Luxury Market in Vietnam An emerging market in prospect

MBA PART TIME: LUXURY BRANDS MARKETING AND MANAGEMENT ISC Paris Session of 2010- 2011 Authored by: Hai Anh TO NGUYEN THI Advised by: Mr Michel CHEVALIER

Table of Contents I.

EXECUTIVE SUMMARY ................................................................................................................. 4

II.

INTRODUCTION ........................................................................................................................... 8

III. WHERE IS VIETNAM LUXURY MARKET’S POSITION AMONG SOUTH EAST ASIA COUNTRIES .............................................................................................................................................. 9 South East Asia markets overview .......................................................................................................... 9 A growing zone ..................................................................................................................................... 10 Luxury consumers of South East Asia countries .................................................................................. 10 Potentiality, Opportunities, Threats by market ..................................................................................... 12 1.

Indonesia: An economy in stabilizing stage ............................................................................... 12

2.

Malaysia: An attractive destination for luxuries ........................................................................ 13

3.

Singapore: Switzerland of Asia .................................................................................................. 14

4.

Thailand ...................................................................................................................................... 14

5.

Brunei ......................................................................................................................................... 15

6.

Vietnam ...................................................................................................................................... 16

Markets Mapping .................................................................................................................................. 17 IV.

VIETNAM LUXURY MARKET OVERVIEW ............................................................................. 1

Economic Overview ................................................................................................................................ 1 1.

High annual growth rate ............................................................................................................... 1

2.

An internationally open economy ................................................................................................ 2

3.

Increasing numbers of Private Enterprise .................................................................................... 4

4.

Foreign Direct Investment (FDI) is surging ................................................................................. 4

5.

Highest Inflation rate in Asia ....................................................................................................... 5

7.

Corruption .................................................................................................................................... 7

8.

Other Rankings ............................................................................................................................. 8

Demographic: .......................................................................................................................................... 9 1.

A young and active population..................................................................................................... 9

2.

Urbanization trend ...................................................................................................................... 10

SWOT Analysis of Vietnam Luxury Market ........................................................................................ 13 V.

IS VIETNAM A PROPRITARY / POTENTIAL MARKET? ...................................................... 14

Emergence of new wealthy class in sufficient number to constitute a sustainable market ................... 14 Consolidation of middle class (monthly income of more than US$ 435) and emergence of wealthy class ................................................................................................................................................... 14

Emergence in demands for luxury goods: Establishment of a society of consumption and effervescence of luxury market. ............................................................................................................ 15 1.

The fancy for luxury goods of young people ............................................................................. 16

2.

A new trend : The demand for more sophisticated products...................................................... 16

Vietnamese Luxury Consumers: ........................................................................................................... 17 Profile of Vietnamese luxury goods consumers : .............................................................................. 18 The conspicuous mode of consumption (or Status Consumption)........................................................ 19 VI.

HOW TO DEVELOP LUXURY MARKET IN VIETNAM ........................................................ 20

Luxury market outlook by sector .......................................................................................................... 20 1.

Cosmetics and Perfume .............................................................................................................. 20

2.

Prêt-a-porter, Lingerie ................................................................................................................ 23

3.

Leather and Accessories ............................................................................................................. 24

4.

Jewelry, Watch ........................................................................................................................... 25

5.

Home equipment and Real Estate .............................................................................................. 26

6.

Entertainment (Golf, Spa) .......................................................................................................... 26

Distribution............................................................................................................................................ 26 1.

General characteristics of luxury goods distribution in Vietnam ............................................... 26

2.

Chosing the right distribution system......................................................................................... 28

3.

Rapid development of distributors/ importers............................................................................ 29

4.

Insufficient commercial surfaces adapted for luxury distribution ............................................. 30

5.

Locations in Ho Chi Minh City and Hanoi for luxury retailing ................................................. 31

6.

Retail Market Updates for 2011 ................................................................................................. 35

7.

Renting price of a corner or a boutique ...................................................................................... 38

Marketing and Communication ............................................................................................................. 39 1.

Magazines................................................................................................................................... 39

2.

Advertising, Media ..................................................................................................................... 39

Constraints............................................................................................................................................. 40

VII.

1.

Counterfeit market...................................................................................................................... 40

2.

Uncompetitive price due to heavy taxes and tariffs ................................................................... 41 RECOMMENDATIONS ............................................................................................................... 41

Products: ................................................................................................................................................ 41 Place: ..................................................................................................................................................... 42 Promotions: ........................................................................................................................................... 42

VIII.

REFERENCES ........................................................................................................................... 43

 ................................................................................................................................................................. 45

I.

EXECUTIVE SUMMARY

In the first part of this paper, a comparison of Vietnamese luxury market has been carried out with an overview

and consumption habits analysis of the South East Asia markets which are

geographically near to Vietnam. Today’s luxury landscape in Asia has changed significantly with the emerging of new potentialities. Being the late comers behind the mature market such as Japan, South Korea and China, South East Asian countries present promising opportunites for luxury brands with the rapid economic growth. Despite the low GDP per capita compared to other developed countries, the living standards in those countries are improving dramatically with a client limited but elitist with different demand from mature luxury markets to satisty. The studied countries in this report (Indonesia, Malaysia, Singapore, Brunei, Thailand, and Vietnam), although being geographically closed, the markets are different in term of maturity, culture, and customer behaviors. The dynamism of each market differs depending on the stage of development. However, there is a clear evidence of long-term potentiality for luxury in both local markets that need heavy initial investment but low payback, and in travel retail zones. Luxury consumers of South East Asia countries have always been avid for luxury goods and they are having increasing disposed income to satisfy their needs. Regarding consumption habits, it is common in those markets that the purchasing of luxuries is not only a lifestyle but more importantly, is a way to demonstrate the social status. As the result, seeking for a conspicuous aspect still is an undeniable stimulator in purchasing decision. What distinguishes Asian luxury customers from Westerns’ is a different hierarchy of needs. The Western counterparts want to feel good about themselves, hence, they seeks for brands whose products make them feel at ease and comfortable. On the other hand, the highest need in Asian culture is status. Although some behaviors may differ from one country to another, the status seeking is particularly important. With a modern consumption trend, the consumers in emerging countries are becoming highly selective. Higher price used to be allocated with higher quality but consumers are now spending

