The following research report contains market research, analysis, statistics and business intelligence relating to research on Apparel Industry In Hong Kong.

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ABSTRACT
In 2001, the total apparel market in Hong Kong was US$1.4 billion. 20% were retained imports and 80% were domestic products. 93% of Hong Kong's apparel imports came from China. Other apparel suppliers were Italy, France, Japan, U.K. and the U.S. U.S. supplied US$49 million of Hong Kong's apparel imports in 2001.

Imported apparel growth in 2002 and 2003 will come from increased Mainland Chinese tourist purchases of designer-label apparel. While Hong Kong's economy will remain sluggish during the near term, there remains some domestic demand for reasonably-priced apparel that are suitable for everyday wear. This sentiment augurs well for U.S. apparel suppliers as local consumers associate American apparel with everyday-use and casual apparel. Hong Kong consumers are trending towards casual work-wear. Prospects for imported U.S. apparel remain bright for jeans, "hip-hop"fashion wear, designers' second lines and mid-priced work-wear. Local apparel retailers are increasingly turning to U.S. apparel suppliers to meet their customers' demands. U.S. apparel suppliers should pay more attention to Hong Kong: at US$24,383, it has one of the highest per capita GDP's in Asia. There are no import tariffs on apparel and end-users are fashionable and brand-conscious. They demand new and exciting fashion styles and designs.

U.S. apparel suppliers interested in selling to Hong Kong should approach the top retail outlets directly or consider selling through a local licensee/distributor. Many of Hong Kong licensees/distributors also operate retail outlets in China's expanding market. China will open its retail market further, following WTO membership. Many of the world's top European apparel companies have established local offices to expand their retail presence in Hong Kong to sell to the Mainland Chinese tourists and to expand their China presence.
A. MARKET HIGHLIGHTS & BEST PROSPECTS

Products included as apparel are as follows:

HS Codes and Product Description
6201: Men's or boy's overcoats, car coats, capes, cloaks, anoraks (including ski-
jackets), wind-cheaters, wind-jackets and similar articles
6202: Women's or girl's overcoats, car coats, capes, cloaks, anoraks (including
ski-jackets), wind-cheaters, wind-jackets and similar articles
6203: Men's or boy's suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear)
6204: Women's or girl's suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear)
6205: Men's or boy's shirts
6206: Women's or girl's blouses, shirts and shirt-blouses
6210: Garments, made up of fabrics of felt, non-woven, textile fabrics impregnated, coated, covered or laminated with plastics and rubberized textile fabrics

This report excludes babies' apparel and men's or boy's underwear, nightwear, dressing gowns and women's' or girl's underwear, nightwear and dressing gowns, leather and fur garments, clothing accessories and footwear.
Market Profile

Hong Kong's apparel market was worth US$1.4 billion in 2001. Industry sources estimate that imported apparel supplied 20% of the market in value terms. Retained imports in 2001 came mostly from China, Italy, France, U.K., U.S.A., Japan, Korea and the Philippines. Most of the imports from Italy and France were high-end apparel of world-renowned designer labels. Imports from China comprised OEM or ODM apparel of local and foreign labels, ranging from lower-end to high-end products.
Demand from Mainland Chinese tourists will be the main driving force for increased imports of luxury apparel. With the high 7.7% unemployment rate in Hong Kong, local consumers have become morecautious in their spending, particularly on luxury apparel. Domestic demand is trending towards mid-priced apparel that is fashionable yet suitable for everyday wear. This augurs well for U.S. apparel companies as local consumers perceive American-style and made garments as casual, wearable and suitable for everyday use and less designer-focused than European fashions. Local department stores and specialty shops are looking increasingly to U.S. supplies of such apparel.
Locally-made apparel is facing increasing competition from foreign apparel labels (such as Gap, Banana Republic, and Mango) that are setting up retail operations in Hong Kong. Statistical Data

USD million
Last year
(2001) Current year
(2002) E Growth
(2002) E Next year
(2003) E Growth
(2003) E
Imports 11,559 11,675 1% 12,609 8%
Local production 4,558 4,330 -5% 3,897 -10%
Exports * 14,633 14,779 1% 15,222 3%
Total Market 1,484 1,226 -17% 1,284 5%
Imports from U.S. 49 54 10% 62 15%
Exchange Rates 7.8 7.8 7.8
Import Market Share:

