Vietnam’s Luxury Market Is Heating Up – The Business of Fashion

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In what was one of the country’s most extravagant luxury fashion events to date, Gucci took over the opera house in April in Vietnam’s commercial capital Ho Chi Minh City. The event lured about 100 VIP clients and celebrities from across the local film and music industries to a private showing of the brand’s Love Parade collection.
Though the glamour quotient kept high society matrons talking about the gala for weeks, business leaders were focused on another aspect of the event that had piqued their curiosity. Vietnam was one of only a few countries in Asia to be chosen by Gucci to host such an event — and the others were mostly larger luxury markets like Japan.
According to some local industry leaders, the Italian company’s decision to prioritise Vietnam will herald greater investment from other brands in the months and years ahead. Others argue that Vietnam merely got bumped up the pecking order because of greater pandemic restrictions elsewhere. Though Gucci remained silent on the matter, if recent luxury market activity in the country is any indication, it is probably more a case of the former than the latter.
One of Vietnam’s biggest fashion distributors, Duy Anh Fashion and Cosmetic (DAFC), added Tiffany & Co. and Montblanc to its portfolio of more than 60 international brands last year, following the return of Christian Louboutin in 2020.
DAFC’s parent company, Imex Pan Pacific Group (IPPG), led by husband-and-wife duo Johnathan Hanh Nguyen and Le Hong Thuy Tien, also signed a business cooperation agreement with the local unit of South Korean luxury retail group Lotte Duty Free in the same year to open a chain of downtown duty-free stores in Hanoi and Da Nang.
GlobalLink, another big luxury distributor in the country which operated mono-brand boutiques for luxury labels such as Balenciaga, Celine, Givenchy, Saint Laurent and Loewe, plans to open a 700 square metre duplex store later this year in Ho Chi Minh City, housing a variety of brands, including Off-White, Ambush and Amiri.
Tran Thi Hoai Anh, GlobalLink’s founder and president, said the new store will occupy the Pham Ngoc Thach Street frontage of Diamond Plaza, adding to her portfolio of multi-brand luxury boutiques, Runway and RRR, which have several locations in both Hanoi and Ho Chi Minh City.
‘Hidden Gem’ Overshadowed by Neighbours
When international brands map out their Southeast Asia expansion strategies, Singapore and Thailand are usually top priorities followed by Malaysia and Indonesia. But Vietnam should no longer be an afterthought, say Vietnam-based industry veterans who contend that the market is underserved.
“After being here for ten years I’ve heard so many people say they believed international brands would not last [long but it’s] … not true,” said Loic Gautier, founder and CEO of Leflair, Vietnam’s e-commerce platform dedicated to luxury goods. Previously, Gautier was the chief growth officer at Maison Retail Group, a distributor of about 20 international brands in the country, including Coach, Dsquared2 and Puma.
The degree to which Vietnam is underserved by global luxury brands is hard to estimate but the gap that exists in an adjacent high-end sector, the premium smartphone market, is revealing. In 2020, Vietnam overtook Thailand as the Southeast Asian country with the highest ownership of iPhones by proportion of population. Yet Apple has not opened a single self-operated store in the country even though it rolled out two and three locations in Thailand and Singapore respectively.
Vietnam International Fashion Week (VIFW) CEO Trang Le with designer Vo Cong Khanh and models in the May 2022 edition. (VIFW)
As Southeast Asia’s undisputed international shopping hub with more than 10 times the number of high-net-worth individual (HNWI) residents (US dollar millionaires) than Vietnam, Singapore is clearly in a different league. But, according to estate agent Knight Frank’s 2021 wealth report, Vietnam already has more wealthy people able to afford luxury goods than Malaysia. And even though Indonesia’s population size is nearly three times bigger than Vietnam’s, it has only marginally more millionaires.
Interestingly, future wealth trends appear to give Vietnam an edge over some of its regional neighbours where luxury brands continue to disproportionately invest. Thailand’s pre-pandemic HNWI tally (32,303) was greater than Vietnam’s (20,645) but the growth rate between 2020 and 2025 of that cohort in Vietnam (32 percent) is forecast to be almost double that of Thailand (16 percent). The gap between Vietnam’s increasingly diverse tourism sector and Thailand’s more advanced travel retail market also has the potential to narrow.