wiser with more requirements for specialty and uniqueness. They are also more knowledgeable with all the information available for brand comparison, those affluent consumers are now demanding. Among South East Asia countries, Vietnam luxury market is the newest. The pionner in the region was Singapore. Being late compared to Hong Kong, Singapore discovered real luxury consumption. International luxury brands penetrated the market since the 70s and most of the important names have already implanted. Luxury in Malaysia made its first steps during the years of 1980 in the big commercial galleries in luxury hotels but the market took it real first motion at the middle of the 1990s . Analysts believe that the Malaysian market presents a strong potentiality for both local and tourist consumptions. Next was Thailand, the luxury market made it first steps during the 1980s with the arrival of Louis Vuitton. the luxury market not only depends on the economic growth but also the politic stability. the country often experiences politics crisis that causes the slowdowns in luxury market over the whole country. The first luxury products appeared in Jakarta – Indonesia in the early 1990s, when the development of the sector was very difficult due to products from contraband market. Indonesia is a developing country where the population which is tempted by the consumption is becoming more important. The luxury market of Brunei is still limited du to the small population but the amount spent on luxuries are substantials. Even if some luxury brands have entered the Vietnamese market since years but the real trend of luxury products consumption is extremely recent, started from 2006. Since then, the luxury market enjoys outstanding development with the introduction of numerous brands The second part tempts to analayze different dimensions of luxury market in Vietnam based on its economy development and demographic factors. Vietnam is the Asian country that is considered one of the fastest growing economies in the world, after China and even greater than India. For the period of 1998 - 2003, its average GDP has progressed around 6.8% and increased up to 8% during 2004-2007 with slight slowing from 2008 to now. From 1986, the Vietnamese economy benefices from a new politic of “Doi Moi” (Renewal), leading to continuous movements of opening and liberation. This allowed the country to integrate progressively to international exchanges and to develop an economy sorely internationalized degree of openness of 168% in 2007. After joining WTO, powerful economic development and improved standards of living have changed the consumption trend among Vietnamese people. Numerous of luxury brands that could not enter to the market just some years ago due to the lack of adequate distribution channels are now available in the market, offering the consumers with larger product

choices. The embrace of private enterprise increase favor the apparition of many entrepreneurs, benefit from the rapid growth of the country to become nouveaux riches. Similar to China, investment is crucial for driving the economic growth performance. Foreign Direct Investment poured into Vietnam is not as high as China but higher in most of other neighboring countries. However, the country is facing an accelerating inflation has forced the government to apply tightened monetary policy that causes difficulties to businesses. After joining WTO, the Vietnamese government has significantly decreased the imported custom tariff for many product categories. However, the barrier of entry for luxury goods into the Vietnam market is still very high. Besides, the Ministry of Industry and Trade activated on the 16 May 2011 new restrictions on the import of certain luxury goods. The high level of custom duty, especially for luxury goods, continues to favor the development of contraband with neighbor countries of Vietnam From a demographic point of view, the luxury potentiality in Vietnam relies on a very young population with a median age of just 25. The young society is promising for a long-term investment as people are open to change and often quite entrepreneurially minded. The high percentage of young consumers would be a critical factor helping Vietnam to stand out among emerging retail market, including China, India, or Russia. Vietnamese consumers can have greater access to international brands information research thanks to its openness to foreign influence and good English proficiency, and are more receptive to foreign brands’ communications messages. The enrichment of the country benefits firstly the citizens and the high-income groups. A clear urbanization trend is noticed with an increasing apparition of wealthy class in major cities who are the main consumers for luxuries. In 2010, Vietnam has imported $5.7 billion of luxury goods, illustrating an emergence in demands for luxury goods and. The penetration of foreign brands into the Vietnamese market is relatively recent and making a fast-developed market. Nouveaux riches are showing their desire to expose their new social status with demand for more sophisticated products: the qualification of luxuries is no longer based only on price. Vietnamese consumers, particularly those who belong to middle and upper classes, are modifying their habits. Their profile can be described as well educated, updated to the technology, prudent and respectful to the traditional, optimistic, and festive. Promising opportunities for foreign companies are clearly shown offering luxury products to Vietnamese market since high level of Status Consumption is displayed

The third part concentrates on the question for foreign brands of how to successfully enter market by using proper distribution channels and communication strategies. An outlook of market by sector gives a general understanding of the current development state of different sectors in Vietnam. The cosmetics sector in Vietnam is still developing and the main difficulty of luxury cosmetics brands in Vietnam is the competition of a wide range of uncontrolled fake, mislabeled, and smuggled products. The demands for luxury reade-to-wear used to be very limited in Vietnam. Thanks to the development of adapted commercial surface, as well as the apparition of leisure activities (clubs, bars, opera…) consumers started to spend more for luxury clothes. Leather sector is in full expansion with numerous distributors who chose to invest for luxury accessories However, shoes market stay undevelloped for both males and females. The vietnamese jewelry is still remain very traditional in both fabrication and design. Luxury home decoration sector in Vietnam face a real concurrence with local brands. There is an actual revolution of distribution in Vietnam. The distribution sector started to be completely open to foreign investors, who can own 100% capital of their boutique, or any distribution structure. , logistic is certainly one of the most delicate problem in Vietnam, notably in land transportation. From 2006, the acceleration of luxury brands’ implantation to Vietnam is clearly seen. The retailing sector is going through a period with tremendous changes with the apparition of a luxury market. Most of foreign brands choose to firstly enter the market via a local distributor or importers. The number of enterprises active in the luxury sectors has been increased considerably in the period of 2005-2006, notably in the fashion-related fields. There is a lack of adapted commercial surface for luxury distribution. The Vietnamese real estate market is actually characterized by a profound shortage of offerings, the undertaken of numerous construction site and the extremely high prices. Prime retail rents in Vietnam is quite high compared to South East Asia neighbours, even higher than Malina and Bangkok. According to the international real estate service provider Savills Vietnam, the high rent in the city center is a big challenge for current and future retailers. Luxury brands have a large choice of communication means to to communicate their brand images. Nowardays, the apparition of Vietnamese version of internation high-end fashion magazines such as Elle, Harper’s Bazaar and other lifestyle magazines such as Cosmopolitan, Her World have greatly improve the dynamism of communication channels. Used to be practically inexistent at the early 1990s in Vietnam advertising means are also more diversified, covering all the Media types,

including television, radio, press, displays, and Internet. Only some weaknesses still exist in urban displays, which is still low-structured. Finally, the two main constraints of the luxury market in Vietnam were counterfeit products and uncompetitive price due to heavy tariffs and taxes.

II.