U.S.: 0.4%; China: 93%; Italy: 2%; France: 1%; U.K.: 0.5%; Japan: 0.5%

E = Estimates from industry sources

Sources: Report on 2000 Annual Survey of Industrial Production, Hong Kong Government Census & Statistics Department
Hong Kong Trade Statistics, Census & Statistics Department
Industry sources

á Since export value exceed import values plus domestic production, adjustments are required for re-export values, using the official adjustment formula and re-export margin. This re-export margin takes into account the outward processing arrangements between Hong Kong and China companies, time lag between imports and re-exports and different classification of products when imported and re-exported.
Best Sales Prospects

Men's or boy's "hip-hop"fashion apparel Men's and women's mid-price work wear
Men's smart casual work wear Men's suits
Women's or girl's jeans - High-end, hot, hot type i.e.low-hip, bootleg, hip-hugging (examples are Earl Jean, Seven)
Designers' second apparel line (example: Marc by Marc Jacobs, Kors by Michael Kors)
Up-and-coming designer-apparel not yet in Asia
B. COMPETITIVE ANALYSIS

Domestic Production

The clothing industry is one of Hong Kong's few remaining manufacturing sectors. Estimated gross output is US$4.6 billion. Industry sources estimate that domestically manufactured clothing supplies 80% of the market. Hong Kong is the world's second largest clothing exporter, after China, with domestic exports valued at US$7.6 billion (a large percentage of which is produced offshore.) Clothing exports comprise about 50% of Hong Kong's total exports.
Most of Hong Kong's clothing manufacturers have moved their production off-shore to China and, to a lesser extent, to Cambodia, Myanmar, Mauritius, Vietnam, Thailand, Sri Lanka, Indonesia, Nigeria, South Africa and Mexico. Offshore production reduces costs and accesses available textile quotas. The network of offshore production bases, coupled with the availability of supporting services, developed Hong Kong into a global sourcing center for apparel, offering one-stop services ranging from design and production to marketing and distribution.
Hong Kong's largest domestic apparel manufacturers are Lai Sun Garments, Trinity Textiles, Smart Shirts, Giordano, Tal Apparel, Fang Brothers Knitting, Unimix, Peninsula Knitters, Esquel Enterprises, Yangtzekiang Garments, Crystal Knitters, Goldlion and Winner Co. Garments. These companies manufacture clothing under license for world-renowned labels or manufacture their own labels for retailing in Hong Kong and elsewhere. Some like Lai Sun (own brand: Crocodile), Trinity Textiles, Giordano, Fang Brothers (brands: Jessica, Episode, Colour 18), Unimix (Brand: Gieves & Hawkes, Lee Cooper Jeans), Yangtzekiang ( Brands: Michel Rene, Daniel Hechter) also operate their own retail stores. The other well known local apparel companies: Esprit, Bossini, G 2000/U2 and Shanghai Tang, manufacture offshore or rely on overseas sub-contractors. Esprit, Bossini and G 2000 /U2 are also retailers and franchisers and have a strong local market share compared with the foreign brands in the same price range (examples: Benetton, Mango). These local brands are also well known throughout SE and NE Asia; Esprit even has retail stores throughout Europe and the U.S. and Shanghai Tang has branches in Singapore, the U.S., China, Thailand and the U.K.
Local fashion designer labels like Vivienne Tam, Walter Ma and Lu Lu Cheung, compete well with imports and also sell well overseas. Many local fashion designers also offer made-to-order garments, especially for bridal and evening gowns. Among these designers, Barney Cheng is the most well-known.

