RESEARCH REPORT ON by tyndale

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									RESEARCH REPORT

        ON

COSMETICS SECTOR

  IN HONG KONG




 Prepared by ICE HK
      June 2005


        -1-
Table of Content

1.0   An Overview

1.1   General outlook of Hong Kong Economy and Local Cosmetics Sector

1.2   Product Features and Trends

1.3   Regulations and Technical Requirements

      1.31    Definition of Cosmetic Product
      1.32    General Import Regulations
      1.33    Regulations on Beauty Salon Equipment

1.4   Industry Forecast

2.0   Impact on Cosmetics Market After China’s Accession to the WTO

2.1   Import tariff rates in China

3.0   Marketing Strategies

3.1   Price Analysis
3.2   Promotion
3.3   Distribution
3.4   Quality Control

4.0   Trade

4.1   Figures of the sector and principal products
4.2   Trading activities with Italy
4.3   Performance of Italian products in the market

5.0   Prominent Chain Stores in the Industry

5.1   Sa Sa Cosmetics
5.2   Bonjour Cosmetics
5.3   Rainbow Cosmetic
5.4   Angel Cosmetics

6.0   A Day in Hong Kong - Major Retailers in a Glance

7.0   Suggestions for Italian Companies




                                     -2-
1.0   An Overview

1.1   General economic outlook of the sector


Hong Kong’s position as one of the world’s most important economic centres is
based on several factors. It is located midway between Japan and Singapore,
and it lies astride the main shipping and air routes of the western Pacific. It has
always served as a major port of entry and trade for foreign investments in
China. On top of that, Hong Kong has a well-established legal system of
international trade and arbitration, a taxation schedule that is much lenient than
other major countries in the world. All these elements succeed in providing a
favourable atmosphere for business to flourish. With Hong Kong officially united
with the mainland on 1 July 1997, economy suffered as a result of the crash of
property market as well as the stock market.

The Hong Kong economy, following a distinct slow-down in 2001, revived
progressively under the impetus of external sectors over the course of 2002.
Exports of goods and services picked up visibly while there was a broad-based
surge in inbound tourism, offshore trade and transportation services.

In the domestic economy, total value of retail sales in December 2004 increased
by 8.8% in value to US$2.3 billion and 7.8% in volume over last year. According
to key findings from “The Shopometer Survey” conducted by the Hong Kong
Retail Management Association and Synovate, consumer confidence level in
Hong Kong’s overall economy has improved to a level similar to August 2003.
About 56% respondents in February 2004 believed that the Hong Kong economy
would improve in the near future. Consumers were more willing to spend.
Amongst the top three categories of personal expenses were dining
out/entertainment (20%), grocery shopping (19%), and investment/savings
(18%).

In the fourth quarter of 2004, the Gross Domestic Product (GDP) increased by
7.1% in real terms over a year earlier, recorded a 0.6% growth in real terms
compared with the same period in 2003. For the whole year in 2004, GDP
registered an 8.1% increase over 2003. Total imports and exports for 2004 also
reached a record double-digit growth of 14.1% and 15.3%. Private Consumption
Expenditure (PCE) increased by 6.7% over 2003. GDP forecast for 2005 is
around 4.5% - 5.5% in real terms.

General retail climate has been flamboyant in 2004 after a rebounce from the
cautious economic environment that caused consumers to scale back on buying
in 2002 and 2003. Nevertheless, trade figures reflected that general cosmetic
products have attained satisfactory performance during these two years, showing
their recession-proof capability. Import value for general cosmetic products (HS
33 and 34) imported to Hong Kong in 2004 reached US$1,544.54 million, an
increase of 15.4% when compared to the previous year. Balancing the desire for
unique, self-pampering goods with a reduced budget has caused consumers to
                                       -3-
turn to less costly specialty cosmetic shops (of which we will discuss some
important names in the latter part of the research). According to industry
professionals, these dual needs have placed smaller-ticket luxury items in a
unique position: consumers are spending money on new fragrances or lipsticks
regardless of their financial situations, they will forego the desire to own a new
car or designer handbag and reach out for more affordable gratifying items like
cosmetic products in bad times.

In recent years, specialty stores have been largely responsible for growth in the
cosmetics and toiletries industry. These stores, led by Sasa Cosmetics, Bonjour
Cosmetics, Rainbow Cosmetic and Angel Cosmetics, characterised by a
constant influx of new and innovative products from around the world as well as
an extensive product line, user-friendly personnel that encourage the testing of
products in stores.

In Hong Kong, most companies in the cosmetics industry are traders who act as
agents of international cosmetics brands, distributing to various markets such as
the Chinese mainland, United States, Macau, Japan, European Union and South
East Asian markets, while a small percentage of companies are manufacturers
who concentrate their production on lower-priced toiletries and perfumes, and
sell eventually in Southeast Asia and United States under their own brands.


Number of Companies in the Cosmetics Industry in Hong Kong

                                Manufacturing        Import / Export Trade

No. of Establishments           57 (Sep 2003)        1,213 (Dec 2002)

Employment                      458 (Sep 2003)       6,143 (Dec 2002)
Source: Hong Kong Census & Statistics Department




                                               -4-
1.2   Product Features and Trends

Cosmetics tend to have shorter life cycles than many other consumer goods.
Colour and shades play an important role in this industry, and these elements are
heavily influenced by fashion trends, tastes and seasonal moods. It is important
for manufacturers to offer a wide selection of colour tones in each season.

The latest trend for cosmetic products is the application of natural resources as
natural ingredients. Embryonic essence has enjoyed its popularity in the
mainland as well as Hong Kong, but this fad has subsided.

Laser treatments and Intense Pulsed Light (IPL) technology have also been
widely used in recent years. IPL helps to improve the appearance of photoaged
skin, removes age spots (sun-induced freckles), brown pigments and redness
caused by broken capillaries through a process called photorejuvenation for face
and body. The nature of IPL is gentle and sub-surface skin problems can be
treated gradually with reduced side effects and a limited downtime. The latest
breakthrough is LED (Light Emitting Diodes) light therapy which enhances
cellular metabolism, speeds up repair cycle of damaged skin cells and stimulates
production of collagen.