INTRODUCTION

Vietnam has experienced a tormented history, with war and territorial conflicts – some remain unsolved, like the recent conflicts about South East Asia Sea with China. However, the extraordinary dynamism of the country is again writing a history. This country is well known about its beautiful landscapes, the historical monuments dated from the imperial periods, and the architecture inherited from French colonization. But nowadays, Vietnam distinguishes itself by one of the country having the fastest economy growth rate after China and even greater than India. And the luxury market, as a result benefit from a strong growing demands with the expanding of population who has high disposal income. According to CPP Luxury Industry Management Consultants, Vietnam is among the fastest growing luxury markets worldwide. Vietnam has become a country of records: record of young population (50% of the population are under 22 years old), and most importantly, the record of the growth rate with the GDP of more than +7.5% over the last decade. Also, the FDI (Foreign Direct Investment) is in exponential increase (14 billion Euros in 2007) and the exportation rate is (+22.6% in 2007) (Ubifrance, 2010) This is clearly a tangible sign, not only from a voluntary of a nation to come out of the poverty, but also a political voluntary affirmed the integration to the world’s development. In a country where just 20 years ago, people still walked on flip-flops cut from old tires, a Gucci beach sandals of $365 can come as a shock. Displays of wealth used to be frowned in Vietnam when the government wanted to take the assets of the wealthy to redistribute to the poor. Since the late 1980s with the introduction of free market, foreign investors started to come to Vietnam bringing with them a Western styles and attitudes, making a growing market in every sector, including luxury goods. How can Louis Vuitton market a $3,500 handbag in a nation where the annual per capita income is just over $800? This paper is going to analyze the luxury market in Vietnam in details by considering different dimensions in order to evaluate whether promising opportunities and forsesable prospect are truly present in the market.

III. WHERE IS VIETNAM LUXURY MARKET’S POSITION AMONG SOUTH EAST ASIA COUNTRIES South East Asia markets overview Consumers in Asia have always been avid to luxury goods. In early years, it was the image of Tokyo’s Ginza district, Hong Kong’s Causeway bay or Singapore’s

Orchard

Road.

Today’s

luxury

landscape in Asia has changed dramatically, with the development of new emerging paradises. Being left behind for a long time with the success of luxury markets in Japan, South Korea, China, and India, the South East Asia countries evoke nowadays-strong countries

studied

desire in

for this

luxuries. report

If

the

(Indonesia,

Malaysia, Singapore, Brunei, Thailand and Vietnam) cannot compare with the two giant emerging Asian markets China and India in term of market size, those countries however, offer interesting opportunities for luxury products. Although the market is not as mature as some countries to the others, the growth rates are significant, giving the opportunities to grasp in all the countries in the area. China is not the only country enjoying rapid economic growth: The World Bank raised its 2010 growth forecast for the South East Asia countries by from 7.3% to 8.9% from 2009, showing a strong potentiality of the market. 

An area with more than 400 million of inhabitants and a luxury market estimated of one billion euros (2007).



Although being geographically closed, the studied countries’ markets are different in market maturity, culture, and customer behaviors. The dynamism of each market differs depending on the stage of development.



The luxury markets are currently concentrated to only the capitals: Kuala Lumpur, Jakarta, Singapore, and Bangkok. Exceptionally, in Vietnam with two big cities, whereas Ho Chi Minh City being the commercial center enjoys a greater market development and opportunity compared to the capital – administrative center.



According to professional in the sector, Malaysia and Vietnam would represent the most important growth rate for luxury products in the next five years (Ubifrance, 2007).

A growing zone There is an important potentiality in South East Asia countries. Despite a low GDP per capita, which is increasing dramatically, the market is potential with a targeted customer more limited, elitist and with different demands from mature markets. This market would clearly offer a long-term potentiality in both local market that need heavy initial investment but low payback, and in travel retail zones. Indonesia

Malaysia

Singapore

Brunei

GDP per capita 2010

4,394

14,670

56,522

GDP projected for 2016

8,295

19,886

GDP Growth rate 2010

4.5

Income share held by highest 10% (2007)

29%

Philippine

Thailand

Vietnam

48,892 3,737

9,187

3,134

65,953

51,108 4,852

14,657

7,817

-1.7

-1.3

-1.79

1.1

3.7

5.3

38%

33%

34.2%

34%

30%

10 8

Vietnam

6

Singapore Brunei

4

Thailand 2

Malaysia Indonesia

0 2004

2005

2006

2007

2008

2009

2010

Philippine

-2

Growth rate

-4

Luxury consumers of South East Asia countries 

The consumers are the more and more disposed to purchase luxury goods



They are largely sensible to luxury by the numerous marketing and advertising campaigns, the word-of-mouth plays also a fundamental role. It is essential for consumers to be the firsts to purchase one product, or to have the minimum of what their entourage has.



The high-income habitats travel the more and more and purchase luxury goods in other countries. There are in-Asia travels to do shopping in Thailand and Singapore, and out-Asia travels to shop in Western countries.



Consumption of luxuries is not only a lifestyle but more importantly, is a way to distinguish themselves with others, and to create a countenance. Also, seeking for a conspicuous aspect still is an undeniable stimulator in purchasing decision.



The female consumers stay the most powerful with the increasing purchasing power. It is important to note that the potentiality in customers who are wife of wealthy men who are willing to spend considerable amount.



The idea pre-established of the country of origin are still being printed in consumers’ mind, even the most informed and experienced ones. The quality is generally associated with the country of origin more than the brand name itself: watches from Switzerland, leather goods from Italy, cars from Germany and perfumes from France.

According to Oliver Petcu, the Director at CPP Luxury Industry Management Consultants (LCC), the consumers in emerging markets are becoming increasingly selective in how they allocate their spending budgets. They spend less and are highly aware of the price/quality ratio. As luxury goods show the status of Asians consumers, they would be more careful and picky. There is an increased awareness of raw materials, standard of processing. They are also more knowledgeable with all the information available for brand comparison, those affluent consumers are now demanding. Gone are the days of people bulk buying luxury items, the brand names of which they could barely pronounce. Instead, Asia is entering an era of unparalleled product and brand awareness A passion for luxury Today’s affluent consumers in South East Asia countries are already avid brand loyalists, with little difference from their counterparts in Western countries or North America. They connect to the media 24 hours a day, travel frequently; thus, they are well informed and opened to sample what is new and different. They always symbolize Western brands with quality, even though some of them are largely manufactured in Asia. They would cheerfully pay a premium to demonstrate, through beautifully designed packaging, that their purchases were made in a leading department store in the city instead of a normal store where they could have bought exactly the same items at a considerable savings. Differences from Western customers: What distinguishes Asian luxury customers from Westerns’ is a different hierarchy of needs. The Western counterparts want to feel good about themselves, hence, they seeks for brands whose products make them feel at ease and comfortable. They would rather choose Range Roger SUV (Sport Utility Vehicles) over a Lamborghini Reventon even though they have the ability to purchase. On the other hand, the highest need in Asian culture is status. Although some behaviors may differ from one country to another, the status seeking is particularly important in all Asian countries, including South East Asia. The brands like Hermes, Johnnie Walker, or Hennessy are extraordinarily popular in Asia for both personal purchases and gift purchases for others. Asians pay extreme care when buying gifts for their friends, colleagues, or business partners. Choosing a luxury brand not only shows the wealth of the giver, but also expresses a respect and appreciation