Hong Kong is also a tailoring center for suits and shirts. Service ranges from 24-hours for tourists to mail order for overseas customers. These tailors use imported suiting and have their own workshops or factories, either in Hong Kong or across the China border, in Shenzhen. Western tourists, especially Americans and British and some local male executives favor tailored suits. Hong Kong's suit tailoring business will contract in the coming years as the younger generation of western tourists and local male executives prefer buying suits off-the-rack. Mainland Chinese tourists also prefer buying Italian and French designer suits off-the-rack to buying made-to-order, non-branded suits.
Hong Kong's clothing manufacturers will produce more OEM and ODM apparel as more overseas department stores and hypermarkets adopt private label retailing. China's WTO membership will affect the value of domestically produced garments. As a WTO member, China is allowed to export several clothing items to the U.S. and the E.U. without quota restrictions under the first 3 stages of the Agreement on Textiles and Clothing. (ATC). This will be an incentive for Hong Kong clothing manufacturers with offshore manufacturing facilities to focus their production of these newly quota-free clothing items in China and export them from Chinese ports directly to their overseas customers. Exporting finished clothing directly from their China manufacturing facilities instead of shipping via Hong Kong will also minimize transportation costs and allow Hong Kong manufacturers to be more price-competitive in overseas markets. As such, local production of clothing is expected to decline as Hong Kong manufacturers increase their production in China to take advantage of the larger quotas and cheaper costs.
Imports

Imported apparel supplies approximately 20% of Hong Kong's US$1.4 billion market. China provided 93% of Hong Kong's total imports in 2001 and 2000. The other sources of imported apparel in 2001 were Italy (2%), France (1%), U.K. (0.5%), Japan (0.5%) and U.S. (0.4%).

Apparel imports in 2001 amounted to US$11.6 billion, a 3% increase over 2000's imports. This reflects more imports of women's or girl's knitted overcoats, raincoats, anoraks and capes (+102%), blouses and shirt blouses (+14%) and ensembles (+13%). A robust economic performance in 2000 underpinned a mild increase in household income and consumer spending grew steadily in the first half of 2001. Increased consumer spending reversed, however, in the latter half of 2001 following increased unemployment and a worsening economic outlook. There was a drastic drop in inbound tourists, in the aftermath of September 11. Retail apparel sales decreased 4.8% in volume and 2.5% in value in the first half of 2002 compared with the same period last year. Local consumer spending on imported apparel is not expected to increase substantially for the forseable future. Increased Mainland Chinese visitors' spending on luxury apparel will be the main driving force for any increased apparel imports in 2002 and 2003. Third-Country Imports

Imports from China accounted for 93% of Hong Kong's apparel imports in 2000 and 2001 compared with 73% in 1999. Imports from China, which totaled USD10.7 billion, will continue to increase as more and more overseas apparel companies manufacture in China, both for local consumption and for export. An example is Mango, a Spanish retailer who opened in Hong Kong in December 2000 and now has 3 outlets. Gap and Banana Republic will also be opening stores in Hong Kong with their own brands, made mostly in Asia.
Imports from low-cost countries such as Korea, India and the Philippines decreased in 2001 but imports from Italy, France, the U.K., and Japan, increased during the past 2 years. In 2001, imports from Italy and the U.K. increased 6% and 16% to reach US$235 million and US$62 million, respectively. Apparel imports from France increased marginally in 2001 to remain at US$122 million. Apparel imports from Japan increased 22% to US$59 million in 2001 as local retailers such as I.T. increased their purchases of Japanese fashion labels and opened several new stand-alone boutiques for these Japanese brands. Muji, the Japanese no-frills brand, re-opened two outlets in Hong Kong last year.
Industry sources believe that there is still room for growth for top-end French and Italian designer wear in Hong Kong though the growth will partly be from Mainland Chinese tourists. LVMH Asia Pacific's President felt that Hong Kong will continue to be an important market for them as local consumers are fashionable and many still appreciate luxury apparel. LVMH has three "global"stores (LVMH will only open "global"stores in cities with a certain level of wealth and quality of shopping malls) in Hong Kong. Alfred Dunhill and Giorgio Armani will both be opening new stores in Hong Kong in the coming months, indicating their optimism for the increase in luxury apparel demand. Dunhill Hong Kong predicted that Mainland Chinese will become their principal customers in the coming years.
For designer apparel, Hong Kong consumers perceive Italian (such as Gucci, Gianni Versace, Prada, D&G, Fendi, Ermenegildo Zegna, Canali) and French (Christian Dior, Louis Vuitton, Hermes, Celine, Chanel, Jean-Paul Gaultier) labels as having the best design and the best quality. British designer names have become better known in the past 10 years (such as Paul Smith, Vivienne Westwood, and Alexander McQueen) especially after Burberry changed its image. Hugo Boss, Jil Sander and Escada are the most popular German brands is this category while Issey Miyake, Matsuda and Tsumori Chisato are among the popular Japanese designer apparel labels in Hong Kong. Alfred Dunhill, Givenchy and Ermenegildo Zegna are particularly popular menswear brands among Mainland Chinese tourists. Hong Kong's retail prices for these labels tend to be 20-30% lower than in China.
Local consumers generally prefer Italian and Japanese apparel cuts to British and American cuts; Italian and Japanese sizes are more suitable to the young, smaller-built Chinese.
Local brands like Episode, Jessica, Moiselle, Esprit are facing increasing competition from overseas brands like French Connection (U.K.), Kookai (French), Agnes B (French) and Mango (Spain) in the upper-middle price range. The more sexy cuts and fun styles of the European labels have given them an edge over the more conservative and plain local brands.
At the mid-price apparel market, Japanese brands, such as Atsuro Tayama's A.T., Indivi, Nice Claup, O.Z.O.C. are the most popular, especially among the local women between 18-29 years of age. Muji is also a popular Japanese brand in Hong Kong.
Marks & Spencer menswear is the favorite of many executives, but not its womenswear, which tends to be popular only among the bigger-sized and older Hong Kong and western expatriate women.
Korean apparel of man-made fibers competes well with locally-made and China-made low-priced apparel.
U.S. Market Position