Slimming products and services enjoy a long share’s in Hong Kong with multi-
million promotion campaign on sponsorships, print advertisements, banners and
TV commercials. According to a recent study by ACNielsen in August 2003,
women aged 15 to 34 and men over 45 fall into the prime target group of weight
loss programmes and slimming products. A wide range of products and small
appliances are available in the market such as slimming cream, gel, soap etc
offered by some international cosmetic brand names; apparel like trimming
underwear, pants, shorts and waist band; food like slimming tea, diet pills, fibre
pills and meal replacement drinks; equipments like mini-stepper, abdominal
exercise apparatus and waist belt as well as massage machines and electrical
muscle stimulating machines. Local weight loss centre, Sau San Tong operates
four slimming centres in Hong Kong, was successfully listed on the Growth
Enterprise Market in 2003 (Stock code 8200). Net profit for the fiscal year ended
March was HK$31 million (US$3.97 million).

Spa facilities with a relaxing ambience have gained its momentum recently in
Hong Kong. Centres offering a wide range of aromatic treatments similar to its
counterparts in Thailand have succeeded in attracting many consumers to stay
locally.

The aging population is driving the recent surge in "cosmeceuticals," products
that combine cosmetics with vitamins, herbs, and sometimes pharmaceuticals.
Drugstore shelves are lined with vitamin-C lotions and tea tree oil-infused
cleansers. Many of these medicinal beauty products focus on anti-aging skin
care function. Cosmetics containing aloe vera have emerged as favourites, with
encouraging sales of aloe vera essence, cleansing milk and shampoo products.
The aloe vera ingredient, hailed as a "natural beautician" and a "botanical
                                       -5-
doctor", has been extensively used in medical and beauty treatments as well as
in healthcare products worldwide.

With the rising popularity of aromatic treatment, many leading cosmetic
companies have introduced new aromatic product lines. Moreover, the market of
fragrance-enriched bathing gel and body lotion has enjoyed significant growth in
recent years.

Customized products are also increasingly popular. Consumers are no longer
satisfied with ready-to-use cosmetics, and cosmetic companies satisfy their
needs for "personal branding" by offering personalized moisturizers and
shampoos, as well as personalized colour cosmetics such as do-it-yourself
lipstick.

Women are placing more and more demands on the multi-functional aspects of
the product they buy. For example, a lipstick needs to do more than just applying
colour and is expected to contain both sun block and a sulphur neutralizer to
combat bad breath. Similarly, a foundation should not only conceal imperfections,
but also improve skin tone and tighten pores.

While many women insist on applying sun care cosmetics and products with UV
protection on their faces in order to have a fair complexion, many busy urban
people resort to beauty salons instead for skin tanning using phototherapy.

Men are paying more attention to their appearance. Male grooming products
make a significant growth in these several years, contributed 11% increase in
value compared 2003 to 2002. Branding is becoming more important in the
men's category of cosmetics and toiletries products, especially for skin care,
cleanse, shave, hair products and fragrance products. Many young men now
consider fragrance as daily care product.

In general, moisturizers, whitening and sun block, as well as eye care products
are highly competitive in the local market. Cosmetic products such as lipsticks,
nail lacquers, brush and eye shadows are also high on demand.             Local
consumers will not hesitate to spend a fortune on professional salon products
which are more exclusive and guaranteed to incorporate the latest technology of
the sector.




                                      -6-
1.3    Regulations and Technical Requirements

HKSAR is a free port and Hong Kong government levies no tariffs on general
imports. However, there is duty on liquors, tobacco, hydrocarbon oil and methyl
alcohol. This is prepaid by the seller and included in the retail price, so it often
goes unnoticed. In addition, a steep tax called "First Registration Tax," which
ranges from 40-60% of the retail price, is levied on new car purchases. Duties
on these goods raise revenue for the general administration and for development
projects, while at the same time help to keep general tax levels low. At the
moment, the government has no intention to introduce neither value-added tax
nor consumption tax.

For the case of re-export, companies re-exporting products going to China via
Hong Kong are required to pay Chinese duties and taxes. Under the basic Sino-
UK agreement, Hong Kong and China are separate customs territories. Products
entering either customs territory from the other are treated as foreign products
and face the applicable duties and taxes. As for the regulations concerning
cosmetics sector in Hong Kong, below are the definition of cosmetic product in
Hong Kong and some of the general import regulations:


1.31   Definition of Cosmetic Product:

“Any preparation designed to improve, beautify and generally increase the
attractiveness of a person by external application, including any preparation
which:

is, or purports to be, for skin or hair care, including any cream, emulsion, gel,
lotion, powder, spray or liquid;
is, or purports to be, a make-up for beautification, including any powder, lipstick,
eye make-up., rouge, or preparation for manicure;
promotes, or purports to promote, good grooming or fastidiousness, including
any talcum powder, deodorant, depilatory, antiperspirant, suntan product or a salt
or foam for the bath;
 is, or purports to be, a fragrance, including any cologne, sachet, perfume, scent,
toilet water or essential oil, but excluding any preparation which is a soap, liquid
soap, toothpaste or shampoo for hair and scallop cleansing, unless such
preparation purports to be any of the preparations referred to in paragraph a), b),
c) or d)”.

Products such as anti-dandruff, anti-caries and anti-plaque are considered as
drugs.




                                         -7-
1.32   General Import Regulations

       •     No import license is required.
       •     No pre-marketing approval of the product is required
       •     No specific regulations on packaging materials
       •     No specific regulations on labelling. But warning statements are
             required for consumer goods which could be unsafe in certain
             circumstances. For anti-dandruff, anti-caries, and anti-plaque
             products, the following information is required on the label: product
             name, Ingredients, name and address of the manufacturer or
             representative, warning statements, the name of the ‘Poison’
             (substance included in the list of the Pharmacy and Poisons
             Regulations), the percentage of the ‘Poison’, and the name and
             address of the seller of the ‘Poison’.
       •     No positive or negative list of the restriction on ingredients.
             Ingredients allowed in United States, European Union and Japan
             are permitted for use.


