing industry in 2018.
In addition to competitive labour costs, a broad spectrum of raw materials, parts and fittings (like hides and buckles) are supplied by nearby sources on mainland China. Indeed, some Hong Kong, Taiwan and mainland manufacturers are vertically integrated, which further enhances quality control and flexibility in production and creates synergy. For instance, Yue Yuen Industrial (Holdings) Limited, a Hong Kong listed company, teams up with upstream suppliers ranging from raw materials to shoes components.
Many Hong Kong companies are engaged in the trading of leather consumer goods. In 2018, the number of establishments involved in the import-export trade of leather consumer goods was 2,200, while direct workforce employed by these establishments totalled 8,600. Some of them are appointed by foreign brands as their agents in the region, including mainland China. A number of Hong Kong's leather consumer goods companies, such as Izzue, Staccato and Belle, have expanded their foothold to the mainland and overseas. Riding on the increasing recognition in international market, Izzue became the first Hong Kong brand to stage an on-schedule fashion show at London Fashion Week in 2019. On the other hand, e-commerce has emboldened many new Hong Kong leather goods brands, such as Matter Matters (handbag), ESEMBLĒ (handbag), Poupée de Papier (handbag), Mischa (handbag), Antipear Company Ltd (leather goods) and Crudo Leather Craft (personalised leather goods) to grow their businesses.
Performance of Hong Kong’s Exports of Leather Consumer Goods 
Hong Kong’s exports of leather consumer goods rebounded by 4% year-on-year to HK$14.1 billion in the first half of 2019, after seven consecutive years of contraction. Re-exports, accounting for almost all exports of leather consumer goods from Hong Kong, also rose on par, while domestic exports plunged by 69% against a low base of comparison.
While mainland China remains as the major source of Hong Kong’s re-exports of leather consumer goods, its dominance has reduced significantly in recent years. During January-June 2019, re-exports of mainland China origin only made up of 46% of the total re-exports, compared with 73% in 2013 and 92% in 2008. Instead, more leather consumers goods from Italy and France are shipped to mainland China and Macau, through Hong Kong.
Hong Kong saw its exports of leather consumer goods grow across almost all major markets, except the EU and the US in January-June 2019. With a robust growth of 32% during the period, mainland China became the largest export market of Hong Kong’s leather consumer goods, while sales to other major markets such as Macau, South Korea, ASEAN, Japan, Taiwan and Australia recorded growth from 3-17%, exports to the US slid by 19%, thanks largely to the US 301 tariffs on relevant mainland China-origin products. Meanwhile, exports to the EU also edged down by 1%.
Product wise, exports of leather handbags, trunks and suitcases and footwear, representing nearly 92% of Hong Kong’s total exports of leather consumer goods, rose by 9% and 1%, respectively in January-June 2019, while sales of leather clothing accessories, apparel and gloves, mittens and mitts saw 5-28% year-on-year declines.
The majority of leather consumer goods manufacturers in Hong Kong are small and medium enterprises (SMEs) which predominantly produce on an OEM basis for leading brands in North America, Western Europe and Japan. An increasing number of manufacturers are involved in product design and development, engineering, modelling, tooling and quality control. However, many of them still prefer selling to overseas importers and distributors, who in turn market to wholesalers and retailers.
Rather than relying solely on OEM/ODM contracts, a number of large leather consumer goods companies have developed their own wholesale and retail networks. Certain suppliers, such as Giordano, Goldlion, Crocodile Garments and Le Saunda, have already been selling their brand-named products on the mainland as well as other overseas markets. On the other hand, more and more young designers have started their businesses by creating their own brands and collections. For instance, Vriko Séraphina Kwok, a Hong Kong-born designer, founded in 2015 an international fashion and handbag brand, Poupée de Papier, which has been selling in such markets as Hong Kong, the US, Norway and Poland, registering a turnover of about US$2 million in 2016.
To recognise the creative excellence of local footwear design talent and encourage more Hong Kong leather footwear suppliers to enhance the design components of their products, the Federation of Hong Kong Footwear, co-organised by 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 2018, the competition garnered more than 800 entries spanning six categories, namely Men’s Shoes/ Ladies’ Shoes – Total Look Trendy Styling, Ladies’ Boots, Children’s Shoes, DIY – 3D Modelling Concept Design and Handbags. 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 HKTDC, including GDS Shoe Fair (Dusseldorf, Germany), Expo Riva Schuh International Shoe Fair (Trento, Italy), China (Dalian) International Garment & Textile Fair (CIGF), Style Hong Kong (Wuhan, Harbin, Jinan, Guangzhou, etc.), International Apparel & Textile Fair (Dubai, the UAE), All China Leather Exhibition (Shanghai, China) and APLF Leather & Materials+ (Hong Kong). Some of them, particularly those selling handbags, wallets and other accessories, also participate in trade fairs for gift items such as Spring Fair International (Birmingham, the UK), Ambiente (Frankfurt), Hong Kong Gifts & Premium Fair and the Tokyo International Gift Show.
The major raw materials for the leather industry are the hides and skins from cattle (including buffalo), sheep, pigs, and goats are, which are reared mainly for the production of meat, wool and dairy products. While different countries are specialised in producing different kinds of hides of skins, mainland China and India are generally the top producers. For bovine hides and skins, the major sources for leather are Brazil, the US, Pakistan, Australia and some other Latin American countries such as Argentina and Mexico. Hides are then manufactured to create a wide range of finishes and colours, and to achieve a beautiful balance between form and function, during which such tanning methods as chrome and vegetable tanning will be used. Leathers are used mainly for making footwear, followed by garments, automotive upholstery, furniture, gloves and other leather products. Leather production activities take places majorly in mainland China, Brazil, Russia, India, Italy and Korea.
