Dressed for success
The latest news in Vietnam’s fashion market is that Hennes & Mauritz AB (H&M), an international brand known for offering fashion and quality at the best prices in a sustainable manner, will open its first store in the country at a site still to be revealed.
“Vietnam is an interesting market with potential for H&M and we’re confident that our fashion and quality and versatile style offerings will be well received by the customers,” Ms. Elnaz Barari from H&M’s Communications and Press told VET.
H&M is now present in 64 countries with 427 bricks-and-mortar stores.
In 2017, besides Vietnam, H&M will also open outlets in Colombia, Iceland, Kazakhstan, and Georgia. CEO Karl-Johan Persson confirmed the openings on November 30 while also announcing a 7 per cent increase in global sales during the financial year.
Before H&M, the Spanish budget clothing and accessory retailer Zara opened its first and only store to date in Vietnam last September, and the initial hype over the brand is still to die down.
Ms. Ngoc Linh, a customer from Hanoi, was waiting in a queue to buy clothes at the Zara store inside the Vincom Center in District 1, Ho Chi Minh City.
“I like its style; it’s fashionable and prices are reasonable,” she said.
Ms. Linh is now 20 years old and she is just one among the younger generation who believe it’s time for “delicious food, beautiful clothes” instead of “feeding and clothing oneself properly”, like previous generations in Vietnam.
Prior to Zara, many other moderate and budget fashion brands such as Mango, GAP, and Topshop had already landed in Vietnam and are opening new stores on a regular basis.
“Fashion is a multi-billion dollar industry in Vietnam that caters to the young and well-to-do population,” said Mr. Sean T. Ngo, CEO of VF Franchise Consulting.
“The demand for higher quality fashion brands will continue to climb as rising household incomes and a growing middle class boost disposable income levels, increasing opportunities for overall retail spend.”
Fashion brands abound in Vietnam, with many staking out a presence in various categories, from trendy fashion to casual wear, exotic, bohemian, artsy, business, gothic, and rocker, while there are also haute couture brands like Channel, Gucci, Ferragamo, Louis Vuitton, and Burberry, among others.
However, mass market brands continue to dominate the industry, including foreign brands such as Mango, Zara, Gap, Banana Republic, and Marks & Spencer.
It seems only a matter of time before other mass market global brands enter Vietnam, including Japan’s famous Uniqlo.
“There is a shift among Vietnamese consumers, especially in the higher income brackets, towards higher-end and even luxury products, including fashion brands,” said Mr. Ralf Matthaes, Managing Director of Infocus Mekong Research.
He added that, on average, Vietnamese consumers are saving money on such items as daily groceries and other basic essentials but are spending these savings on increasing their personal status, and international fashion fits very much into this spend category.
Appetite for luxury fashion
The number of ultra-high net worth individuals (UHNWI) in Vietnam is predicted to double by 2024 to 300, according to the Knight Frank Wealth Report 2015.
The 159 per cent increase makes Vietnam the country with the fastest growing population of persons with a net worth of more than $30 million, followed by another ASEAN member, Indonesia, with 132 per cent.
Ultra-rich individuals in Asia hold net assets of $5.9 trillion, surpassing even North America’s $5.5 trillion.
Furthermore, the report predicts that cities across Asia will see an increase of 91 per cent in UHNWIs over the next decade.
But not only the uber-rich are on the rise. According to Euromonitor International, more than 100,000 Vietnamese had a disposable annual income of more than $75,000 in 2013.
As in China, the extremely affluent in Vietnam are constantly looking for opportunities not only for investing their money but also to spend it.
As luxury goods enjoy strong cachet in the country of some 90 million people, Vietnam’s expanding middle class is also expected to start joining the shopping spree.
A survey conducted by Nielsen concluded that Vietnam ranks third in the world in terms of fondness for branded goods, surpassed only by China and India.
Moreover, 56 per cent of respondents said they are willing to pay more for designer products than for lesser known brands, despite both having the same functionality.
The market for apparel in Vietnam is predicted to reach $4.2 billion by 2017, according to Euromonitor International’s forecasts.
Among the first high-end fashion brands in Vietnam was France’s Louis Vuitton, and since 1997 many have followed: Dior, Burberry, Ermenegildo Zegna, Bulgari, and Hermes, to name just a few. It was a profitable decision.
The Hermes boutique in Hanoi, opened in 2008, increased its profits by 20 to 30 per cent each year.
Other luxury brands are operating under the franchise model, such as Loewe, Marc Jacobs, Givenchy, and Balenciaga, whose mono brand stores are operated by a single partner.
