Consumer Products to Hong Kong

Trends and opportunities

The Market

With virtually no local manufacturing, Hong Kong’s consumer product needs are overwhelmingly met by imports. Hong Kong has a wealthy local population of 7.4 million that is keen to try new products and has high consumption power. With the city’s huge number of consumers from Mainland China, Hong Kong has become a large, high-value and expanding market for Australian consumer products, including beauty and health, fashion, clothing and lifestyle products.

Hong Kong is the leading regional international shopping hub for North Asia. The city offers an attractive retail environment for local customers and overseas visitors due to its zero sales tax and broad diversity of authentic products.

Hong Kong is also a popular travel destination, with more than 58.4 million visitors in 2017. This included over 44.4 million Mainland Chinese, who are significant contributors to the region’s retail market and frequently visit the city to buy cosmetics, clothing, jewellery, watches, handbags and electronics. (Source: Tourism Commission, Tourism Performance 2017)

Hong Kong remains a glamorous shop window for showcasing international brands. It is a significant market and an excellent testing ground for international products entering the region. The city offers an ideal platform for many Australian companies to establish a reputation amongst enthusiastic mainland buyers, building brand equity before tackling the mainland’s complex and costly regulations.

Addition to this, Hong Kong is positioned as a strategic trading centre and sourcing hub for international consumer products in the region. The city has low trade barriers and is accessible to a variety of international goods.

Hong Kong is a small city and it is still convenient to visit retail shops and nearby shopping centres. The large number of tourists from China and the region will continue to support the existence and demand for physical stores. Additionally, shoppers in Hong Kong are less keen to go online to buy what they want.

Hong Kong has traditionally lagged behind other Asian markets when it comes to e-commerce and online shopping. However, the retail landscape has changed in Hong Kong in the last couple of years. E-commerce is consistently growing. Despite the majority of retail sales are still happening in stores, internet retail in Hong Kong maintained a healthy growth in 2017 as sales rose by 10% to HK$15.1 billion (Source: Euromonitor – Internet Retailing in Hong Kong 2017).

Consumer shopping habits have also changed. Today, young customers, especially the post-90s and post-00 generations (so-called Millennials and Generation Z), are the major drivers in the retail market. They favor the convenience, selection, research and price-comparing ability of buying online. Online research becomes a part of their shopping experience. While Hong Kong consumers still regularly visit brick-and-mortar stores, they will continue to research and shop across all channels, both online and offline.

In today’s new digital era, there is a need for O2O (online to offline), as shopping malls compete for visitors by providing customers with more improved and interactive shopping experiences. Both traditional and e-commerce players have actively embraced digital transformation and O2O concepts. The latest digital consumer trends are:

• government support for the development of e-commerce
• meeting the needs of customers
• O2O
• enhancing customers experience
• using technology to facilitate retail and improve operational efficiency.

Opportunities

Beauty Products

The beauty market in Hong Kong is very strong. Hong Kong is the second largest export market for Australia’s beauty products after New Zealand, representing 14 per cent of the total exports. Australian cosmetics exports to Hong Kong grew by 25.8% percent in 2017 to a value of A$109 million. Exports are growing and have more than doubled over the last 5 consecutive years. (Source: Australian Bureau of Statistics on Global Trade Atlas)

Australian cosmetic and skin care products have an international reputation for being safe, environmentally friendly and of high quality. Australia is also recognized as a quality, reliable source of cosmetics, skin care and health products, particularly in the natural and organic skincare categories.

The region’s discerning consumers are becoming more aware of the impact of chemical ingredients and there is demand for natural, organic and safe-to-use skin care products amongst local customers and overseas visitors.

There is untapped demand in the natural and organic products segment and great potential in the following areas:

• baby and child-specific products
• anti-ageing products
• skin-whitening products
• sun-protection products
• natural colour cosmetics and mineral make up
• natural or organic functional hair care products
• men’s grooming products.

While Australian skincare products are perceived as premium quality, the market is extremely competitive. In comparison to similar products or major brand names from other countries, pricing and packaging of Australian brands are often considered weak points.

Fashion and clothing products

As a fashion capital, Hong Kong is a place for original fashion trends and is also a trendsetter in its own right. Hong Kong is the top 4 export market for Australia’s apparel and clothing products, with the total export of apparel and clothing to Hong Kong reaching A$4.4 million in 2017 and a notable growth of 45% (Source: Australian Bureau of Statistics on Global Trade Atlas)

In a market dominated by international brands, it remains very competitive. Local consumers are increasingly concerned with brand image and fashion trends, especially among the 20 to 30 year old demographic which preferences fashion over function. However with the recent economic slowdown, consumption patterns are shifting from premium brands to fast fashion and standard brands. Consumers are more receptive to international fashion labels, especially fast fashion brands which are considered trendy yet affordable.

Outside the fashion segment, Hong Kong status and style conscious consumers continue to demand smart casual clothing, active wear and sportswear.

