Hong Kong is losing shine as apparel exporter as figures show a dip
Today TextileFuture’s Newsletter gives you the latest trends on Hong Kong as a clothing exporter, but also on the clothing industry, with all the figures included. It is a full report with insights also in some regulation and their results, as well as consumer behaviour, based upon data released by the Hong Kong Trade Development Council’s research arm. We have added some conclusion on clothing product trends worldwide established by Euromonitor. Together these two items allow you to be informed on the latest trends in clothing and consumer spending attitudes for the sector
Hong Kong’s textile exports seen de-growth lately. In 2016, it fell 13 % and now another 7 % in the first five months of 2017. Re-exports, accounting for more than 99 % of total textiles exports, also fell 7 %, while domestic exports rose 2 %. With more than three-quarters of the textile re-exports originating from Chinese mainland, Hong Kong’s re-exports of textiles of China origin registered a decrease of 6 % in January-May 2017
Asia accounted for 93 % of Hong Kong’s textile exports in the first five months of 2017. Other major export markets of Hong Kong textiles include Vietnam, Bangladesh, Cambodia, Indonesia, Sri Lanka, the US, India, Thailand and the Philippines. In particular because of Vietnam’s cheap labour compared to neighbouring countries and WTO membership, many foreign investors, including those from Hong Kong, have set up garment factories there. This gives rise to sustained demand for textile imports, making Vietnam the second largest market for Hong Kong’s textile exports, after the Chinese mainland. Talking about products, Hong Kong’s exports of knitted or crocheted fabrics, textile yarns, woven fabrics, textile made-up and floor coverings registered respective declines of 3 % – 64 % in the first five months of 2017. However, finishing accessories and special yarns and fabrics increased by 3 % and 2 %, respectively, in the first five months of 2017.
With rising labour costs, volatile raw material prices and stringent environmental regulations on the Chinese mainland, many Hong Kong’s textiles manufacturers have relocated their production facilities to other South-east Asian countries, like Vietnam, Cambodia, Myanmar and Bangladesh. A few companies have even set up offshore production in Latin America (e.g. Mexico) and Africa (e.g. Nigeria) to take advantage of preferential treatments allowed by regional trade agreements such as North American Free Trade Agreement (NAFTA) and the EU’s GSP scheme.
Among various kinds of fibres, cotton remains the most preferred material for consumers. Cotton-rich apparel continues to attract European consumers, while consumers in China, India and Japan agree that cotton and cotton blend are the most comfortable, authentic and sustainable, compared to other man-made fibres. Microfibres are attracting textiles manufacturers as they are light in weight and have superior performance in keeping warm. These days more and more breathable, flexible, anti-bacterial, anti-ultraviolet, wrinkle-free, water-resistant and eco-friendly materials are invented and marketed. For instance, TENCEL® invented by Lenzing Group is a kind of lyocell fibre that possesses several functional advantages over cotton, while Salvatore Ferragamo has pioneered the use of sustainable fabrics made from citrus fruit.
Technology and innovation are yet again set to rule the textile world. Fancy weaves and prints will give more flexibility in the choice of manufacturing processes, while digital prints, as well as artisanal decoration, will make textiles more malleable. Additionally, hand-crafted excellence, original visuals and exceptional handles will continue to be sought after, given consumers’ ever-growing appetite for uniqueness and distinctiveness. Solar-powered handbag made of a textile photovoltaic surface that powers a battery inside to charge a mobile phone and ‘climate costumes’ that sense changes in carbon emission with light patterns using conductive thread and LEDs are just some examples of how technical textiles are shaping the future textiles industry. As wearable technologies are becoming more accessible, technical textiles are widely applied over a wide range of industries such as automobile, aerospace, architecture, healthcare and sports. Luminescent and heated garments as well as smart knee bandages are cases in point.
To comply with global trends of green manufacturing, more textile corporations have adopted the bluesign® standard – one of the industry’s major voluntary standards for environmental sustainability. Consumers in West Europe, the US and Japan, are stringent about the environmentally friendly properties of biodegradable natural fibres like organic cotton, soy fibre and ahimsa silk. To keep up with this trend, manufacturers have also expanded their production of green textiles by utilising more bio-degradable materials and environmentally-friendly manufacturing processes, including high-efficiency management practices, process control, special processes, and recycling of wastewater.
Besides going green, companies are paying utmost attention on product safety. For instance, a number of disqualified apparel fibres consisting of unsatisfactory levels of pH value, formaldehyde content and banned azo dyes have been reported on the Chinese mainland in recent years. In fact, Chinese consumers are increasingly in favour of foreign apparel brands, which usually guarantee product safety. Meanwhile, in traditional markets, for example, the EU’s Rapid Alert System for Non-Food Products (RAPEX) revealed that textiles, clothing and fashion items were the third most common product category notified (behind only toys and motor vehicles), representing 13 % of the total number of notifications of dangerous products in 2016.