Imported U.S. apparel reached US$49 million in 2001, an 8% increase over 2000. The U.S. supplied 0.4% of Hong Kong's imported apparel, up from 0.3% in 1999. Imports of U.S. women's knitted apparel, in particular, increased 75%, from US$4 million in 2000 to US$7 million in 2001.
American apparel is good for everyday wear, is fashionable and is reasonably-priced, an attractive mix for the current local consumer sentiment. As such, Hong Kong apparel retailers have increased their purchases of U.S. women's apparel. U.S. apparel imports should increase in the next few years as Hong Kong consumers become more familiar with the lesser-known American labels and as casual wear in the workplace continues to be popular.

Women's woven wear was the largest category of U.S. apparel imports, at US$17 million or 36% of U.S. apparel imports in 2001. Other U.S. apparel imports were men's woven wear (US$11 million - 22% of U.S. apparel imports in 2001) and jerseys, cardigans, pullovers (US$5 million) and T-shirts (US$4 million).

Hong Kong consumers often associate U.S. apparel with sports wear and casual wear and seldom with designer apparel. Among the teenagers, U.S. apparel is associated with "hip-hop"fashion-wear such as Echo Unlimited, Fubu and Sean John.

A common complaint in Hong Kong about U.S. apparel suppliers is their slowness or lack of response to correspondence (The U.S. Commercial Service has had similar experiences when trying to contact U.S. apparel suppliers on behalf of local importers interested in purchasing their products.) Another is delivery problems: some firms reported deliveries that were packed in a disorderly fashion, unlike deliveries from their European and Japanese suppliers. Although some importers and end-users complain that American sizes are too big for the smaller-sized Hong Kong Chinese, this is not a serious impediment to market entry; many U.S. suppliers have begun to make petite sizes and even size 0.