1.33   Regulations on Beauty Salon Laser Devices

At present, there is no law to regulate cosmetic service operators on the safety
and proper use of lasers or high energy light-beams in skin treatments. More
than 20 complaints were launched against laser treatment and 26 cases against
Intensed Pulsed Light (IPL) were received by The Consumer Council in 2003.

Improper and careless use of IPL treatments and laser procedures could cause
blistering, burns, alteration of skin colour and scars. The government is keen on
imposing legislation to put lasers and similar devices in a “medium high risk”
category for medical devices and to require beauty salons, clinics and hospitals
to reach safety and training standards.




                                      -8-
1.4    Industry Trend Forecast

Due to rising overheads in Hong Kong, domestic production of cosmetics and
toiletries is not significant and usually concentrated on low-end product category.
Manufacturers are now seeking offshore production facilities in Mainland China
and Southeast Asian countries such as Thailand, Indonesia and the Philippines.

The global cosmetics market, especially the upper-end, has long been dominated
by the international famous brands such as Lancome, Guerlain, Max Factor,
Estee Lauder, Elizabeth Arden, Clinique and Shisheido. These are major players
in the industry, providing a wide variety of products that target to the different age
segment in the market. Their brand names and images are well positioned
internationally. With Hong Kong following closely the overseas trend, foreign
products are highly receptive here as in other parts of the world. Brands with a
whitening line that cater for the special needs of the Asian women will enjoy more
success. As the top-tier market is predominated by French and Japanese
products, new Italian brands are not easy to penetrate into the market.

OEM production is not common in the local market due to the strict requirements
on quality control and confidentiality of the formula of the products. Most
distributors will directly import the end products from their overseas
manufacturers and suppliers. Recently, some international suppliers have
reached licensing agreements with supermodels or fashion brands to develop
fragrances and cosmetic products. In addition to Chanel, Dior and Yves Saint
Laurent, an increasing number of famous fashion brands have diversified into
cosmetic products under their own brands such as Armani, Prada, Versace etc.

Targeting the growing young consumer market, a number of second-line brands
have made in-roads into the market in recent years, making the overall market
more diversify and competitive. In particular, children's skin care products will
become increasingly popular as developments in this area have been minimal
and even joint venture enterprises, such as Johnson & Johnson and Zwitsal,
cannot fully meet consumer needs.

There is a rising trend of Hong Kong companies exploring the Chinese mainland
market. Due to the rising affluence and increased concern on physical
appearance of consumers in the mainland, the potential of China's cosmetics and
toiletries market is strong, especially for medium to high-end cosmetics brands
and toiletries products. Cosmetics market in China is highly brand-oriented, with
the top 10 brands accounting for two-thirds of the market. Some international
brands have set up joint ventures in China in order to penetrate this lucrative
market. Around 4,500 cosmetics manufacturers are found in China, of which 700
are either foreign-invested or partly owned. Aupres, launched by a joint venture
with Shiseido in Beijing in 1994, has become the fastest-growing brand name in
China. Procter & Gamble (P&G), the American consumer-goods giant,
experienced a remarkable sales growth in Pantene, Rejoice and Olay.



                                        -9-
2.0   Impact on Cosmetics Market after China’s Accession to the WTO

China’s cosmetic market rose to approximately 85 billion yuan (over US$10
billion) in 2004, posing as Asia’s number 2 market right after Japan in terms of
value.

A major target of most Hong Kong manufacturers and traders is the lucrative
Chinese market. As a result of the rising income of mainland consumers and
their increased concern over physical appearance, the growth potential of
China's cosmetics and toiletries market is very big. According to Sinomonitor, a
market research firm, sales of cosmetics and skin care products have grown at
an average rate of 26 percent annually in the past ten years. Industry sources
also estimate future expansion to be around 13% in the next 5 years.

China’s entry to the World Trade Organization (WTO) will have a tremendous
impact on its fast-growing cosmetics industry, putting pressure on domestic
brands and the government to rewrite regulations, according to a recent article by
Reuters.

China has agreed to phase out geographic restrictions for foreign retailers after
WTO entry. Among rules to be phased out are Chinese government licenses for
domestic and foreign cosmetics makers, requiring them to present results of tests
on animals of their products, a practice already banned in many countries.

The opening up of the Chinese market will benefit foreign cosmetics brands.
Import tariffs in 2004 are stipulated between 14.2% and 19.2%, to be further
reduced to a final range of 6.5% -15%. Hong Kong companies, qualified under
the country-of-origin requirement of The Mainland and Hong Kong Closer
Economic Partnership Arrangement (CEPA), will be exempted from import tariffs.
At present, foreign brands, including imports and products sold by foreign-
invested companies in China, already make up 40% of the domestic market.

Leading domestic manufacturers insist they can outperform foreign competitors
in the US$10 billion market by seeking for expansion through acquisition as well
as re-organizing the sales and distribution systems. Currently, there are over
3,000 brands of skin care products in China.