toward the receiver. They may even be willing to pay more for a gift then a personal purchase, which is not the case in western countries. One might argue with the democratization, luxuries are more affordable as consumers are becoming more accustomed to higher standard of living, and status seeking will diminish in importance for Asians. In countries like Japan and Korea, which has been developed for decades, the luxury markets just exhibits a greater degree of sophistication facing the democratization trend. The same would be applied for the future of South East Asia countries, leading by Singapore. The emergence of Shopping Tourism Few decades ago, it was quite preposterous that people travel around the world just for shopping purpose. The Japanese changed it all. They are the pioneer who, with their high level of disposable income, started looking for finer things in life oversea. The rest of the world soon adopted this trend as a social behavior, and a new retail industry was soon born to cater to the special requirements for the shopping tourist. Asian customers want to find a very special luxury items, or a limited-edition bag for their status boosting, which is not available in their countries. Another reason with shopping oversea is to avoid fake products that lure the unsuspecting buyers at home, as consumers are becoming more and more vigilant. Numerous transactions on the Champs Elysees or Fifth Avenue have been recorded with a South-East Asia banks. Shopping tourism, appeared primarily as a phenomenon in Japan, Korea, and China, and quick became a normal treats that South East Asians gave themselves with the dramatic economy growth rate.

Potentiality, Opportunities, Threats by market 1. Indonesia: An economy in stabilizing stage 

Capital: Jakarta



Politics System: Democratic Republic



Geography: 2 017 000 km2 with 13 677 islands.



Population: 4,553,009 (2010) 3% of the population speaks Chinese, representing the most prospect group of the country, constituting the important engine for the economy



Economy: The macroeconomic stabilization of the country is proven by the growth rate in 2007 exceed 5% for the 4th consecutive year. The government seems to control the inflation rate around 6%.



GDP per capita was $1,640 USD and the purchasing power was $ 4,323 USD/ capita

The market is difficult to conquer but there is a real potentiality to grasp. The first luxury products appeared in Jakarta in the early 1990s, when the development of the sector was very difficult due to products from contraband market. In Indonesia, Jakarta is the capital for luxury industries. People from other cities and regions who wish to offer themselves a luxury treat would come to Jakarta or would purchase from oversea. Thus, the best location for luxury selling is in the South Center of Jakarta. Being geographically near to Singapore together with the customers’ preference of buying luxury from travel, the brands implanted locally should remain competitive in order to attract Indonesians to the domestic market. From the beginning of 2000, the commercial centers developed noticeably, and more luxurious. Indonesia is a developing country where the population which is tempted by the consumption is becoming more important.

2. Malaysia: An attractive destination for luxuries 

Capital : Kuka Lumpur



Politic system: Constitutional Monarchy



Geography: 329 758 km2 with 2 distinct regions : Occidental Malaysia (South of Thailand) and Oriental Malaysia (North of Indonesia)



Population: 26,3 millions (2007) with 3 ethnic groups. Group of Malaysian origine are principally muslim, are present in the administration and important publics enterprises. The minority of Chinese people play a economical role who controls a large part of the commerce and industry, especially Small and Medium Enterprises. The minority of Chinese people are workersin agriculture and industrial sectors. Immigrating people usually came from Indonesia



Economy : The dynamism of the country is still being dependent on foreign investments. Despite a dramatic decline after the Asian crisis 1997, FDI continue to plays an important roles and foreigncapital enterprises ensure the essential of exportations of manufactured products.

Very traditionalist, Malaysia is opening the more and more to international comers.The market shows potentiality for both local customers and tourists. Luxury in Malaysia made its first steps during the years of 1980 in the big commercial galleries in luxury hotels but the market took it real first motion at the middle of the 1990s, with notably the opening of the commercial center Starhill even if the sales dropped after the Asian economic crisis by 1997. If secondary cities of Malaysia are favorable for products of mass consumption, luxury resides principally resides in Kuala Lumpur. There is no fabrication of luxury goods in the country except some local names such as pewter items of Royal Selangor, bags made by crocodile skin of Porosus some creations of designers Bonia or Ikartini. The luxury market centers at the accessories such as leather items, jewelry, watch

Analysts believe that the market presents a strong potentiality for both local and tourist consumptions. The market for tourists is nourished by the frequentation of people from the Middle East. One of the main strength of the country is the detention of operational infrastructure

3. Singapore: Switzerland of Asia 

Since its independence on 1965, the country enjoys an exceptional succes: An average growth rate of 8% per yer and the standars of living have reached the same of developped and modern countries



Capital: Singapore



Politic System: Ancient britan colony, the democratics system remain very strict in some extents, notably the freedom of press which is still strictly controlled.



Geography: A strategic position of South East Asia , 699,4 km2



Population: In the last 30 years, Singaporean population has been more than doubled up, from 2 millions to 4,5 millions people with 76% Chineses, 14% Malaysians, and 9% Indians.



Economic: The country benefits of a prosper economy with a stable legal framework. The economy has notably resisted the crisis of Asia. Financial situation remains excellent and leads the country to become an important investor, all by continuing to carry out an open and attractive politic, focused on added-value activities.

Being late compared to Hong Kong, Singapore discovered real luxury consumption. International luxury brands penetrated the market since the 70s and most of the important names have already implanted. This small but nearly mature market plays the role of the regional capital of shopping despite the concurrence of Malaysia and Thailand. Conscious of the small market size, the Tourist Office of Singapore has applied a politic to attract wealthy tourist to increase the revenues for the island.

4. Thailand 

Capital: Bangkok



Politcal system: constitutional monarchy since 1932 with a lot of temporary unstability that slowdowns the consumption in many sectors



Geography: 513 115 km2, the country benefit from a location at the heart of South East Asia



Population: 65.1 million. On the contrary with other Asian countries, chinese immigrants have well integrated to the Thai population. Sino-Thai people who came from industrial conglomerates play an imporant role in the country’s economy. Around 80% of the big groups are controlled by the families of origin Chines and it is estimated that 19/20 of the wealthiest families of the country are sino-thais.