Australian fashion designers have a growing reputation worldwide for quality and innovative designs. Australian lingerie, ready-to-wear, evening wear, menswear, streetwear and accessories are becoming more established internationally. Australian swimwear and surf wear are often regarded as world market leaders with many well-known brands.

Awareness of Australian fashion is relatively limited in Hong Kong. However, the presence of Australian fashion labels and designers in the city continues to grow. Some well-known Australian high-end fashion labels such as Sass & Bide, Camila Marc, Ellery and Dion Lee are already represented by fashion outlets in Hong Kong. Some active wear and childrenswear brands such as 2XU, Billabong, Quicksilver, Roxy and Seed Heritage have also opened their retail stores in Hong Kong.

Thanks to the opposing seasonal patterns between Australia and Hong Kong, collections that are more trans-seasonal than season-specific can help to increase sales in the Hong Kong market. Additionally, the seasonal half-year lag can be a good opportunity for Australia to analyse and capitalise on trends that have worked commercially in the northern hemisphere.

Hong Kong fashion merchandising buyers and consumers in the high-end market are very brand conscious and require unique and high-quality design with attention to detail. For the middle to casual wear market consumers generally opt for items that offer comfort, functionality and value for money.

Licensing can also be an option in certain markets if suitable partners can be identified. In addition, private label design could be another opportunity in Hong Kong, given local companies’ strong ties to the fashion industry in mainland China.

Retail Technology Products

With the growing digital consumer trend in Hong Kong, retail technology becomes a fast growing and emerging field in the retail space. Currently, disruptive technologies are changing the retail industry in the way retailers and consumers interact, the way consumers’ shopping and brand experience, and subsequently consumers’ expectations.

The combination of disruptive technologies and retail results in what is called smart retail: utilising smart technology and data analytics to give the consumer a greater, faster, safer and all-encompassing experience when shopping.

Hong Kong is an ideal platform for retail tech companies which are looking to grow their business and expand in Asia. As the leading shopping paradise in Asia, and as Hong Kong and Chinese consumers become more tech-savvy with higher expectations for customer service, many Hong Kong retailers and shopping malls are looking to explore different ways to enhance customer experiences.

To boost in-store foot traffic and sales in physical stores, some traditional retailers have also created an innovative in-store shopping experience with the use of digital tools and experiential elements. There are four key areas of disruptive technology identified that we believe will have the biggest impact on retail:

• Artificial Intelligence (AI) - the code and algorithms that give machines the ability to mimic human or cognitive functions. It has been used to identify consumer needs and inform retailers on ways to tailor the shopping experience to customers.
• Augmented Reality & Virtual Reality (AR & VR) - adopted digital technologies and experiential elements to drive in-store and offline traffic and to create interactive shopping and brand experiences such as AI Chatbots.
• Big Data - used to analyse data to generate actionable business insights and strategy for inventory management, pricing, marketing and merchandizing and forecast consumer behaviours and trends.
• Internet of Things (IoT) - integrating new devices and channels into the shopping experience such as sensors, surveillance video data, mobile apps and websites to understand consumer behaviour.

Competitive Environment

Competition is fierce as the Hong Kong market is highly fragmented and saturated with products from a wide array of supplier countries. The cosmetics and skincare market in Hong Kong is still dominated by international and premium brands from France, Japan, Switzerland and the United States. New and niche brands built on ‘natural’ or plant-based ingredients are becoming more popular.

In recent years, the pop culture wave of Korean fashion has intensified the competition in the fashion market. Fast fashion brands from Korea which are trendy yet affordable are dominating the market.

Tariffs, regulations and customs

There are no tariffs in Hong Kong on imported goods including cosmetics, skin care, and fashion and clothing products.

Registration and local labelling are not required on general beauty, cosmetic or cosmeceutical products, unless there are medical or therapeutic claims on the products.

Product labelling can be in English or English-Chinese (bilingual). Traditional Chinese is used in Hong Kong while simplified Chinese is the norm in Mainland China. Traditional Chinese is always recommended in the Hong Kong market. In many cases, it is acceptable to leave the original English label unchanged. An expiry date (though not mandatory) is highly recommended to be printed on the beauty products and/or outer box.

There are also no regulatory requirements for clothing labels. Labels generally contain three pieces of information pertaining to the garment:

1. fiber content
2. country of origin
3. details of the manufacturer, importer or dealer

Garments usually include labels that disclose care instructions for the consumer's benefit.

Marketing your products and services

Market Entry

The most effective way to enter the market is to work with local distributors or agents who normally contribute not only to the sales and marketing, but most importantly to brand-building activities and sustainable development of the brand in the market.

Austrade has launched a video insight to provide Australian beauty companies with first-hand perspectives from experts in the market. This video provides advice on the market entry and marketing tactics to be used in Hong Kong and Mainland China.

For fashion and clothing products, trade fairs and fashion shows remain commonplace for buyers and suppliers. Buying season in Hong Kong is January to March for a September (fall/winter) delivery and July to October for a February (spring/summer) delivery.