                                      - 10 -
2.1   Import tariff rates in China:

Under The Mainland and Hong Kong Closer Economic Partnership Arrangement
(CEPA), local manufacturing of cosmetics and toiletries qualified under the
country-of-origin rule in 5 HS codes defined by the China Customs is eligible to
import into China free of tariffs:

 HS codes      Description        Tariff       Tariff    Tariff      CEPA
                                  Rates        Rates     Rates       Rate
                                  (2003)       (2004)    (2005)
 33030000      Perfumes and       18.3%        14.2%     10%         0%
               toilet waters
 33041000      Lip make-up        18.3%        14.2%     10%         0%
               preparations
 33042000      Eye make-up        18.3%        14.2%     10%         0%
               preparations
 33043000      Manicure or        21.7%        18.3%     15%         0%
               pedicure
               preparations
 33049900      Other beauty or    22.3%        19.2%     16%         0%
               make-up
               preparations

The Chinese government applies high tariff rates on imported cosmetic products.
Under CEPA, Hong Kong manufacturers can ship their merchandise into the
mainland market on zero tariff. Hong Kong companies involve in wholesale,
commission agents’ services, retail and external trade are allowed to conduct
business in China on a wholly-owned basis, and except retail trade that is
confined to the Guangdong Province, there is no geographic restrictions for
wholesale, commission agent’s services and external trade. At present, only joint
venture companies and manufacturers engaged in the wholesale operation of
their own products manufactured in the mainland are entitled in wholesale
operation. With China’s accession to the WTO, import tariffs of cosmetics and
toiletries products will be gradually reduced to 6.5% -15%.




                                      - 11 -
3.0     Marketing Strategies

3.1     Price Analysis

In Hong Kong, cosmetics and perfumery products are mostly sold (on shelves or
at individual brand’s signature counter) in department stores, supermarkets,
drugstores, and specialty cosmetics shops. Even though parallel imports of the
cosmetic products sold at specialty shops like Sa Sa, Bonjour etc offer a good
discount, individual brand’s signature counters can still attract consumers as they
have a more complete product selection and can provide professional skin care
and cosmetic advice.

Sa Sa and Bonjour market their range of cosmetics and toiletries products with
price listing in their web sites. Sa Sa took one step forward to e-commerce by
accepting orders and payment on-line. Below is a price comparison table which
highlights products of some popular brand names and their selling prices in Hong
Kong:


Brand            Product                     Regular       Price         Difference
                                             Price         offered by    in %
                                             (HK$/US$)     Sa Sa
                                                           (HK$/US$)
Christian Dior   PURE POISON                 480 / 61,53   336 / 43,07   30% less
                 Eau de Parfum Natural
                 Spray (50ml)
Elizabeth        CERAMIDE                    495 / 63,46   396 / 50,76   20% less
Arden            Advanced Time Complex
                 Capsules (60 capsules)
SK-II            De-Wrinkle Active (For 700 / 89,74        595 / 76,28   15% less
                 Mature Skin) (25g)
Biotherm         D-STRESS               260 / 33,33        195 / 25      25% less
                 Anti-Fatigue   Eye   Care
                 (15ml)
Chanel           PRECISION               350 / 44,87       280 / 35,89   20% less
                 Anti-Puffiness/Dark
                 Circle    Eye    Lotion
                 (15ml)
Clarins          After Sun Moisturizer 190 / 24,35         133 / 17,05   30% less
                 Anti-Mosquito Formula
                 (15ml)
Decleor          Comforting              380 / 48,71       304 / 38,97   20% less
                 Concentrate (15ml)


Chain stores in Hong Kong are able to maintain competitiveness through their
capability in sourcing the best price globally. Buyers succeed to negotiate a


                                       - 12 -
good deal based on the fast turnover of the merchandise and a long-term
relationship with their vendors.

3.2   Promotion

Promotion via participation in trade fairs is an effective way for suppliers and
importers of cosmetics and toiletries to explore market opportunities. Important
trade fairs in Hong Kong include Beauty & Fitness Expo (June) and Cosmoprof
Asia (November).

Meanwhile, marketing strategy of some importers of cosmetic products is to use
the Internet as a tool to communicate with their consumers on product news and
seasonal promotions. Internet shopping in Hong Kong is not as popular as in
United States.

Most local consumers are motivated to buy during special promotions and sales
period. Ordering on-line does not represent a high percentage of the sales
volume. A recent usability walkthrough of some "product and service" pages
confirmed that on-line ordering was rated very low. Shopping is one of the major
social activities, combined with the need of physical contact with the products;
customer services; security and proximity to stores are the main reasons why
Hong Kong consumers have not picked up the habit to shop on-line. Consumers
also worry about the security of the credit card transactions through Internet.

In addition to traditional marketing channels, Internet is the fastest growing
medium for advertising messages and promotion. Many consumers visit on-line
shopping sites to obtain product information.

Meanwhile, Japanese cosmetics brand Shiseido has launched its first Beauty
Centre in Causeway Bay, one of the trendiest districts in Hong Kong. Occupying
a space of 5,600 sq. ft., this Beauty Centre, unlike what others have expected,
does not offer any retail sales. Rather its aim is on image building and to provide
beauty tips and advices for members and non-members, thus leading to eventual
increased awareness and sales of its products. Inside the beauty centre, there
are seven rooms for providing consultancy service on the art of skin care and
cosmetics. There is also a cultural hall that exhibits the history of Shiseido.




                                       - 13 -
3.3   Distribution

Cosmetics and toiletries are usually sold by import agents and sole distributors to
department stores, supermarkets, specialty retail stores as well as beauty salons,
spas and professional beauty schools.

Sa Sa spearheaded the development of “one-stop shop” selling a wide range of
bargain-priced cosmetics and toiletries to local consumers and tourists. This
marketing concept has been so successful that many others include Bonjour
Cosmetics, Rainbow Cosmetic and Angel Cosmetics follow suit.

Direct marketing is also popular in the Asian region, except the Chinese
mainland, which has issued regulations to limit direct marketing. Besides,
Internet marketing grows at a fast pace in the region, although actual sales are
not substantial at the moment.

3.4   Quality Control

International Standards Organization, a Geneva-based organization that was
established in 1987, has developed a framework of quality criteria that governs
and regulates the standards of product quality. This set of guidelines is known as
ISO system and is widely adopted globally.