Economy: the asian country the most affected by the financial crisis of 1997, the country has profoundly restructured its economy and has successfully overcame the crisis to be one of the

outstanding emerging countries with a growth rate of more than 6% in the period of 2002-2004. Even during the hard period of 2005 when the country has to face both internal and external difficulties (increasing essence costs, slowdown of growth of its partners, movements in the South, tsunami and opposing climat conditions…), the growth rate still scored 4.5% The luxury market made it first steps during the 1980s with the arrival of Louis Vuitton which possesses nowarday 3 stores in Bangkok. The economic growth of Thailand is accompanied by the occidental and japanese influences on the way of living and consumption habit. Thai consumers, especially young people are very sensible to trends. Luxury items, reflection of their social status, enjoyed a formidable success in country. In the other hands, the is also the influences on buyer behaviors from provinces where prices remains the first criteria for purchasing decision In Thailand, the luxury market is concentrated in Banglok, as the consequence, it is almost unesscarry for brands to open additional stores outside the capitals. In fact, wealthy inhabitats of Phuket or Chiang Mai are willing to travel to shop in Bangkok. The development of Pattaya and Phuket is attracting a lot of “pharang” (westerners) and it is risky to bet on the prospect of luxury markets in those cities As Thai people love to expose their social status, the introduction of a well-known brand is the clef to succcess but foreign brands have to face strong concurrence from local brands. However, the luxury market not only depends on the economic growth but also the politic stability. The country often experiences politics crisis that causes the slowdowns in luxury market over the whole country.

5. Brunei 

Capital: Bandar Seri Begawan



Geography: 5 765km2, situated in island of Borneo, Brunei shares same frontier with Malaysia



Population: 365 251, Malaysian 67%, Chinese 15%, Others 18% (3 500 Gurkhas)

Former Britain protectorate independent since 1984, Brunei is a domineering monarchy, run by the Sultan Hassanal Bolkiah. Economy of the country relies in its richness of hydrocarbon. Per capita income is the highest in ASEAN after Singapore. Having endured the financial crisis in Asia in 1997, Brunei subsequently suffered the failure of Amadeo group, controlled by Prince Jefri (brother of Sultan, then minister of finance and president of agency in charge of reserves management of state, the Brunei Investment Agency), which has strongly contributed in sinking the economy during recession. After long procrastination, the government has announced, in 2001, an ambitious program of reform economic structures, in order to reduce its dependence in its petroleum resources, but few of concrete progress has been effectively achieved.

Economic evolution depends strictly in the performance of hydrocarbon sector. Ongoing delicate negociations with the Malaysia which demand an agreement in sharing the petroleum recipes. The ball is in Brunei’s camp, which presents itself as not very pugnacious, even when the future of economic is at stake. The Sultant is also the 4th biggest liquid gas producing company in the world. The State is actively involved in every stage of petroleum field through BRUNEI PETROLEUM who regulates the sector and manage Sultanat assets. The company is also shareholder in parity with SHELL in BRUNEI SHELL PETROLEUM (BSP), 1st producer. The luxury market of Brunei is still limited du to the small population but the amount spent on luxuries are substantials. The royal family is the most important consumers of luxury products in the country. It is estimated that around 2000 people purchase regularly

6. Vietnam 

Capital: Hanoi



Political system: Vietnamese Communist party is the leading force of State and society.



Geography: with a surface of 331 690 km2, Vietnam shares frontiers with China, Laos and Cambodia.



Demography: Vietnam counts 87 million people (2010) which of half are under 25 year sold. The demographic growth is at 1,33% per year, represents an slight increase of population of more than one million of people each year. In Ho Chi Minh City, the 15-49 year old represents 68% of the population at below 15 year old, 24%. Vietnam learned a vast movement of rural depopulation. While in 2006, less than 30% of the population lives in the urban aread, this proportion reached 45% today



Economy: the country continue to constitute an examplary case of mastery development. Five-years plans encourage an average growth rate of more than 7% since the 1990s. The growth rate is assured by the exceptional foreign trade with high exportation growth rate and the country stays at the center of foreign investments. Vietnam is the asian country that enjoys the highest economic growth rate just after China. The vietnamese economy is in developing phrase, which can explain the spectaculary growth rate.



Wealth repartition is very inequal, especially between rural and urban areas with the concentration of wealth in Ho Chi Minh City and Hanoi.

Even if some luxury brands have entered the market since years but the real trend of luxury products consumption is extremely recent, started from 2006. Since then, the luxury market enjoys outstanding development with the introduction of numerous brands. The fashion accessories have been in vogue since the beginning of 2000s and continue to experience higher demands.

The vietnamese qualification for luxury brands used to be almost exclusively based on price, the new consumption habits of modern customers now start with new notions of quality, uniqueness and originality. The potential market is at the present desired by many international brands and there are limited chances for them to conquer. The adhesion of the country to WTO in 2007 was an important encouragement for luxury brands to penetrate to the market. Also, stock-exchange market has high impact on the luxury sector. Professionals of the sector believe that Vietnam represents amonng the 3-4 big asian market for luxury consumption, which create an enormous potentialy

Markets

Mapping

0

Opportunities South

Threats

- Distribution channels of luxury products

- Markets highly concentrated in capital cities

East Asia

are developing with the apparition of

- Important counterfeit market

Market

luxury commercial centers

- Strong

- A population that travel more and more,

international

concurrence

(China,

India…)

thus being exposed to foreign brands and

- Bargaining is a regional habit

fashions

- Lack of distinct seasons (always hot and humid

- Dynamic market with great perspectives

weather of equatorial climate): Brands have to adjust their collections

Indonesia

- Stable economic and politic system

- Reducing

- Consumers passionate for luxuries, a

number

of

luxury

importers:

Difficult for brands and exporters to find a local partner with adequate objectives

noticeable sensibility to brands.

- High level of corruption, lack of transparency - Indonesians prefers to buy luxuries from oversea Malaysia

-Increasing tourists from Middle East and -Despite its politic of positive discrimination, the Russia with high purchasing power -

Development

of

country is one of the non-egalitarian in Asia

distribution

infrastructures Singapore -No customs duty

- Low availability of new commercial sites

-An economy highly opened to outside

-Affluent customers but difficult to develop

-Consumers very Occidentalized

loyalty

-Mature market playing excellent showcase role for Asia Brunei Thailand

-Restrained number of luxury customers -A small market essentially dedicated to the but are willing to spend a lot

royal family

-Market developing and becoming mature

-Unstable politic system, affecting economics.

