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Leather Consumer Goods 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 leather consumer goods, tariff-free treatment starting from 1 January 2006.
  • 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.
  • Hong Kong’s exports of leather consumer goods fell by 20% in the first four months of 2016, after decreasing by 11% last year. Re-exports, accounting for nearly all exports of leather consumer goods from Hong Kong, also fell by 20%, while domestic exports saw a decline of 7%.

Industry Features [1]

Table: Industry Features of Leather Consumer Goods Industry
Table: Industry Features of Leather Consumer Goods Industry

The latest official statistics show that there was a workforce of 100 people in the leather consumer goods industry in December 2015. In face of rising operation costs in Hong Kong, the majority of local manufacturers have shifted a significant part of production to the Chinese mainland and Southeast Asia, leaving only limited capacity in Hong Kong to meet small and quick orders. Some manufacturers have invested heavily in advanced automated machinery and operation systems to streamline the whole production process.

At the end of 2015, the number of establishments involved in the import-export trade of leather consumer goods was 2,500, while direct workforce employed by these establishments totalled 9,680.

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 the Chinese mainland. 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. Some of them are appointed by foreign brands as their agents in the region, including the Chinese mainland. A number of Hong Kong's leather consumer goods companies, such as Izzue, Collect Point, Mirabell, Staccato and Belle, take strong initiatives in developing the mainland market.

Performance of Hong Kong’s Exports of Leather Consumer Goods [2]

After registering a decrease of 11% last year, Hong Kong’s exports of leather consumer goods fell another 20% to HK$9.4 billion in the first four months of 2016. Re-exports, accounting for almost all exports of leather consumer goods from Hong Kong, also fell by 20%, while domestic exports were down 7%.
     
The US remains the leading export destination for Hong Kong's leather consumer goods, accounting for 27% of the total during January-April 2016, followed by the Chinese mainland and the EU, with respective shares of 17% and 12%.
   
In terms of performance, Hong Kong’s exports of leather consumer goods to the US declined by 25% in the first four months of 2016. On the other hand, sales to the Chinese mainland lost 4%, whereas sales to the EU plummeted by 35%, with major member states like Italy, the Netherlands and Germany seeing respective descents of 53%, 40% and 36%.
   
Product wise, exports of leather footwear, representing 46% of Hong Kong’s total exports of leather consumer goods, fell by 28% during the first four months of 2016, while sales of handbags, trunks and suitcases and other clothing accessories slid by 10% and 3%, respectively.

Table: Performance of Hong Kong Exports of Leather Consumer Goods
Table: Performance of Hong Kong Exports of Leather Consumer Goods

 

Table: Performance of Hong Kong Exports of Leather Consumer Goods
Table: Performance of Hong Kong Exports of Leather Consumer Goods

 

Table: Performance of Hong Kong Exports of Leather Consumer Goods
Table: Performance of Hong Kong Exports of Leather Consumer Goods

 

Sales Channels

The majority of leather 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 in the Chinese mainland as well as other overseas markets.

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 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 2015, the competition garnered about 1,000 entries, displaying a great deal of creativity. A strong judging panel was comprised of 17 experts from various related sectors such as fashion design, trade associations and retailers, aiming at nurturing local design talent and promoting the sustainable development of the footwear industry.

To establish business contacts with overseas buyers, Hong Kong manufacturers and traders have involved themselves actively in international trade shows led or sponsored by TDC, including GDS Shoe Fair (Dusseldorf), Expo Riva Schuh International Shoe Fair (Trento), China (Dalian) International Garment & Textile Fair (CIGF), Style Hong Kong (Wuhan, Harbin, Jinan, Guangzhou, etc.), MOTEXHA (Dubai) and All China Leather Exhibition (Beijing). Some of them, particularly those selling handbags, wallets and other accessory items, also participate in trade fairs for gift items such as Birmingham Spring Fair International, Ambiente Frankfurt and the Tokyo International Gift Show.

Industry Trends

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 the Chinese mainland and Southeast Asian countries, especially Vietnam. 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 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. 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.

Since leather processing usually involves production procedures and chemicals that can cause environmental pollution, the industry is considered one of the most polluting industries. To curb pollution, different regulations are imposed to improve the production processes and product designs for better environmental protection. For instance, China's Ministry of Environmental Protection (MEF) has established 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. Together with technological advancements in wastewater treatment in the leather and fur industry, the new standard sets tougher emission limits and “referential discharge indicators” than the previous one. Along with MEF’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.

Aside from the stricter environmental policies and tougher standards, the provincial governments on the Chinese mainland have been stepping up their efforts to upgrade and promote a greener leather industry in particular relation to carbon emission and wastewater treatment. For instance, each tannery in Xin Ji and Wu Ji, two important tanning clusters in China, are requested to set up primary effluent treatment facilities, aiming at reducing wastewater load. Given the determination of the Chinese government to implement green manufacturing policy under the 13th Five-Year Plan, upgrading the environmental technologies by, for example, introducing less harmful chemicals, recycling, effluent treatment and sludge handling, will become a matter of necessity.

In other parts of the world, some US retailers and manufacturers are under attack by lobbying groups for selling products from countries using leather skinned off from dead animals that have been subject to excessive pains and distress when in transit or/and being killed. For example, following protests by People for the Ethical Treatment of Animals (PETA), some big companies have reportedly decided to boycott the leather obtained from the animals that suffer from intolerable conditions when in transit to slaughterhouses.

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 leather consumer goods, tariff-free treatment starting from 1 January 2006.

Detailed information, including the origin rules for leather consumer goods items, is available from the following hyperlink: http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2016.pdf

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. The EU’s anti-dumping duties on leather shoes expired on 1 April 2011. In Japan, footwear made wholly or partially from leather falls under the Tariff Quota (TQ) System as established by the Customs Tariff Law. In general, the import duties for leather are 10-16% (in-quota) and 30% (out-quota). For leather footwear, the applicable import duties are 21.6%, 24% or 27% (in-quota) depending on the type of shoes, and 30% or 4,300 yen/pair whichever is higher (out-quota).

Table: Tariff Rates of Selected Leather Consumer Goods in Major Markets
Table: Tariff Rates of Selected Leather Consumer Goods in Major Markets


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 utilization 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.

Product Trends

With many people becoming more willing to spend on stylish and luxurious leather items, leather vogue handbags, skirts, jackets are gaining popularity in the fashion world, and have been considered a wind vane reflecting the current trends of the season and forming the vogue mark in people’s wardrobe.

Looking ahead, leather wear is forming a trend alongside with a growing demand for automotive leather. As leather consumer goods are increasingly viewed as fashion accessories, the trend, from smart to clean chic, neo sports up to romanticism, is expected to remain popular in the market.

Nowadays, however, the primary market requirement for any leather good is performance. This means improving the unique leather properties such as water vapour absorption and permeability, robustness and ductility. For footwear, its elegance and durability for upholstery leather, while softness and elegance for garments and leather goods. In addition, the appeal of natural leather offers opportunity in face of mass production of items made from alternative materials such as synthetic leather, textiles and plastics.

On the other hand, eco-friendliness and sustainability are becoming increasingly important issues in leather consumer goods industry. Some manufactures 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.

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 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.

 


[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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