The ISO system is very popular among the manufacturing and the servicing
sectors in Hong Kong. As most suppliers are producing lower-priced cosmetics
and fragrances under their brand names, many of them do not see the rush to
meet international quality standards as their utmost concern. Among the
importers we have interviewed with, a special department or unit that is
responsible for quality control does not exist. Most interviewees, in general, are
satisfied with the quality standard of the imported cosmetics and toiletries
products; as a result no additional control measures are used. However, due to
the growing quality consciousness of overseas buyers, many exporting
companies have strengthened their quality assurance systems by adopting the
ISO international scheme. Products exporting to Hong Kong need to conform to
a certain international standard quality.




                                       - 14 -
4.0              Trade

4.1              Figures of the sector and principal products

For the whole year of 2004, Hong Kong has imported an amount of US$843.41
million worth of Perfume/Toilet water, Beauty products, and Haircare products
from other countries around the world (Table 7).

Among different products in the cosmetics category, Hong Kong imported the
most skin care and make-up preparations products, followed by perfumes/toilet
waters, and haircare products (Table 8-10).


Table 1

Trend for Hong Kong’s Importation of Cosmetic and Related Products from
                Around the World (Jan – Dec 1999 – 2004)
                900


                800


                700


                600
  US$ Million




                500


                400


                300


                200


                100


                 0
                         1999         2000             2001              2002             2003             2004

                                Beauty Products (HS 3304)

                                Perfume and Toilet Waters (HS 3303)

                                Haircare Products (HS 3305)

                                Perfume/ Toilet water, Beauty products, Haircare products (HS3303, 3304, 3305)




                                                         - 15 -
  Major Suppliers

  China was the largest supplying country by contributing 22.3% to the total
  imports, reaching US$345.15 million in 2004, represented a 4.1% increase over
  2003. Seconded by France, with a total value of US$271.83 million and 17.6% of
  market share; Japan overtook United States in 2004 with US$222.76 million
  (14.42%) and United States trailed behind with US$204.90 million (14.21%)
  (Table 6). These figures, however, do not necessarily suggest that China-made
  cosmetic products are particularly popular in Hong Kong. In fact, Japanese
  cosmetic products catered to the Asian consumers are very well received in
  Hong Kong.

  In terms of exporting countries of general cosmetic products (HS33 & 34), China
  ranked top, accounting for 32.2% of Hong Kong's total exports in 2004. Total
  export value to the mainland registered an increase of 9.7%, reaching the value
  of US$284.23 million when compared with 2003 (Table 12).

  In general, the majority of Hong Kong's exports are of re-exports, accounting for
  about more than 91% of the total. Most of the imports/exports are conducted by
  trading firms acting as agents of international brands (mostly French and
  Japanese cosmetics and fragrance) targeting the Chinese mainland market in
  particular.


  Table 2

                  Hong Kong Imports of General Cosmetic Products
                              (value: US$) (HS 33 & 34) (Jan-Dec)



                                                                                                %
                                      Millions of US$                      % Share
                                                                                              Change
Rank    Country                  2002          2003        2004    2002      2003    2004     - 04/03 -

    0   --The World--         1175.22      1338.44       1544.54     100       100     100        15.4
    1   China                  270.30       331.54        345.15      23     24.77   22.35         4.1
    2   France                 173.40       202.36        271.83   14.76     15.12    17.6       34.33
    3   Japan                  169.40       182.97        222.76   14.41     13.67   14.42       21.75
    4   United States          166.99       191.12        204.90   14.21     14.28   13.27        7.21
    5   Germany                 48.49        58.31         69.14    4.13      4.36    4.48       18.59
    6   United Kingdom          42.51        50.19         62.80    3.62      3.75    4.07       25.14
    7   Singapore               31.32        31.04         48.78    2.67      2.32    3.16       57.17
    8   Taiwan                  33.98        35.64         47.87    2.89      2.66      3.1      34.29
    9   Italy                   32.46        33.89         36.45    2.76      2.53    2.36        7.54
   10   Switzerland              0.00        26.89         35.06       0      2.01    2.27       30.39
  Source: Hong Kong Census and Statistics Department




                                                - 16 -
  Table 3

                                       Hong Kong Exports of General Cosmetics Products
                                             (value: US$) (HS 33 & 34) (Jan –Dec)


                                                                                                                   %
                                                        Millions of US$                       % Share
                                                                                                                 Change
Rank                         Country                2002       2003           2004    2002      2003    2004     - 04/03 -

   0                         --The World--         683.33     782.29         881.42     100      100      100        12.67
   1                         China                 213.33     259.11         284.24   31.22    33.12    32.25          9.7
   2                         United States         179.93     205.18         227.33   26.33    26.23    25.79        10.79
   3                         Macau                  35.83      44.99          54.98    5.24     5.75     6.24         22.2
   4                         Japan                  29.67      43.33          54.01    4.34     5.54     6.13        24.66
   5                         United Kingdom         28.77      31.13          48.27    4.21     3.98     5.48        55.07
   6                         Taiwan                 25.95      27.27          23.69     3.8     3.49     2.69       -13.12
   7                         Singapore              15.63      15.56          21.64    2.29     1.99     2.46        39.06
   8                         Korea, South           20.88      20.61          19.30    3.06     2.63     2.19        -6.33
   9                         Thailand               23.54      26.88          18.33    3.44     3.44     2.08       -31.83
  19                         Italy                   3.55       3.92           5.24    0.52       0.5      0.6       33.57
  Source: Hong Kong Census and Statistics Department




  Table 4


                             Trade Figures of Perfumes and Toilet Waters (HS3303) in Hong Kong
                                                   Jan – Dec, 2002 – 2004

                              180.00
                              160.00
                              140.00
    Millions of US Dollars




                                                                                                           2002
                              120.00
                              100.00                                                                       2003
                               80.00
                               60.00                                                                       2004
                               40.00
                               20.00
                                0.00
                                          Import        Re-export       Domestic      Total Export
                                                                         Export

  Source: Hong Kong Census and Statistics Department
                                                                    - 17 -
Table 5


                                   Trade Figures of Skincare Products (HS3304) in Hong Kong
                                                      Jan-Dec, 2002 – 2004