Unlike the U.K and Italy where the government sponsors fashion shows for up-and-coming fashion designers, U.S. apparel is only featured in local department stores' fashion shows that includes apparel of other countries or when a U.S. label opens a new retail outlet in Hong Kong.
Major U.S. apparel suppliers / brands available in Hong Kong include: St. John's, Max Azria BCBG, Betsey Johnson, Earl Jeans, Seven by Jerome Dahan, Laundry, Poleci, Jill Stuart, Theory, Tracy Reese, Brooks Brothers, As Four, Mint, Allen B & ABS, Anne Klein, Kenneth Cole, Michael Kors, Calvin Klein's CK, Fubu, Echo Unlimited, Juicy Coutoure, James Perse, William B, Nanette Lepore, Easel, Daryl K, Katayone Adeli, Cynthia Stefee, John Bartlett, Ralph Lauren, Levi's,Tommy Hilfiger, Diane von Furstenberg, Marc Jacobs, Narcisco Rodriguez and Donna Karan. Many other popular U.S. brands in Hong Kong are not of U.S. origin too: Ralph Lauren Polo, Polo Jeans, Tommy Hilfiger, Calvin Klein and its associated brands, Brooks Brothers, DKNY, Anne Klein, Levi's and some of Diane von Furstenberg's and Marc by Marc Jacobs.
C. END-USER ANALYSIS

Hong Kong's per capita GDP reached US$24,383 in 2001 with projections for US$24,627 by 2002, the second highest in Asia after Japan. Consumers in Hong Kong between the ages of 30-49 comprise Hong Kong's largest age group (36% or 2.5 million) and have the highest disposable income.
The Cotton Council International's 2002 survey among working adults in Asia, Europe and South America revealed Hong Kong as the regional capital of workplace casual dressing:

á Hong Kong has the highest proportion of people wearing casual clothes to work in Asia.
á Hong Kong residents own an average 6 pair of jeans, more than elsewhere in Asia, but less than in the U.S.

Comparisons with the Cotton Council's previous years' studies also suggested that Hong Kongers are now dressing more casually. Only 22% of those surveyed wore a suit to work in1999 compared with 19% in 2002. 47% of those surveyed this year wore casual clothes to work; 26% wore less than formal clothes, 5% wore uniforms and 2% wore work clothes. The ethos of the dotcom boom fuelled the move towards less formality in the workplace. In addition, almost 30% of those surveyed in Hong Kong said they planned to buy fewer clothes than they did a year ago. The proportion of those who admitted buying clothes on impulse fell from just under 75% to about 50%. Hong Kong consumers also continued to be Asia's most frequent clothes shoppers; more than a third of those surveyed would shop for clothes at least once a month.
Sharon Zukin, a City University of New York sociology professor, observed that Hong Kong consumers "are obsessed with the shiny and new, second-hand stores were not a big feature of the retail market."A local Italian designer-brand apparel operator felt that Hong Kong consumers were becoming more sophisticated and demanded new and exciting products.

Hong Kong consumers are very brand-conscious and well versed with the top apparel designer names and the latest fashion trends. Professor Zukin also observed that Hong Kongers even carry their lunch boxes and newspapers in paper carrier bags printed with designer labels. Hong Kong consumers in their 30s to mid-40s travel frequently to Milan, Paris and London to buy the latest designs before they are available at retail shops in Hong Kong. The younger consumers in the 20s prefer Japan for their overseas shopping holidays and the loose fitting clothes and casual styles of many of the Japanese labels. A local Gucci representative commented that "ÉHong Kong consumers are well-educated on the appreciation of luxury items."The fame and country of origin of the brand names (not the country of manufacture) and the style of the apparel influence their buying decisions.
Female executives in the late 20s to mid 40s generally buy local brands such as G2000, Bossini, Giordano Ladies, Jessica, Esprit, Moiselle, Cour Carre, Gay Giano, Episode, Color 18, Michel Rene, Daniel Hechter or foreign labels like Mango, Susuza, Benetton, Indivi, A /T, French Connection, Polo Jeans, Ralph Lauren Polo, Tommy Hilfiger, Agnes B, Kookai, DKNY, MaxMara, Prada, Nicole Farhi, Gucci, Armani Exchange, Emporio Armani and Giorgio Armani. Unlike their male counterparts, very few female executives buy tailored workwear. Local male executives favor Marks & Spencer, G2000, Kwun Kee Tailors, Dockers, Nautica, Ice Fire, D'urban, Brooks Brothers, Hugo Boss, Canali, Emporio Armani, Jean Paul Gaultier, Paul Smith and Giorgio Armani.
Another large group of end-users is Hong Kong's visitors. Before the 1997 regional financial crisis and the recent economic slow down, Hong Kong was a favorite shopping destination of Japanese visitors seeking French and Italian designer fashion wear. Since 1997, Mainland Chinese visitors have replaced Japanese visitors as the top spenders on luxury apparel.