Fashion buyers travel to Europe, America and Australia to attend international fashion shows to explore the latest trends and designer brands. Mercedes-Benz Fashion Week Australia and the Melbourne Fashion Festival are major Australian fashion shows selected by buyers from Hong Kong.

Australian fashion houses and designers can also seek to distribute their products through fashion trade events in Hong Kong.

Brand building and PR

Hong Kong is a highly media-influenced market. While traditional television and print advertising are key marketing tools, social media platforms have become extremely popular in Hong Kong.

Consumers can freely access to Facebook, Google, Instagram, Yahoo! and YouTube in Hong Kong. Facebook emerged as the most popular social platform for Hong Kong consumers.

As social media is increasingly popular, using influencers to promote new products is very common and effective in Hong Kong. Some brands use online bloggers, including celebrities and KOLs, who will typically blog about a product and their personal experience of using it. Consumers usually search online for immediate purchasing advice from friends, to post product reviews and to seek product knowledge or advice from influencers.

Australian brands are also advised to appoint a public relations company in Hong Kong to build media profile and coverage for brand-building and growing sales

Pricing structure

The pricing structure for exports to the Hong Kong market is different from the wholesale pricing structure in Australia due to the high overhead costs and margins required at each level (importer, distributor and retailer).

Hong Kong commercial real estate is amongst the most expensive in the world. To cover high rental cost and retail margins for beauty and skincare products, the retail price is normally four to six times the free on board (FOB) price.

A typical distribution channel to consumers involves importers, distributors and finally retailers. However, given the limited size of Hong Kong in terms of both population and geography, importers may also play the role of wholesaler/distributor. Retailers may also import products directly from suppliers, bypassing the need for intermediaries.

In cases where importers pay the equivalent of the Australian ‘wholesale’ price for the goods, the retail price may be double the Australian retail price, which is not generally competitive in this market.

Australian companies are advised to work with agents in Hong Kong, who will work on a 30 to 50 per cent margin and with significantly more for the retailer. As a general rule, imported Australian products are usually sold at nine to ten times the ex-factory price. Buyers often make purchase decisions by comparing pricing to other similar brands/products already sold in the market.

Australian suppliers should take the above structure into consideration when shaping their price strategy for the competitive Hong Kong market. They should remain flexible and negotiable on the pricing structure in order to increase their price competitiveness.

Distribution channels

Beauty products

The major retail distribution channels for beauty products include:

• Department stores which normally stock international, high-end and branded products
• Beauty specialist retailers (for all price ranges) that are still selling parallel-imported brand name products, but are progressively seeking new product lines to reduce their parallel imports
• Personal care chain stores (combined with pharmacies) which are mainly for middle and mass-market products. There are over 400 of these stores and typically demand high listing fees and a 35 to 50 per cent retail margin
• Multi-brand stores that are for middle to high-end ranges. They may also play the role of importers and distributors to import products directly from suppliers.
• Supermarket chains stocking low-end/mass products and have a tendency towards private labels
• Concept shops that are standalone brand stores offering experiential aspects to consumer (e.g. Australian skincare brands Aesop, Jurlique and Anumi )
• B2C e-commerce platforms and the development of O2O and cross border e-commerce platforms for imported goods

To help more Australian companies understand the distribution channels in the cosmetic sector, Austrade has produced a list of Hong Kong health and beauty retail stores .

Fashion and clothing products

Specialty apparel retailers remain the major distribution channel. Medium to high-priced fashion labels are usually sold in renowned department stores. Department stores predominantly stock established overseas brands that have a successful track record in Hong Kong.

Some well-known high-end fashion labels are represented by multi-brand stores in Hong Kong:

• Bauhaus
• Harvey Nichols
• I.T
• Joyce
• Lane Crawford
• SWANK
• TWIST

Online and catalogue retailing is becoming more popular due to high commercial rental costs.

Importers and retailers in Hong Kong will often seek exclusivity to secure brand/product uniqueness and avoid price competition, given the relatively small market size.

Trade events

• Cosmoprof Asia – the largest and most definitive beauty trade event in Asia Pacific.
  Natural and Organic Products Asia – Asia’s most established natural and organic products exhibition.
• HKTDC Hong Kong Fashion Week for Fall/Winter – Asia’s leading fashion event.
• HKTDC Hong Kong Fashion Week for Spring/Summer
• StartmeupHK Festival 2019 – Retail’s Cutting Edge by Inside Retail.

Links and industry contacts

The Cosmetic & Perfumery Association of Hong Kong
Clothing Industry Training Authority (CITA)
Hong Kong Apparel Society Limited
Hong Kong Fashion Designers Association
Hong Kong Intimate Apparel Industries’ Association (HKIAIA)
Hong Kong Research Institute of Textiles and Apparel (HKRITA)

Government, business and trade

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

• develop international markets
• win productive foreign direct investment
• promote international education
• strengthen Australia's tourism industry
• seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.