So if the size of the local luxury market is not the issue, then what is preventing some brands from investing more in Vietnam?
Globetrotting Clients Want Greater Choice
One explanation is that Vietnam’s grey market for reselling hand-carried luxury goods is significant, despite the practice being illegal when goods exceed a certain amount. This is one reason some brands have yet to accurately appreciate the demand or penetration for their products in the country, a retail advisor who spoke on the condition of anonymity, recently told local press outlet Phong Vu.
“Let’s say a Chanel bag will cost you more than US$10,000 and there is a difference in price between Singapore, Hong Kong and Vietnam,” Gautier commented. “The cost of flying to Singapore is less than US$100. On top of that, there are larger in-store inventories… and more [choice of] models in Singapore and Hong Kong. That drives consumers to fly overseas to purchase luxury items as opposed to buying them in Vietnam.”
The lack of price harmonisation across markets in the region is exacerbated by Vietnam’s high tax on luxury goods. At a 2020 customs seminar, IPPG’s Nguyen said that European fashion goods entering Vietnam “are subject to a tax of at least 30 percent, not including 10 percent VAT.”
When Covid-19 hit, the hand-carried market supply chain all but disappeared, forcing customers to look at buying from authorised resellers or at self-operated flagship stores in the country. “In Vietnam, [affluent] people couldn’t travel outside the country and had nothing to do with their money, so they kept on spending greatly on luxury goods. And top tier brands have done very well even during Covid-19,” added Gautier.
As international borders are only beginning to slowly reopen, no one can predict the extent to which repatriation of luxury spend back to Vietnam might fall away as both grey market activity and legitimate travel retail resumes.
GlobalLink-owned multi-brand luxury boutique Runway has several branches across Ho Chi Minh City and Hanoi, Vietnam. (GlobalLink)
“I still believe there is a lot of room for distributors to bring in more brands and set up more stores and operate more e-commerce platforms,” Gautier adds.
The European Union–Vietnam Free Trade Agreement (EVFTA) should help stimulate more brands to do just that. The agreement, which took effect in August 2020, saw Vietnam reduce import tax by 65 percent for goods from the EU, with the remainder being removed over a 10-year period.
The Southeast Asian nation was of the few countries to experience GDP gains in 2020, when the world was besieged with Covid-19. Though growth fell marginally last year due to several months of national lockdown resulting from the Delta variant outbreak, the economy is predicted to rebound to 5.5 percent growth this year.
“But like the rest of the world, Vietnam has experienced a difficult time and stagnation during the pandemic, including poorer purchasing power, and lower demand for clothing.”
Since the launch of the economic reform policy called ‘Doi Moi’ in 1986, Vietnam has grown from one of the world’s poorest countries to a middle-income economy. While there is extreme income inequality in the country, “Vietnam… has seen the growth of the middle class in the last few years [which is an increasingly important consumer cohort for luxury goods here],” said GlobalLink’s Tran.
Rapidly Evolving Local Competitors
The longer global luxury brands hesitate to ramp up investment, say insiders, the longer local designer brands have to take market share.
I still believe there is a lot of room for distributors to bring in more brands and set up more stores and operate more e-commerce platforms in Vietnam.
Some Vietnamese fashion designers are gaining popularity not only within their home country but elsewhere. Nguyen Cong Tri, the fashion designer behind the luxury brand Cong Tri, has dressed global celebrities, including Beyoncé and Rihanna. The brand counts three boutiques in Ho Chi Minh City, including a flagship store at Hotel Continental. Meanwhile, the first Vietnamese female designer known to present a collection at New York Fashion Week, Phuong My, has her collection available across 20 countries.
“The advantage for Vietnamese designers is that they can offer customised pieces tailored specially for Vietnamese customers, while most international ready-to-wear luxury brands can’t,” said Trang Le, founder and CEO of Vietnam International Fashion Week (VNIW).