China visitors are now the highest per capita spenders among all visitors to Hong Kong. The Hong Kong Tourism Board's 2001 figures showed each of the 4.4 million Mainland China visitors spending an average US$662 during their stay in Hong Kong; the highest among all the visitors to Hong Kong. The average per capita spending of Hong Kong's 13.7 million visitors in 2001 was US$581.
Clothing and jewelry are the top purchases of the Mainland Chinese visitors in Hong Kong. The Chinese visitors, like the Japanese, buy Italian and French designer label apparel as Hong Kong's retail prices are about 20-30% lower than China's. Their favorite apparel brands are Dunhill, Ermenegildo Zegna, D&G, Cerruti and Hugo Boss. The peak periods for Mainland Chinese visitors to Hong Kong are during the Chinese New Year ( January/February), Labor Day (May lst) and National Day (October lst) weeklong holidays. There were 300,000 Mainland Chinese visitors during 2001's National Day holidays from October lst to 7th.
Hong Kong consumers tend to buy apparel at the beginning of a season and during end-of-season sales. Other high-sales periods for apparel are before Christmas and the Chinese New Year when companies pay year-end bonuses. Apparel retailers sell about 70% of their year's stocks during end-of-season sales. Retailers generally offer between 20-25% off retail prices at the start of a new season to VIP and credit card holders to promote their "new arrivals."

Institutional end-users comprise the bank tellers, the airlines' cabin crew and staff members of other service industries. Most of the institutional end-users source uniforms locally though some may use imported fabrics or foreign designers. The government purchases uniforms through public tenders. Price and design are the two most important factors affecting institutional end-users' buying decisions. U.S. suppliers are not price-competitive compared to the local manufacturers.
D. MARKET ACCESS

Import Climate

Hong Kong has no apparel import barriers or tariffs. A textile import license, however, is required; the application fee is HK$40 (approximately US$5.13) and the processing time is two working days after submission of the application. The licence is valid for 28 days from the date of issue, unless otherwise endorsed. The application procedure is simple and involves buying Import Licence (Textiles) Form 7 (TRA 23) from the Trade and Industry Department or the Government Publication Center. Completed forms should reach the Trade and Industry Department. For further information on the application, visit www.tid.gov.hk/english/import_export/textiles or contact Mr. C Y Wong (Tel: 852-2398 5459 direct line or 2398 5464 general line), Textile Import Licensing Section of the Trade and Industry Department, Hong Kong SAR Government.

Hong Kong accepts U.S. apparel labeling. There are no local mandatory labeling requirements.
Distribution / Business Practices

In Hong Kong, the normal apparel retail channels are department stores (Lane Crawford, Hong Kong Seibu, Mitsukoshi, Sogo, Uny, Jusco, Sincere, Wing On, Yue Hwa, Seiyu, New World, Dickson CyberMall); specialty apparel boutiques, street markets and factory /export outlets. Hong Kong has less than 20 department stores but about 8,000 specialty apparel retail shops.

The Japanese department stores (Mitsukoshi, Sogo, Uny and Jusco) tend to operate more like landlords than apparel retailers. About 30% of these stores' apparel are direct purchases. The rest are stocks of lessees: local distributors of brand names or local manufacturers who lease concession shops within the department stores. Only the Hong Kong Seibu and Lane Crawford tend to import directly. Other local department stores like Wing On and Sincere purchase some of their apparel stocks through overseas buying offices or through local distributors /agents of foreign and local apparel brands.

The closure of several Japanese department stores (Yaohan, Daimaru, Matsuzakaya, Isetan and Tokyu) and branches of local department stores in the past five years has lead to a significant reduction in retail apparel outlets in Hong Kong. Several specialty brand name shops replaced these department stores. Even existing retailers like Lane Crawford and Joyce Boutique are opening more stand-alone single-brand boutiques such as BCBG Max Azria (U.S.). Alberta Ferretti and Costume National. There are only 3 apparel specialty retail stores in Hong Kong that carry multiple brands: I.T., Swank and Joyce. All 3 also operate individual brand boutiques. Swank has recently opened a stand-alone boutique for Marc Jacobs.

