Footwear Industry in Hong Kong

Overview

• Mainland China 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 increased by 10% in the first half of 2019. Re-exports, accounting for nearly all footwear exports from Hong Kong, grew on a par with total exports during January-June 2019, while domestic exports soared 147% against a low base of comparison.

• Hong Kong footwear companies, such as Belle International, Le Saunda, Swank and Walker Shop 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 mainland China. In addition, some footwear companies also explore niche markets with their own brand products, for instance, Dr. Kong Footcare, Rockstar and Pen-walking in health footwear.

Industry Features [1]

The latest official statistics show that the footwear manufacturing industry had total employment of 20 workers as of December 2018. The majority of footwear manufacturers have set up offshore production facilities in mainland China 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. As of December 2018, there were altogether 1,170 import or export establishments hiring 5,730 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]

Source: Hong Kong Trade Statistics, Census and Statistics Department

Hong Kong’s footwear exports recovered to 10% growth in the first half of 2019, after a 2% fall last year. Re-exports, accounting for almost all footwear exports, increased on a par with total exports during January-June 2019, while domestic exports soared 147% against a low base of comparison.

Playing a leading role, the US, accounted for 26% of the city’s total footwear exports in the first six months of 2019, saw a rebound of 2%. Trailing the US were mainland China, the EU and Macau, accounting for 23%, 14% and 8% of the total exports, respectively. In January-June 2019, footwear exports to mainland China and Macau saw respective growth of 24% and 33%. While sales to the EU saw a 15% increase, the Netherlands and Germany showed encouraging gains of 45% and 31% respectively.

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 Belle International (carrying brands such as Joy and Peace, Jipi Japa, Mirabell and Staccato), Le Saunda and Walker Shop (Artemis, Couber. G, Tru Nari and Walaci) have also succeeded in building up their own brands with the retail network in Hong Kong, Macau, mainland China 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, 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 mainland China 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 early 2019, the 18th competition garnered nearly 800 entries, displaying a great deal of creativity while promoting the sustainable development of the industry. On the other hand, the 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 and to diversification amid protectionism, footwear manufacturers in mainland China, are diversifying their production overseas, particularly among the ASEAN countries. Having said that mainland China remains a key manufacturing centre for fast-fashion footwear that requires short lead time and sophisticated supply chain support.

China is not only the world’s largest shoe manufacturer but also the biggest footwear consumer, representing more than 60% of global footwear production and some 20% of consumption in quantity terms. According to the China Leather Industry Association, China produced 13.5 billion pairs of footwear in 2018, when 9.53 billion pairs (valued at US$44.5 billion) were exported and 4.1 billion pairs (valued at RMB470 billion) were locally consumed.

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). Most of the renowned brands have already developed eco-friendly packaging solutions by utilising recycled, eco-friendly, bio-degradable or sustainable materials such as soy-based ink, recycled cork, nylon and foam.

Furthermore, online shopping has been growing in popularity along with the ascending internet usage and the wider adoption of refund and exchange policy. Most of the renowned brands have set up online stores where shoppers can choose from a wide variety of shoes in different sizes, colours and styles at different price points. The high social media penetration and the growing influence of key opinion leaders (KOLs) also made social media an important battlefield for online marketers and e-tailers.

For sports footwear, endorsement deals with sports stars and sports sponsorships remain some of the key promotion channels. With the rising popularity of e-sports, sports footwear brands are keen to sponsor teams to take part in worldwide leagues and tournaments such as Tencent League of Legends Pro League (LPL).

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.

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.

To further facilitate the importation of Hong Kong goods into the Mainland with zero tariff, the Mainland and Hong Kong recently signed the Agreement on Trade in Goods under CEPA to provide exporters with a flexible option to choose between the existing Build-up method and introduced new Build-down method when calculating the value added to the products in Hong Kong. Details of CEPA tariff preference, including origin criteria, are available here.

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.

Footwears are victims of the Sino-US trade conflicts. Certain mainland China-origin footwears in List 4A have been subject to US 301 15% additional tariffs since 1 September 2019 and the remaining in List 4B will follow suit starting 15 December 2019. For further details and updates please click here.

Product Trends

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 in mainland China thanks to the two-child policy, footwear giants and many other Chinese domestic brands 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.

As fitness and sports activities have become an essential part of a trendy urban lifestyle, athleisure footwear is gaining popularity. This is particularly the case for the US, the world’s major footwear importer in quantity terms, where athleisure and comfort footwear are increasingly acceptable for workplace. Sports footwear is also the fastest-growing product segment in mainland China thanks to the urban fitness boom.

On the other hand, highlighting the universal norm of green consumption, there is a 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.