-A

modern

airport

with

favorable

environment for luxury sales. Vietnam

-Recent adhesion to OCM proving a -A lack of infrastructure adapted to the luxury voluntary of open to outside markets and products distribution 110

foreign brands. -New

-High corruption level

luxury

consumers

with

strong -Market lusts after and strongly linked to stock

increase of the high-income class in the market population -Foreseeable

multiplication

of

luxury

brands under impulse of big leader brands.

IV. VIETNAM LUXURY MARKET OVERVIEW Economic Overview 1. High annual growth rate Vietnam is the Asian country that is considered one of the fastest growing economies in the world, after China and even greater than India. For the period of 1998 - 2003, its average GDP has progressed around 6.8% and increased up to 8% during 2004-2007 with slight slowing from 2008 to now. Even at the difficult time within Asian financial crisis (1997), the growth rate has maintained positive (+3.5% by 1998). Vietnam continued to perform well during the world economic crisis 2009 with the GDP growth rate of 5.3%

GDP per capita – Purchasing power parity (PPP) is an indicator of the economy’s efficiency, showing how the citizens would benefit from their country’s increased economic production. A raising trend of GDP per capita signifies the national economic growth, and the increasing of purchasing power of the population as the standard of living is improving. 1

The outstanding economic growth of Vietnam has allowed a strong decrease in poverty: 14.75% of the population was living under poverty in 2007, as opposed to 28% in 1993. The reforms have succeeded in the improvement of the

standard

of

living

of

the

inhabitants. The GDP per capita went from USD $220 in 1994 to more than USD $1,200 today. The percentage of the population living on less than a dollar per day has declined in a significant way and it is now lower than China, India, or the Philippines. The continuous trend of high growth rate illustrate an economy with gradual development and highly potential. Vietnamese consumers can be very optimistic about the country’s future.

The same growth league as India and China As mentioned earlier, Vietnam’s growth rate averaging 7.4% for the period 2000-2006, compared to China’s 9.5% and India’s 6.7%. On the other hand, GDP per capita of Vietnam by 2006 ($715) is close to India’s ($765) and less than haft of China. It means, Vietnam is as poor as India but is growing at almost the same speed as China. According

to

Research

which

Deutsch

Bank

forecasts

GDP

growth of more than 30 emerging countries until 2020, Vietnam is likely to growth as quick as India and China in the next 15 years. Hence, in 2010, Vietnam’s GDP will reach the same level as China’s today.

2. An internationally open economy Liberalization of the economy From 1986, the Vietnamese economy benefices from a new politic of “Doi Moi” (Renewal), leading to continuous movements of opening and liberation. This allowed the country to integrate progressively to 2

international exchanges and to develop an economy sorely internationalized degree of openness of 168% in 2007. Joined trading organizations: In addition, Vietnam is one of the Asian economies most open to international trade, which represents more than 100% of the GDP, more than twice the Chinese rate and more than 4 times the Indian rate. The country has demonstrated its strong commitment to trade liberalization in the recent years: -

Association of Southeast Asian Nation (ASEAN – 1995) with the Free Trade Agreement (FTAs) , which helped elevate the economy status drastically

-

Asia-Pacific Economic Cooperation Forum (APEC – 1998)

-

US-Vietnam Bilateral Trade Agreement (2001) : exports rose 900% from 2001-2007

-

Vietnam also has a corporation agreement with the EU.

-

Adhesion to WTO (World Trade Organization - 2006) has significantly changed the economy landscape, making an opened Vietnamese market to most of economic sectors.

-

After January 1, 2009, Vietnam has wholly opened its retails market under the WTO commitments, bringing new signs of optimism about the future of the retail sector

Vietnamese trade is characterized by a strong geographic inequality: the country shows a trade surplus with western countries and a growing deficit with its Asian neighbor Economic expansion and the opening policy of the country leaded to a strong dynamism of foreign trade.

The exportation revenue was $71.6 billion in 2010 (+25.5% from 2009). However, the

importation rate, generated mostly by the private sectors and foreign enterprises, has exceeded export with the turnover of $84 billion, causing a deficit in commercial balance of $12.4 billion. This figure is causing a risk of stabilizing the Viet Nam Dong, making the government to take recent measurement which makes it difficult to import luxury goods to the country. This problem with be discussed later in the next sections. The change in consumption habits After joining WTO, powerful economic development and improved standards of living have changed the consumption trend among Vietnamese people. 

Modern shopping habits (at supermarkets, shopping malls, Internet) increased from 9% in 2005 to 14% in 2007 and were expected to reach 24% in 2010.



Increasing shopping value with higher spending on tourism, health and body cares in both men and women 3



Increasing number of young consumers and high-income people promotes the development of high-class retail shops.

The changes in consumption habits has led to a dynamic trend of the Vietnamese retail market : the cooperation of local retailers to enforce professionalism, build up long-term development strategies to be able to compete with the foreign comers, making the market turbulent more than ever. Numerous of luxury brands that could not enter to the market just some years ago due to the lack of adequate distribution channels are now available in the market, offering the consumers with larger product choices.

3. Increasing numbers of Private Enterprise The reforms allowed a large privatization of Vietnamese economy: the number of 100% State-owned enterprises has decreased from 12 000 (1990) to 2 400 (2006) whereas the private firms increased to more than 90 000. The embrace of private enterprise increase favor the apparition of many entrepreneurs, benefit from the rapid growth of the country to become nouveaux riches.

4. Foreign Direct Investment (FDI) is surging Similar to China, investment is crucial for driving the economic growth performance. FDI poured into Vietnam is not as high as China but higher in most of other neighboring countries. FDI was relatively tiny at the beginning of the 1990s and even 2000s. The average annual foreign investment commitment has risen sharply since foreign

investment

authorized although

was

in

1988,

the

global

economic crisis affected FDI in 2009. Early investors

claimed

that the main obstacles to set up shops in Vietnam were a missing supplier base and the high operating costs.

Thanks

to

the

continuous improvement of infrastructure,

4

the

costs

have come down quite significantly

5. Highest Inflation rate in Asia Benefiting from a high growth rate, the Vietnamese economy is facing an accelerating inflation, driven by surging food and oil prices. This is a common trend across Asia countries and the governments realize that inflation would not go away quickly. Actions are being taken to curb inflation and to deal

with the threats to economic growth.