                                600.00

                                500.00
 Millions of US Dollars




                                                                                                 2002
                                400.00
                                                                                                 2003
                                300.00

                                200.00                                                           2004

                                100.00

                                  0.00
                                            Import     Re-export       Domestic   Total Export
                                                                        Export

Source: Hong Kong Census and Statistics Department


Table 6

                                        Trade Figures of Hair Products (HS3305) in Hong Kong
                                                         Jan-Dec, 2002-2004

                                90.00
                                80.00
                                70.00
       Millions of US Dollars




                                                                                                 2002
                                60.00
                                50.00                                                            2003
                                40.00
                                30.00                                                            2004
                                20.00
                                10.00
                                 0.00
                                            Import    Re-export       Domestic    Total Export
                                                                       Export

Source: Hong Kong Census and Statistics Department

                                                                   - 18 -
4.2                 Trading activities with Italy


Table 7

                          Hong Kong's Total Imports of Cosmetics and Related Products
                                       from Italy (Jan-Dec, 2000-2004 )
                    $35
                                                                        Perfume/Toilet water, Beauty
                    $30                                                 Product, Haircare Products (HS
                                                                        3303, 3304, 3305)

                    $25
                                                                        Perfume & Toilet Water (HS 3303)
      million USD




                    $20

                    $15                                                 Beauty Products (HS 3304)

                    $10

                                                                        Haircare Products (HS 3305)
                    $5

                    $0
                          2000     2001     2002       2003   2004



Source: Hong Kong Census and Statistics Department



The performance of Italian products in the cosmetics sector has been steady
since 2000. Although minor decline was registered from 2000 to 2001, the total
imported values for all three categories (HS 3303, 3304 & 3305) have enjoyed an
upward trend as a whole from 1997 until 2002. As discussed in the previous
sections, branded Italian products carry an intrinsic image of high quality and
advanced technology. There is a high propensity among local consumers and
tourists from Mainland China to choose these higher-ticket items than other cost
convenient cosmetic products




                                                    - 19 -
  4.3     Performance of Italian products in the market

  From January to December of 2004, Italy ranked seventh by exporting US$28.99
  million of Perfume/ Toilet water, Beauty products, Hair preparations (HS3303,
  3304, 3305) to the Hong Kong market, reflecting an increase of 8.7% compared
  with figures from the previous year and contributing 3.4% to the total imports of
  this category against 4.1% in 2003 (Table 7).

  According to the figure provided by the Hong Kong Census and Statistics
  Department, Italy exports more perfumes and toilet waters (HS3303) to Hong
  Kong compared with beauty products and hair products. For 2004, Italy has
  exported US$17.05 million worth of perfumes and toilet waters (10.1% of the total
  imports of perfumery products) to Hong Kong, making Italy the third largest
  supplier to the local market after France and United States (Table 8).

  As for the importation of beauty products (make-up and skincare products)
  (HS3304) to Hong Kong, Italy ranked twelfth among other countries by exporting
  US$9.40 million worth of products, which contributed 1.6% to the total imports of
  skin-care and make-up products for the year of 2004. Imports from Italy
  rebounced 3.6% from a decline of 1.7% registered in 2003 (Table 9).

  Meanwhile, importation of Italian hair products in 2004 remained steady with a
  slight decline of 0.1%. Italy ranked sixth by supplying around US$2.55 million
  worth of hair products (HS3305) in this period, contributing 2.8% to the total
  importation of this category (Table 10).

  Table 8
          Hong Kong Imports of Perfumery/ Toilet waters, Beauty Products,
                                Hair Preparations
                         (value: US$) (HS 3303, 3304, 3305) (Jan-Dec)

                                                                                             %
                                   Millions of US$                    % Share
                                                                                           Change
Rank    Country                2002        2003            2004   2002    2003     2004    - 04/03 -

   0    --The World--        549.50      648.70        843.41       100     100      100      30.01
   1    France               149.05      180.65        251.65     27.13   27.85    29.84       39.3
   2    Japan                110.89      109.59        133.35     20.18   16.89    15.81      21.69
   3    China                 63.32       97.58        122.84     11.52   15.04    14.56      25.88
   4    United States         70.29       84.82         97.24     12.79   13.08    11.53      14.64
   5    United Kingdom        15.53       22.43         32.19      2.83    3.46     3.82      43.53
   6    Switzerland            0.00       21.39         29.80         0      3.3    3.53      39.29
   7    Italy                 25.89       26.65         28.99      4.71    4.11     3.44       8.77
   8    Germany               16.57       21.52         21.64      3.02    3.32     2.57       0.56
   9    Singapore              8.25        7.71         21.39       1.5    1.19     2.54     177.33
  10    Taiwan                12.45       12.57         20.49      2.27    1.94     2.43      62.98
  Source: Hong Kong Census and Statistics Department

                                                  - 20 -
  Table 9

                  Hong Kong’s Imports of Perfume and Toilet Waters
                                (value: US$) (HS 3303) (Jan-Dec)

                                                                                                %
                                    Millions of US$                        % Share
                                                                                              Change
Rank   Country                 2002          2003         2004    2002       2003    2004     - 04/03 -

   0   --The World--           97.67       119.28        168.36     100       100      100       41.15
   1   France                  51.56        62.03         91.54   52.79     52.01    54.37       47.56
   2   United States           11.82        13.13         20.66    12.1     11.01    12.27       57.35
   3   Italy                   14.32        15.03         17.05   14.66      12.6    10.13        13.4
   4   Netherlands              2.34         4.68          7.59    2.39      3.92     4.51       62.18
   5   Germany                  5.22         6.47          5.53    5.34      5.42     3.29      -14.43
   6   Switzerland              0.00         3.64          5.17       0      3.05     3.07       42.08
   7   United Kingdom           2.68         4.14          4.66    2.75      3.47     2.77       12.66
   8   Taiwan                   0.05         0.65          3.91    0.05      0.54     2.32      505.22
   9   Singapore                1.75         0.68          3.72    1.79      0.57     2.21       450.9
  10   Spain                    0.87         1.02          2.41    0.89      0.85     1.43      136.11
  Source: Hong Kong Census and Statistics Department




