In the US and EU, large-scale clothing retailers are undergoing drastic restructuring and consolidation, in particular, the growing prominence of hypermarkets such as Wal-Mart. To strengthen competitiveness, Sears and Kmart have merged to form the third largest retail group in the US.

Growing Importance of Private Labels:

Private labels, in essence, have become an increasingly effective clothing marketing tool among garment retailers. In order to differentiate as well as upgrade the image of their products, major clothing retailers have started to put a stronger emphasis on their own labels. Private labels accounted for 45% of total US apparel sales in 2003, up from 39% in 2001. In some adult apparel categories, such as skirts, private labels accounted for as high as 76% of the total sales. Renowned clothing retailers such as H&M have owned their private labels. Now the doors are also open to the supply of these clothing items to private label owners.

Growing interest in China's domestic clothing market: The rapid expansion of mainland's economy has attracted great interest of Hong Kong clothing companies to explore the new clothing market. A TDC survey on mainland's garment shoppers indicates that Hong Kong brands are ranked number one by the respondents in the mid-range segment. In addition, Hong Kong companies are very strong in casual wear, as they are generally of good design and quality. Hong Kong's casual wear has successfully projected a positive image to mainland consumers.

CEPA

On 18 October 2005, the mainland and Hong Kong agreed to further liberalize the mainland clothing market for Hong Kong companies under the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III). Along with other products of Hong Kong origin, the mainland agreed to give all products of Hong Kong origin, including clothing items, tariff-free treatment starting from 1 January 2006. But non-Hong Kong made clothing products will remain subject to tariff rates of 10-25% when entering the mainland.

The promulgated rules of origin for clothing items to benefit from CEPA's tariff preference are basically similar to the existing rules governing Hong Kong's exports of these products. Generally speaking, the principal manufacturing process of cut-and-sewn garment is sewing of parts into garments.

If the piece-knitted garment is manufactured from knit-to-shape-panels, the principal process is linking of knit-to-shape panels into garment. If stitching is required, it must also be done in Hong Kong.