Inflation rate has reached a peak with an index of price of consumption of 27%, which is clearly higher than the growth rate, causing by: -

The politic of the government to keep the VND low to encourage export

-

The important inflow of foreign currencies due to FDI and transfers

-

Global conjuncture and the general tension inflationist (increasing price of raw materials, petrol and alimentation…)

The continuous increase in inflation rate has forced the government to take some recent measurement. However, during this very hard time, the consumption power of the high-income class seemed not to be really affected. Quarter 1 of 2011 saw the Vietnamese Government shift focus from a growth enhanced policy to an inflationary control policy (CBRE, 2011) when the inflation rate reached the highest at 12.8% by applying the tightened monetary policy.

6. High Tariff and Taxes for luxury products After joining WTO, the Vietnamese government has significantly decreased the imported custom tariff for many product categories. However, the barrier of entry for luxury goods into the Vietnam market is still very high. 5

Tariffs rate applied for luxury goods imported into Vietnam can be divided into 4 categories, depending to the source country and its relationship with Vietnam. -

Privilege import tariff : From countries that have Most Favored Nation (MFN) status with Vietnam

-

Special privilege import tariff: From ASEAN countries

-

General Tariff : All other non-MFN countries – 50% higher Import Tariff

Taxes Special Consumption Taxes

-

VAT

Perfume

-

30%

Cosmetics: Lips Make-up Eyes Make-up Nails polish Powder Skin and face creams Anti-acne cream Before and after-shaves Deodorant Shower gels/lotions Hair cares, shampoo Others

-

36% 28% 22% 28% 20% 10% 27% 24% 24% 20-23% 24%

-

15% 20% 30% 18 – 30% 30% 5-20% 10-30%

-

52 – 57% 51 %

25% 20- 70%

10%

-

77 – 82%

25 – 80%

10%

Clothes, Accessories Lingerie Ready-to- wear Leather goods Watches Jewelry Eye wear Pen Wine and Spirits Wine Liquors Cars

10%

10%

10%

Special Consumption Taxes: To control the high inflation rate and trade deficit, the Ministry of Industry and Trade activated on the 16 May 2011 new restrictions on the import of certain luxury goods including for cars, mobile phones, cosmetics, spirits and wines, applicable for the period of 2011 - 2020. Those precuts still have been flocking to Vietnam in big quantities despite the effort of the ministry to curb the trade deficit. 6

According to the Ministry, in the first quarter of 2011, the total trade deficit value amounted to more than 3 billion dollars, of which luxuries accounted for nearly 40%. Officials believe their controls will curb the trade deficit at less than 18% in 2011 (Howarthdtl, 2011) and protect the consumers from poor quality and counterfeit imports. An expert from Trade Research Institute explained that Vietnamese consumers usually follow the crowd when making purchases decision. A large portion of people who spent for luxury goods are not high-income earners. Therefore, this tax increase will considerably restrict the demand for some luxury goods. However, business owners and diplomats claimed that these attempts to restrict import might be a violation of international trade rules. Being an export-dependent country, Vietnam is trying to negotiate a free-trade agreement with the European Union and US. This restriction is obviously a barrier for luxury goods from Europe and US to enter the Vietnam market, making life very difficult for business owners. The EU wrote to Mr. Vu Huy Hoang trade minister of Vietnam, warning that the restriction will “cause considerable disruption in our export patterns and major trade losses for EU exporters of these products representing millions of Euros in value”. EU wants a 3-months suspension and remind that this restriction “raises serious concern” about the Vietnam’s desire to apply WTO commitments and is “at odds with our common wish to engage in a free-trade agreement” According to Mr. Dinh Anh, a well-known economist, though Vietnam is not encouraging the import of luxury goods, it cannot be totally prohibited because of the WTO’s commitments. If there are demands, there will be supplies. Higher tariff can only partially reduce the demand of wealthy people It is still doubtful whether the new restriction will have real impact on the trade deficit (Financial Times, 2011). On the other hand, foreign investors fear that the import controls would worsen the corruption at customs, which is already endemic in Vietnam. The high level of custom duty, especially for luxury goods, continues to favor the development of contraband with neighbor countries of Vietnam (China, Laos, and Cambodia). Those products that are excluded from all type of taxation constitute a source of supplying non-negligible for small businesses and counterfeits. Some governmental organisms are trying to take actions against those practices but are still lack of capital and human resources as well as necessary knowledge to obtain really significant results.

7. Corruption Corruption Perception Index: 2.7 (ranked 116 out of 178 - Index units: 0=most corrupt; 10=least corrupt.)

7

The degree to which corruption is perceived to exist in the misuse of public power for private benefit among public officials and politicians (Transparency International, 2010)

8. Other Rankings Ease of Doing Business Rankings: 78 out of 183 – the higher the more favorable environment for conducting business in the world: Measures of business relations and their enforcement across countries by measuring specific regulatory obstacles such as protection of investors, protection of property rights, employment issues… (World Bank 2011) Vietnam ranked among the average business-friendly environment in the world. However, thanks to the recent adapted regulations to encourage foreign investment, Vietnam has very quickly improved it business ease. The table below illustrates how the business regulatory environment has changed in Vietnam from 2006 to 2011. Instead of showing which economies currently have the most businessfriendly environment, this approach highlight the extent to which the Vietnam’s economy regulatory for business has changed compared to 5 years ago.

Global Services Location Index: 5.69 (ranked 8 out of 50) – (0 -10: less to most favorable for off shoring ((A.T. Kearney 2011): measure the viability of Vietnam as a potential offshore destination for

8

services based on the financial attractiveness, people and skills viability and business environment. The highest ranked country is the most attractive off shoring destination Country Risk Rating: B – Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable Business Climate Rating: C - The business environment is difficult. Corporate finance information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transaction run major risks in the difficult environments

Demographic: 1. A young and active population In 2010, the population of Vietnam was over 87 million. The population is very young, with a median age of just 25, which is about the same as India has and compare very favorably with China’s 33. The economy enjoys a growing working age population while China’s is decreasing. The working population of 15-64 years old represents main current and potential consumers of luxury goods, accounts for 69.4%. The young society is potential for a long-term investment as people are open to change and often quite entrepreneurially minded.