In Hong Kong, shopping is a leading leisure activity. As such, buying apparel online or through mail-order is unpopular. They prefer the convenience, proximity, and easy access to shopping centers that are open 7 days a week, usually till 9.30 p.m. Also, Hong Kong consumers have concerns about online security and are too impatient to wait for internet or mail order deliveries. Most shoppers only use the internet for comparing prices and for "window shopping"while mail-order is limited to purchases of European and American brand names not available in Hong Kong, such as Redoute, Freeman, Eddie Bauer or Next. NetValue, a web measurement firm, reported that only 800,000 people in Hong Kong were highly likely to shop online with apparel not on "the top ten list."

Street markets usually sell locally-made apparel and imported apparel from Korea and China. Factory outlets are popular with tourists looking for larger sizes of American and European brand names or for locally-made silk apparel. Warehouse and second-hand apparel outlets are not popular in Hong Kong.

Apparel retailers buy their merchandise through local agents/distributors, wholesalers or directly from local and overseas manufacturers. Retail apparel buyers often visit overseas fashion and trade shows in Milan, Paris, London and New York for their stocks. Direct ordering from overseas manufacturers is especially common among the high-end department stores (such as Lane Crawford and Hong Kong Seibu) and specialty stores (I.T., Swank, Joyce Boutiques) as this allows the stores to offer exclusive products.
Retailers of locally-made, low-end apparel usually purchase from wholesalers and the Cheungshawan Apparel Wholesale Market. Hong Kong has about 4,000 apparel wholesalers. Some local specialty stores retailing mid-priced apparel have their own workshops.

In the past few years, many foreign apparel companies have terminated their licensing/distribution arrangements with local companies to set up their own retail outlets. Giorgio Armani, for instance, has set up their own Asia Pacific offices in Hong Kong to manage their retail stores directly instead of relying on its local licencee. Escada and Prada have followed suit. Some brands like Bally, MaxMara, Moschino, Sonia Rykel, Kenzo, Hugo Boss, Jill Sander, Costume National, Agnes B, Fendi, Burberry and Paul Smith still distribute through local agents / licensees; the latter imports the products and operates stand-alone retail shops or shop-in-shop boutiques within department stores. These agents do not distribute their products to other retailers.

Many of Hong Kong's branded apparel licensees / distributors have agreements with their overseas principals to distribute the products and operate retail outlets in China. Some of these agreements provide exclusivity for other Asian countries. Many of the world's top European apparel companies that have set up operations in Hong Kong are also increasing their marketing efforts in China from their Hong Kong base. LVMH, Gucci and Giorgio Armani are some of the world's top luxury fashion companies with Hong Kong offices.
Entering the market through an agent or distributor is an excellent way to minimize the initial investment in the market. Working with agents and distributors in Hong Kong is similar to working with an agent in the United States: the agent takes orders in the supplier's name while distributors act in their own name and may stock products purchased from the manufacturer for resale. The choice depends on the nature of the business and the relationship with which the manufacturer/supplier is most comfortable.
Hong Kong has no special legislation regarding agents and distributors. Virtually anything that both sides can agree to and put into a written contract is acceptable and enforceable, including restrictions on territory and a grace period for termination of the agreement. While not required by Hong Kong law, the more complex the contract, the more helpful legal counsel can be in drafting the text. Items that are often in the contract include: - Discussion of exclusivity and sales territories (always a sensitive issue; business people should be careful about granting an exclusive agency too soon or in too large a territory if the agent is to cover beyond Hong Kong) - Discussion of proprietary information (theft of intellectual property is prohibited by local law, but piracy prevention is always less expensive and more effective than post-facto legal action)
- Levels of sales activity -- set specific targets and goals to qualify for maintaining or renewing the agreement - Time duration
- Payment terms