The Clothing Industry in Hong Kong
- 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 10 % year-on-year in the first five months of 2017, when re-exports fell by 10 % and domestic exports slid by 46 %. In January-May 2017, Hong Kong’s clothing exports to the US and EU, the two largest markets that accounted for more than 6 0% of the total, fell by 9 % and 12 %, respectively.
Industry statistics cover activities in Hong Kong only.
The clothing industry is a major manufacturing sector of Hong Kong. It is the fourth largest manufacturing employer in Hong Kong, with 657 establishments hiring 4763 workers as of March 2017.
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
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.
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, 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 10 % year-on-year in the first five months of 2017 after a 15 % decrease in 2016. In January-May 2017, Hong Kong’s domestic exports of clothing slid by 46 %, while re-exports fell by 10 %.
Among the major export destinations, Hong Kong’s clothing exports to the US decreased by 9% in the first five months of 2017, while those to the EU were down by 12 %. Clothing exports to major EU markets including the UK, Germany, France and Italy fell by 13-33 %.However, clothing exports to the Netherlands rose by 7 %. Taken together, sales to the US and the EU accounted for more than 60% of Hong Kong’s total clothing exports. Meanwhile, sales to Japan dropped by 8 %, whereas the Chinese mainland market showed a 6 % decrease in January-May 2017.
Product wise, Hong Kong’s exports of woven wear fell by 9 % year-on-year in the first five months of 2017. Exports of knitted wear decreased by 10 %, whereas clothing accessories and other apparel articles declined by 9 % and 10 %, respectively.
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, 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 2017, four Hong Kong designers, Cynthia Mak, Xiao Xiao, Harrison Wong and Polly Ho, were invited to showcase their Fall/Winter 2017 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 and e-tailing platforms such as Bloomingdale’s, Ferd.com, Net-A-Porter and Macy’s.
In the 2016-17 Budget announced on February 24, 2016, the then Financial Secretary John Tsang unveiled that HKD 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’ was 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, was 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.
Online shopping is increasingly popular in Hong Kong’s major clothing markets, including the Chinese mainland where there are 467 million online shoppers in 2016. Across the board, clothing is among the most purchased items online. Last year, online clothing sales were estimated to have accounted for 41 % of the total online shopping turnover on China’s largest online shopping day that fell on 11 November 11 (also called the Single’s Day). Also a recent PwC survey indicates that Chinese consumers are the most inclined to online clothing shopping, with more than 72 % of the Chinese respondents saying that they prefer buying clothes through the internet.
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 and WeChat Pay by Tencent also helps popularise online shopping. It is estimated that global retail e-commerce sales will more than double from the current level and exceed US$4 trillion by 2020. 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 nascent economic recovery. 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. The drive to embed sustainability within the clothing industry will likely bring forth new materials and innovative ways of production, while the concept of a circular economy will become more widely applied throughout the supply chain by committing to such ideas as end-of-life collection and closed-loop fashion products to enable the reuse and recycling of textile fibres and fabrics. Against this backdrop, 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 demonstrated a substantial increase from 3814 in 2015 to 4642 facilities across 63 countries last year. Reputable clothing stores like Nike, Adidas, H&M, C&A, Walmart, Anvil Knitwear also have responded by expanding their assortment of sustainable 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 are not yet present on the mainland are working hard to mark their inroads. For instance, Victoria’s Secret is about to open a flagship store 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.
On October 18, 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 tariff rates of 7-25% 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 here
Clothing Product trends according Euromonitor survey
Consumers in mature markets continue to 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 developed markets. The global market for children’s wear is forecast to reach USD 186 billion by 2020. 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 Euromonitor, the men’s clothing market is forecast to exceed USD 490 million by 2020, up from USD 411 million in 2016. Moreover, men have been spending more on their outfits each year for more than a decade now, thanks partly to the growing popularity of online menswear shopping that showed an annual sales growth of more than 17 % between 2010 and 2015.
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 accounts for 22-33 % of their respective population. 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 Walmart, 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 Walmart 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 fibres popular among consumers, especially in the developed markets. According to the latest Cotton Incorporated Lifestyle Monitor Survey, 73 % of US consumers believed that better quality garments are made from all natural fibres and 65 % 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 G-Star RAW has invented and used in its collections Bionic Yarn, an eco-friendly fabric made of fibres derived from recycled plastic bottles found in the ocean.