Early this year, Italian luxury fashion brand Dolce & Gabbana opened its first Vietnam pop-up store, at the Rex Hotel in Ho Chi Minh City.
Designed by Milan-based designers Giovanni Bressana, with red as the theme color, the Dolce & Gabbana pop-up offers the label’s latest women’s collections to Vietnamese shoppers.
The brand has been brought to Vietnam by the IPP Group, which also distributes other luxury brands such as Burberry, Chanel, CK, and Salvatore Ferragamo.
According to Ms. Le Hong Thuy Tien, CEO of IPP, the pop-up store will precede an official flagship store scheduled to open in May.
H&M are yet to announce the location of their first store but look forward to sharing more information in due course.
“Regardless of market, we are always looking for the best location, whether in a shopping street or inside a shopping mall,” said Ms. Barari.
With international fashion brands targeting all ranges of customers - men, women, teenagers, and children alike - and gathering at one single retail area spanning thousands of square meters, such brands have addressed the most important factor, location, according to industry insiders.
Retailers in different industry segments will have different preferences when choosing their store location.
For example, one of the largest fast fashion brands to open its very first flagship store in Ho Chi Minh City sought a prime location and large floor plate of more than 2,000 sq m in total.
They had strong bargaining power, because their brand could attract big numbers of shoppers, which increase sales for the whole shopping center. This led to more flexible rental and commercial terms from property owners.
Another important factor is whether fashion brands at shopping center are in the same or higher segment.
A shopping center that has brands in the same segment will create an exciting and memorable experience for customers.
So far, Hanoi and Ho Chi Minh City are the two biggest cities in terms of significant retail markets.
At the moment, Hanoi’s retail supply is a little higher than its southern counterpart thanks to additional regional retail centers developed by Vingroup.
There is a trend towards large retail centers with an area over 40,000 sq m that provide an under-the-one-roof retail experience, where shoppers can spend all day buying fashion or groceries, enjoying fine dining, or taking part in leisure, spas and other entertainment.
Average rentals at Hanoi shopping centers saw a decline of 7.6 per cent quarter-on-quarter in 2016 due to a fall in non-CBD rental rates.
Lack of supply in the CBD means that new shopping centers opening in decentralized locations will continue in 2017.
New supply will provide at least another 106,000 sq m in non-CBD locations this year, increasing competition, especially for international brands looking to secure a good location.
According to CBRE Vietnam, 17 renowned international brands launched in Ho Chi Minh City in 2016, a three-fold increase against 2015.
Prime location, limited supply, and the participation of many new brands count among factors that sharply increase the retail rental rate.
Industry insiders have also noticed a tendency among new-to-market retailers of not only bringing products and professional, international-standard service but also a fresh retail format, which is the “bricks and clicks” concept.
Online shopping in Vietnam has become more popular with the presence of Zalora, Lazada, Meta, and others, which target the young and middle class, bringing convenience to shoppers with highly-ranked after-sales services.
Moreover, according to Mr. Ngo, as Vietnam still has quite a few limitations when it comes to foreign brands entering on their own, many have either entered the country via the licensing or franchising models.
“Some of the key challenges that international brands and their licensees or franchisees face include high and rising rental costs, insufficient supply of modern retail shopping centers, growing traffic problems due to the rapidly increasing number of motorbikes and motor cars, an absence of an effective mass transportation system like an urban railway system, though these are currently under construction, and, of course, very strong competition from local brands that cater to and attract consumers in the lower-end price range,” he said.
The market is indeed challenging but in the long term foreign international brands see potential in the market based on its Consumer Confidence Index.
According to Infocus Mekong Research’s 2017 Consumer Confidence Index, derived from a survey of 3,200 consumers nationwide, 2017 will see a very slight dip in overall confidence but will still be buoyed by continued consumer spend, with 82 per cent of respondents believing the economy will be either the same or better than in 2016.
Key growth categories include education, dining out/entertainment, personal care and food and beverages.
Main purchases for 2017 should be driven by mobile phones, laptops and motorbikes, indicating larger price tag items becoming key staples of spending power.
Interestingly, much of this spend is being fueled by a reduction in savings, with 53 per cent of respondents saying are saving less each year and, most importantly and alarmingly, are taking out bank loans to fulfil perceived purchase needs.
In 2016, 40 per cent of those surveyed took out loans.
Of these, 42 per cent took out loans for personal items, in which international fashion brands is almost certainly included.
“Thus, as Vietnam continues its upward trajectory, international fashion brands should see a definitive increase in desire and demand, especially among women in urban Vietnam,” Mr. Matthaes concluded.
VN Economic Times