- Quality control -- inspection -- verification
- Rule of law -- jurisdiction in the USA vs. Hong Kong (generally Hong Kong, but another jurisdiction may
specified -- for arbitration, for example)
- Covenants restricting activity following cancellation of the contract. There are many types of agents and distributors in Hong Kong, ranging from those who simply stock retail stores with standard items to agents who provide sales and after-sales service. It is common for a single company to deal in a wide variety of products in a particular sector. Agents and trading companies may be less specialized than those in the U.S., but the best ones are focused and have contacts in a general line of business. One area of concern to foreign firms is the loyalty of their local representative. U.S. firms complain that upon receiving training, the agent drops them for a competitor's product, taking the client list with them.
To prevent this from happening, the U.S. firm should see the relationship from the agent's viewpoint, and consider the following to maximize the value of their product with minimum bother and expense: a. A major sore point with Hong Kong reps/distributors is that American suppliers often fail to see the difference between business development (marketing) and selling. b. Respect the Hong Kong people's attitude toward time. The pace is very fast, and business deals that take more than 24 hours to complete are too slow for Hong Kong firms and become low priority. Respond immediately to all faxes and phone calls. Response speed will be a major factor in building credibility.
c. Keep in mind that space in Hong Kong is extremely expensive. This affects everything from manufacturing to retailing. For every step of business in Hong Kong, the question that must be answered is "how will the use of this product/service help make money for the Hong Kong agent/distributor?" d. The Hong Kong Government is extremely laissez faire. It has few environmental laws, safety laws, child worker laws, product performance laws, etc. Conclusion: sell on economics, not legislation (as per c above). e. Remember that the Hong Kong agent has many supply sources: Europe, Japan, China, and so on. Also:
- Quote in metric
- Quote on a CIF landed basis - Spell out the state on the business card; include an email address, a fax number with an area code; and add "USA"to every address.
f. Hundreds of American companies, which work with an agent or distributor in Hong Kong, have found these tips useful.
Apart from selling to Hong Kong through a local agent /licensee or marketing directly to apparel retailers, exhibiting at local trade fairs is also another way to enter the market. Exhibitors are sometimes able to successfully locate customers / agents through contacts that they make at trade fairs. The Hong Kong Fashion Week occurs in January and July and is popular with potential licensees / distributors / specialty store owners in Asia. The Hong Kong Trade Development Council, the organizers of the Fashion Week, is expanding the show to include World Boutique featuring international fashion houses from Europe and the U.S. Registration to participate as an exhibitor at the Fashion Week is available at http://fashionweekss.com.
Advertising and Promotion

Manufacturers looking to increase their market share or those new to the market should consider organizingpromotional activities jointly with the department stores during the latter's anniversary sales periods, festive seasons such as Christmas and start of seasons. Some department stores organize bi-annual fashion shows with the shopping malls in which their stores are located to coincide with the start of the spring/summer and autumn/winter seasons. Department stores like Lane Crawford and Hong Kong Seibu also publish in-house catalogues featuring the brands that they carry and these catalogues are mailed directly to their card (VIP, credit card) members.
Local newspapers and magazines publish frequently features of overseas fashion designers. Hong Kong is one of the largest centers in the world for Chinese language publications, with more than 700 publications, including some 45 Chinese newspapers, approximately 693 periodicals, and two, English daily newspapers. Many overseas women's and fashion magazines such as Cosmopolitan, Bazaar and Marie Claire publish their Chinese editions in Hong Kong. Financing

The preferred method of quoting is "CIF landed "and in US$. Local retailers pay their overseas suppliers through letters of credit or telegraphic transfers and bank drafts in the foreign currency the clothing exporter prefers.
In Hong Kong, there is a high level of bank efficiency in providing import payment services. The local currency, the Hong Kong dollar (HK$), is freely convertible and there are no regulations that hamper inward or outward remittance of capital or profits. Currently, the HK$ is pegged at 7.8 to the US$ and has fluctuated little since the inception of the linked rate policy in 1983.

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

$3500 USD
For the 2008 Edition

Published: 2006 August
Market: Mens Womens Childrens
Region: China
Industry: Apparel
Pages: 45
Delivery: 7-12 Business Days
SKU: infre0000275