  Table 10
                        Hong Kong’s Imports of Beauty Products
                          (make-up and skincare preparations)
                                (value: US$) (HS 3304) (Jan-Dec)

                                                                                                %
                                    Millions of US$                        % Share
                                                                                              Change
Rank   Country                 2002          2003         2004    2002       2003    2004     - 04/03 -

   0   --The World--         372.80        446.64        585.79     100       100      100       31.16
   1   France                 96.03        115.85        157.67   25.76     25.94    26.92        36.1
   2   Japan                  93.90         92.10        113.41   25.19     20.62    19.36       23.14
   3   China                  41.60         66.85         89.79   11.16     14.97    15.33       34.32
   4   United States          44.36         60.38         66.66    11.9     13.52    11.38        10.4
   5   United Kingdom         10.57         16.76         25.01    2.84      3.75     4.27       49.24
   6   Switzerland             0.00         17.56         24.41        0     3.93     4.17       38.94
   7   Singapore               5.76          6.44         16.64    1.55      1.44     2.84      158.24
   8   Korea, South            6.68          8.64         14.78    1.79      1.94     2.52       70.99
   9   Thailand                6.72          8.12         11.93      1.8     1.82     2.04       46.86
  12   Italy                   9.23          9.07          9.40    2.48      2.03       1.6        3.6
  Source: Hong Kong Census and Statistics Department


                                                - 21 -
  Table 11

                          Hong Kong’s Imports of Hair Products
                                (value: US$) (HS 3305) (Jan-Dec)

                                                                                              %
                                    Millions of US$                       % Share
                                                                                            Change
Rank   Country                 2002          2003         2004    2002      2003    2004    - 04/03 -

   0   --The World--           79.02        82.79         89.26     100      100      100        7.81
   1   China                   20.21        27.58         31.33   25.58    33.32     35.1       13.57
   2   Japan                   16.22        16.17         18.22   20.53    19.53    20.41        12.7
   3   United States           14.12        11.31          9.92   17.87    13.66    11.11      -12.29
   4   Taiwan                   4.25         4.04          5.01    5.38     4.88     5.61       23.89
   5   Germany                  3.00         4.26          4.71    3.79     5.14     5.28       10.63
   6   Italy                    2.34         2.55          2.55    2.96     3.08     2.85       -0.13
   7   United Kingdom           2.28         1.54          2.53    2.89     1.86     2.83       64.25
   8   France                   1.45         2.77          2.44    1.84     3.35     2.73      -11.93
   9   Thailand                 5.81         3.42          2.36    7.36     4.13     2.64      -31.17
  10   Australia                3.16         2.66          2.12       4     3.22     2.37      -20.48
  Source: Hong Kong Census and Statistics Department


  Table 12

        Hong Kong’s Imports of Soap/ Washing/ Lubricating Preparations
                                 (value: US$) (HS 34) (Jan-Dec)

                                                                                              %
                                    Millions of US$                       % Share
                                                                                            Change
Rank   Country                 2002          2003         2004    2002      2003    2004    - 04/03 -

   0   --The World--         326.27        376.80        422.40     100      100      100       12.1
   1   China                 116.94        128.86        125.79   35.84     34.2    29.78      -2.39
   2   Japan                  41.94         58.05         74.15   12.86    15.41    17.55      27.72
   3   United States          62.92         65.13         70.13   19.28    17.29     16.6       7.66
   4   Germany                15.07         17.77         27.61    4.62     4.72     6.54      55.34
   5   Taiwan                 16.04         18.78         23.79    4.92     4.98     5.63      26.69
   6   Malaysia               14.11         18.56         18.65    4.33     4.93     4.41       0.45
   7   Singapore              10.44         10.96         13.11     3.2     2.91      3.1      19.63
   8   United Kingdom         10.94         11.66         12.81    3.35     3.09     3.03        9.9
   9   Korea, South            7.44          7.54          8.91    2.28        2     2.11      18.19
  10   Italy                   5.56          6.18          6.17    1.71     1.64     1.46      -0.23
  Source: Hong Kong Census and Statistics Department




                                                - 22 -
5.0   Prominent Chain Stores in the Industry

With the implementation of Individual Visit Scheme, a surge of mainland tourists
arrive at Hong Kong for major shopping spree. One of the most favourable
purchasing items is cosmetics. Today, if you take a stroll along the designated
pedestrian zone along the Sai Yeung Choi Street South in Mongkok, you will be
surprised by the number of cosmetics chain stores that have opened in recent
years. The fact that local cosmetics market serves also a huge influx of tourists
coming from nearby Asian countries like Mainland China, Taiwan, Singapore etc,
shows that it can withstand any economy setbacks. Keen competitions are found
among prominent cosmetics chain stores such as Sa Sa, Bonjour, Rainbow and
Angel cosmetics. Not only are they important players in the retail cosmetics
industry, but they may act also as potential agents for Italian companies who
want to enter the local market.

5.1   Sa Sa Cosmetics

Sa Sa’s brand strength in Asia comes from innovative cosmetics retailing at
competitive prices in more than 70 one-stop shops. Around 45 retail stores are
found in Hong Kong as of June 2005, and others are scattering in Macau,
Singapore, Malaysia, and Taiwan. Headquartered in Hong Kong, Sa Sa has
been listed in Hong Kong Stock Exchange since 1997. Sa Sa sells more than
600 brands and 22,000 products including cosmetics, fragrances, hair and skin
care products as well as private labels and products with exclusive distribution
rights. Sa Sa’s market leadership reflects a dynamic global purchasing strategy
and a retailing formula based on choice and convenience. Sales turnover of the
company for the fiscal year ended March 2005 reached HK$2.31 billion (US$0.29
billion), an increase of 22.9% over the preceding year and of which over 80%
comes from retail and wholesale turnover in Hong Kong and Macau. Net profit
rose 43.4% to HK$216.6 million (US$27.76 million).