The Spring/Summer 2022 edition of Aquafina Vietnam International Fashion Week, which took place this from May 25 to 29, featured collections from 18 domestic and international fashion houses. Themed ‘ReFashion’, Le said the event aims to reposition Vietnam’s fashion industry as one that is more sustainably minded. Marking the event will be a conference hosted by the founder of Harper’s Bazaar Vietnam’s publisher Sunflower Media and the magazine’s editor-in-chief Venus Tran.
For both the luxury and non-luxury fashion sectors, Vietnam saw tremendous growth in e-commerce channels over the course of the pandemic, with Shopee, Lazada and Tiki as leading players. Local fashion e-commerce start-up Coolmate, which recently completed a $1.1 million fundraising round, said its revenue last year was up 3.5 times compared to the year before, reaching $6 million.
“I know a lot of distributors and companies that have seen their e-commerce share of revenue go from 5 percent to 25-30 percent,” said Gautier.
However, Helen Sac, consultant director of WGSN Asia-Pacific, cautions that the country’s e-commerce facilities “are not very sophisticated and not necessarily set up well to reach the capacity they can have online.”
Decision Lab’s Connected Consumer report suggests 46 per cent of consumers started adopting social commerce around two to five years ago, marking the time frame for a surge in its popularity in Vietnam. Facebook is currently the country’s most popular social-commerce platform, followed by Instagram, and the local chat-based platform Zalo.
Operating in a Complex Business Environment
Vietnam’s reputation as a country with a complex business culture means foreign players have historically found it harder to put down roots than in other countries in the region. Underdeveloped corporate legislation is one of the reasons for the hesitation among foreign companies that wish to enter the country. Ministerial approval of business activities can also be cumbersome in this nominally communist state with sometimes opaque regulations.
Provided a business line is not on the [government’s restricted] negative list, investors are pleasantly surprised at the potential ease of foreign ownership.
“Vietnam’s legal hierarchy of laws, decrees, and resolutions in the past resulted in the slow or ad-hoc implementation of investment laws, whereby there were often gaps when new laws were introduced, and conflicts with old guiding documents that did not match with the new laws. This caused frustration among investors,” said Matthew Lourey, managing partner of Acclime Vietnam, in a recent interview with Vietnam Investment Review.
“However, recent iterations of these laws were released in a manner that … has definitely made investment far smoother.”
Gautier described the market as still having a “challenging bottleneck” for international brands.
“Unlike most developing economies, in Vietnam, the majority of international fashion brands are represented by distributors, with some of them having exclusive rights. That means international brands depend on the ability of the distributors to develop and make the investment to expand their retail footprint, which creates its own set of difficulties sometimes for brands to develop properly in the market.”
As Gautier pointed out, the interest of the brand and the interest of its distributor — who might carry many brands in a portfolio — may at some point diverge.
GlobalLink’s Tran, however, says brands make an informed strategic decision on whether to go it alone or partner with an experienced local distributor. “Top-tier luxury houses like Dior, Louis Vuitton or Gucci as independent operators,, have been successful in Vietnam because they have a lot of legal and financial support to hire a good [local] business team.”
“If brands operate directly with consumers, they must have a workforce that understands the market, employees, management systems and a pathway to enter Vietnam,” she added.
Tran believes global luxury brands in Vietnam are disadvantaged by not yet having access to professional staff training platforms. There is very little formal retail industry training in the country, aside from companies’ own in-house programmes.
However, according to Lourey, the bigger picture for foreign brands is that recent changes in Vietnam’s Law on Investment 2020 have led to an improved business environment with greater certainty.
“Provided a business line is not on the [government’s restricted] negative list, investors are pleasantly surprised at the potential ease of foreign ownership and the expectations of minimum, initial capital in comparison with what a number of regional competitor countries require,” Lourey said. “The ability to have all of the foreign ownership, without the explicit need for a Vietnamese national as a director,” is one of Vietnam’s “significant selling points.”
As the market continues to evolve, he explained, “moving investors away from the traditional joint venture structures that were often required [by local regulators] to a much more competitive and practical approach,” foreign brands are growing “more confident and comfortable with Vietnam as an investment destination.”
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