In pursuit of lower production costs, higher profit margins, expanding capacity and product range extension, leather consumer goods manufacturers in Hong Kong have shifted a significant part of their production facilities to mainland China and Southeast 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.
In mainland China, where many Hong Kong leather goods manufacturers have set up manufacturing bases, leather processing activities are increasing regulated and different regulations are imposed to improve the production processes and product designs for better environmental protection. In 2013, China’s Ministry of Environmental Protection (MEP) has announced a new discharge standard for water pollutants emitted from the leather and fur making industry. Effective from 1 March 2014, the new discharge standard, GB 30486-2013, isolates the total nitrogen, chlorine ion and other primary target pollutants. Along with MEP’s effort, the State Council released the Water Pollution Control Action Plan in April 2015, which among others further tightens discharge standards and enforces stricter control on production to improve water quality. In this regard, Hong Kong leather manufacturers with manufacturing base on the mainland can make reference to the Technical Specification for Application and Issuance of Pollutant Permit for Leather and Fur Making Industry issued in 2017.
In the meantime, advanced processing techniques in leather manufacturing have contributed to the popularity of leather consumer goods. Nowadays, leathers can be worked up to more complex designs with digital leather cutting systems, while some can be dyed into more fashionable colours. New products such as silk leather made from blending textile fabrics with leather have become increasingly a possibility for designers to manoeuvre. In addition to durability, softness, lightness and smoothness have made leather garments ever-present and attractive around the year. For instance, clothing made of the ultra-thin leathers, of which thickness is 0.2mm-0.3mm, has become a stylish choice for spring/summer fashion season.
E-commerce has become an increasingly popular sales channel for leather consumer goods. Consumers in developed markets, mainland China and India are growingly receptive to fill their wardrobes by shopping online from both big and start-up brands via multi-brand web shops, mass retailers and apparel chains. In so doing, these consumes use the internet and social media to follow trends and develop and communicate their own styles and preferences.
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 leather consumer goods, tariff-free treatment starting from 1 January 2006.
Detailed information, including the origin rules for leather consumer goods items, is available here.
General Trade Measures Affecting Exports of Leather Consumer Goods
Overall speaking, trade measures for leather consumer goods are quite prohibitive. In many overseas markets, leather consumer goods are subject to high import tariffs. Other than import tariffs, the EU has conducted anti-dumping investigations into Chinese leather shoes imports and subsequently imposed anti-dumping duties for several times. Details can be found here. In Japan, the import duties for leather consumer goods, except footwear, are 2.7%-16%. For footwear made from leather wholly or partially falls under the Tariff Quota (TQ) System of the Customs Tariff Law, the applicable in-quota duties are 21.6% or 24%. Depending on the types of shoes, the out-quota rates can either be the higher of 30% or 2,400 yen/pair or the higher of 30% or 4,300 yen/pair.
Leather consumer goods manufacturers are obliged to observe international restrictions on the preservation of endangered species. The Washington Convention (Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)) restricts or prohibits the trade of species listed in the Appendices to the Convention. Appendix I includes species threatened with extinction. Trade in specimens of these species is permitted only in exceptional circumstances. Appendix II includes species not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilisation incompatible with their survival. Appendix III contains species that are protected in at least one country, which has asked other CITES Parties for assistance in controlling the trade.
Hong Kong manufacturers also face challenges from the regulatory environment overseas. For health reasons, the EU has adopted Registration, Evaluation, Authorisation and Restriction of Chemical substances (REACH) that aims at prohibiting the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be released.
The multiplication of small, handheld devices – smartphones, tablets, cameras and more – has boosted demand for small leather carrying products. Besides, with young males being the driving force for fashion accessories sales in recent years, there is no exception for leather accessories. Men bags, bracelets, watch straps and belts have therefore become the most popular items.
“Affordable luxury” is on the rise. While inevitable (IT) bags have become popular status symbols and statement pieces in consumer wardrobes, many buyers are trading down to more affordable luxury brands and products. The lower and middle segments are still focused on volume sales, with those large fashion & clothing retailers being the leaders.
On the other hand, eco-friendliness and sustainability continue to be key issues concerning the leather consumer goods industry, which includes the adoption of clean production and better animal welfare. Some manufacturers have taken initiatives in simplifying their production process, for instance, by adopting simplified tanning processes such as EasyWhite Tan that allow shorter production time and lower consumption of water and chemicals. Meanwhile, some renowned brands like Puma have committed themselves to the use of sustainable leather by requiring their supplier tanneries to make sure no raw materials being made into leather from illegally deforested land.
To mitigate the potential hazard of causing cellular damage, some infant shoes importers are demanding chrome-free leather shoes, while leather products manufactured with more environmentally-sensitive approaches using wax, vegetable dyes, etc. are becoming increasingly popular. Some chemical companies and research institutions have also contributed to producing ‘greener’ leather. For example, Lanxess has launched the “Sustainable Leather Management” (SLM) initiative, a technology platform for premium products and system solutions that are specifically tailored to environment-friendly leather production, whereas Central Leather Research Institute in Chennai has discovered a solvent called propylene carbonate, capable of reducing the amount of chromium (III)-contaminated wastewater generated during the tanning process.
Also, some companies are making significant investment into the technology of bio-fabrication. Combining natural leathers and other materials, bio-fabrication offers not only a more animal-friendly alternative, but new aesthetic, texture and performance characteristics for leather goods manufacturers. For example, Nike unveiled its bonded leather material Nike Flyleather in 2017, which combines leather fibres made up of discarded leather scrap with synthetic fibres and is claimed to be 40% lighter and five times more durable than traditional leather.
 Industry statistics refer to production in Hong Kong only.
 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.