Sa Sa has just opened its first wholly-owned store of around 4.000 sq. ft. in
Shanghai in March 2005 and has made projection to open 100 stores in China in
the next 5 years. At the end of the fiscal year 2003, Sa Sa Ebeca, the Group's
subsidiary in the PRC market, was operating 162 retail counters in over 40 cities
across the PRC. Sa Sa Ebeca assisted the Group in obtaining product approvals
for its exclusive products and provided valuable information that will spearhead
the Group's expansion into China.

5.2    Bonjour Cosmetics

Established in 1991, the Bonjour Group operates 24 retail cosmetics shops and 5
beauty salons in Hong Kong as of December 2004 and remains to be the second
largest cosmetic retailer in the territory. Like Sa Sa, Bonjour’s strength lies in
carrying a wide selection of cosmetics, fragrances, skin care and hair products at
discounted prices together with four private labels and four exclusively distributed
brands. Their management believes that bargained cosmetic products have a
huge potential with local consumers and mainland tourists, and that is the major
                                       - 23 -
reason why Bonjour Cosmetics continues to allocate a high percentage of
resources to promotion and advertising every week in their website and print
media to highlight their special discounted items. Bonjour card, collaboration
between Bonjour Cosmetics and Dah Sing Bank, is a credit card which offers
discount when customers buy from Bonjour stores. Bonjour Cosmetics has been
listed in Hong Kong Stock Exchange since July 2003, net profit ended December
2004 measures over HK$57.46 million (US$7.36 million).

5.3    Rainbow Cosmetic

Shortly after it was established in April 1997, Rainbow Group has succeeded to
get listed in the stock exchange since October 2001. Rainbow engages primarily
in retail and wholesale business of skin care products; fragrances and cosmetics;
hair care and personal care products and accessories as well as the
development of a private label, Nutrilpus. Rainbow has 8 retail outlets and 3
beauty salons in Hong Kong and a wholesale operation. Net profit of the group
ended October 2004 registered HK$13.96 million (US$1.78 million).

5.4    Angel Cosmetics

Established in 1981, Angel Cosmetics operates a total of around 30 retail shops,
beauty salons and spas in Hong Kong and Macau. Management of the group
believes that different marketing strategies should be applied to different districts
and targeted consumers. In Mongkok, a convenient shopping district for locals
and tourists, merchandise are stocked up in paper boxes. This way, consumers
are lured to think that there must be a closing down sale and would buy more on
impulse. Angel Cosmetics group also owns another sister company which
specializes in wholesaling of cosmetic products. According to a company’s
spokesman, their corporate clients include Sa Sa and Bonjour as well.




                                       - 24 -
6.0   A Day in Hong Kong - Major Retailers in a Glance

If Italian business associates are to visit Hong Kong major retailers in one day,
our suggestion would be to spend the day time browsing the three most popular
shopping districts on Hong Kong Island: Central, Admiralty and Causeway Bay,
then go to Kowloon to take a stroll in the Mongkok shopping area as night falls.
All of these areas can be easily accessed by the convenient network of the Mass
Transit Railway (MTR) System.

In Central and Admiralty, dozens of luxury stores are located at The Landmark,
Pacific Place and IFC mall respectively. Some of these stores carry cosmetic
products of their own labels, while others act as agents for international brand
names. To examine the popularity of individual labels’ signature counters, one
should definitely visit Sogo department stores. Prominent cosmetics counters on
the ground floor at Sogo includes Sisley, Guerlain, Borghese, Ipsa, Kose, CK &
Armanis, Shiseido, Clinique, YSL Perfume, Lancome, Estee Lauder, Clarins,
Mac, and Sofina. Some niche and upcoming European, American and Australian
cosmetic products can be found at Joyce Beauty, a subsidiary of Joyce Boutique.

After visiting Hong Kong side, one can travel to Mongkok in the evening by MTR
(exit at D2 at Mongkok station). The Sai Yeung Choi Street in Mongkok is the
hub for many cosmetics chain stores such as SA SA Cosmetics, Bonjour
Cosmetics, Rainbow Cosmetic and Angel Cosmetics. These shops are operated
in a more “local” style, in which one would often see bargain products put in
paper boxes at the front of the store.

Useful Links:       www.mtr.com.hk
                    www.pacificplace.com.hk
                    www.centralhk.com
                    www.ifc.com.hk
                    www.sogo.com.hk
                    www.timessquare.com.hk




                                      - 25 -
7.0   Suggestions for Italian Companies

Some importers of Italian cosmetic products have criticized that Italian
companies are too “laid back” and cannot keep up with the fast pace of the Hong
Kong market. This is especially the case in the month of August when many of
the correspondence sent from Hong Kong are left unanswered for a long time. If
Italian companies have keen interest in developing the Asia Pacific market, they
would then need to adjust to the fast-moving environment such as Japan and
Hong Kong. Prerequisites in doing business with Hong Kong companies are
quick response and to maintain a close track on the changing product trends.

While many importers in Hong Kong source their products from catalogues
provided by suppliers, it is essential that Italian companies should take the
initiative to send out product samples to the interested parties. Products that
attain a high quality standard and a reasonable price will certainly attract more
importers to place order. Letter of credit (L/C) is the most common payment
method, though payment term for individual transaction may vary.

Another way to increase exposure in the local scene is to urge agents to promote
the products by advertising and circulating product news in beauty magazines in
order to create awareness among local consumers and corporate clients. In
addition to the specific industry publications, lifestyle and fashion magazines with
a high pass-on readership such as Next Magazine and Ming Pao Weekly can be
effective vehicles to channel promotional messages across the readers.

In general, Italian companies interested in expanding the local market should be
prompt to react as well as to work closely with the local importers and be ready to
help when problems arise.




                                      -END-




                                       - 26 -

								
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