Also, the post-war generation

(born after 1975) is positively inclined towards foreign cultures, which are used to favor foreign trends and lifestyle The director of PwC Thailand (advisory services firm) pointed out that the high percentage of young consumers would be a critical factor helping Vietnam to stand out among emerging retail market, including China, India, or Russia. Vietnam topped the list of world’s most attractive emerging retail market in 2008 (Eurocharm). Young consumers, growing up in peace, enjoying from better social and economic conditions compared to the old generations. They are able to earn more money with more disposals income, making good fundamentals for the further growth of luxury retail sector. Although the modern retail sector, including for luxury goods was in its infancy, it is growing fast at around 20% (2009)

9

Good English proficiency Thanks to its openness to foreign influence and reliance on trade, the workforce with high level of English proficiency compares favorably with many of its Asian neighbor. Together with the increasing number of internet usage rate (nearly 28% in 2010 compared to 31% of China), Vietnamese consumers can have greater access to international brands information research, and are more receptive to foreign brands’ communications messages. Brand awareness can be created easily in Vietnam with proper-targeted message. On the other hands, with a greater exposure to information and choices, the consumers are becoming wiser and more demanding. Female labor force participation Vietnam scores relatively well in the participation of women into the workplace. The country benefits from a broad range of human resources and women are thus more educated, independent and may even earn greater income than man. It is not rare that in some family, the higher-income source come from the wives. Women also represent the majority of luxury customers compares to men.

2. Urbanization trend The majority of people live in rural area, only 29.6% are citizens, which are 25.4 million (2009). In the period of 1999 - 2009, urban population increased 3.4 % yearly compared to only 0.4% for rural. There is an important movement of rural exodus. Assuming that this figure is linear for the upcoming year, the urban population can reach 46 million inhabitants. The two agglomerations of Ho Chi Minh City and Hanoi would have 18 million and 9 million of citizens respectively. A part of two big metropolises, there are some secondary big cities which account for more than one million of people each. Those cities, following Ho Chi Minh and Ha Noi still being not strongly urbanized, start to upgrade the standard of living and consumption power. They also progressively create new territories for luxury brands with great opportunities. Those cities include Hai Phong, Da Nang, Hue, and Can Tho

10

North Cities

Centre

South Cities

Ha

Da Nang

Ho Chi Minh

Noi Hai Phong

City

intra-

Can Tho

intra-

muros

muros Evolution 2003 -2006

+6,9%

+2.7%

+5.4%

+9.9%

+2.25%

Population 2006 (millions)

3.216

1.803

0.78

6.105

1.139

Population 2009 (millions)

6.472

1.841

0.89

7.163

1.189

Evolution 2006 -2009

+100.4%

+2.1 %

+ 14%

+17.3%

+4.3%

(Source: Statistical Yearbook) The very high evolution rate of population in Hanoi was caused by the expanding of the capital after August 2008. The blue line illustrates the old boundary of Hanoi before the extension to the red area.

The enrichment of the country benefits firstly the citizens and the high-income groups According to Mr. Fabrica Carrasco, director of TNS Worldpanel institute, there was an emergent growth in major cities of middle-class whose monthly income was 190-405 $USD, accounted for more than 50% of the citizens by 2008. In additional, the increasing apparition of wealthy class which has monthly income more than $500 USD, representing 20% of the population by 2009 Although there is a general improvement in standard of living in the whole country and an important recession of poverty, the historic dichotomy between the two urban and rural worlds is getting worse. Still, most of workers still earn just $1-2 USD per day toiling in the farm fields and “the money spend on a small Vuitton bag can buy several cows for a farmer’s family and lift them out of poverty”(NY Times) The repartition of wealth is very unequal between urban and rural zones. Agriculture sector regroups 2/3 of the population but represents only ¼ of GDP. In 2007, GDP per capita in urban zone was 6 times more than rural’s and citizens of Ho Chi Minh City- the wealthiest local community could reach a GDP 8 times better than the most deprived of the country. This number was 825 USD while GPD/ capita of HCMC was $2,180, urban was $1,300 and rural was only 220.

11

In 2010, GDP per capita at Ho Chi Minh City was $3,130 compared to less than $1,200 of the country. This figure for the city is expected to reach $4,800 by 2015 for HCMC, which will gradually increase the gap with the average of the rural areas. This number illustrate why HCMC concentrates most of the majority of luxury brands in Vietnam, whereas Hanoi is the capital. Conscious about the social and political risks of this unbalance, the government has set a priority to reduce the inequality between the different regions in the country by building new economic zones in the center area. The plan enjoyed some recent success, making Da Nang, the biggest city in the center of Vietnam to enjoy an extreme rapid growth rate. It is foreseeable that the city with become the third important market of luxury products in the near future. Although this development is promising in a short-term, nevertheless, it is still obvious that the country’s concentration of prosperity remains in Ho Chi Minh City and Hanoi. Other macro-economic indicators also show the same trend, particularly the increasing industrial production and the FDI illustrates the concentration of luxury consumers in the two cities. In 2005 those two zones welcomed 78% of FDI (53% for HCM city and 25% for Hanoi) and about the same distribution applied for the last years, even with the increase of FDI in quantity, worsened the gap between the rich and the poor. It means that, the GDP per capita only explains a growing trend of consumption power among Vietnamese people, but we cannot fully rely only on the statistical number as the medium and high-income class only account for a small number in the population. The table shows the gap between the GDP growth rate and GDP per capita between Hanoi – the capital and the average of the country. While much of the rural population hovers above or below the poverty line, a completely new world has sprung up in Hanoi and Ho Chi Minh City. Even the most casual of observers will have noticed that Hanoi and Ho Chi Minh City are now home to major international brands that you would

normally

associate

with London, Paris, or New York. It goes without saying that these brand names come with hefty price tags

12

SWOT Analysis of Vietnam Luxury Market

STRENGHTS -

WEAKNESSES

Positive economic prospects growth, despite - Lack of transparency, uniformity and consistency the global crisis

in

Government

policies

Continued strong economic growth + half of

commercial projects

and

decisions

on

the population are under 30  dynamic and - Corruption and administrative red tape within the -

quickly evolving commercial environment

government  difficult for foreign firms to enter

Increasing GDP, with disposable income

the market without good lobbying

levels in major cities 4 to 5 times this level - Very high import tariffs  uncompetitive price,  fast emerging market for luxuries

favoring counterfeit and contraband

-

Certain social-political stability

- Infrastructure adapted to luxury standards is still

-

A government committed to liberalizing the

developing: high start-up cost, shortage of skilled

economy and to introducing reforms based

personnel

on free market OPPORTUNITIES -

THREATS

Young population: People on working age - Counterfeit market due to ineffective protection has the ability to work and spend on luxury

- Uncompetitive price due to heave custom duty

goods -

intellectual property

Active and open to changes, the consumers are early adopters of trends from the world : Brands awareness of can be created with the right message

13

and taxes.

V.

IS VIETNAM A PROPRITARY / POTENTIAL MARKET?

Emergence of new wealthy class in sufficient number to constitute a sustainable market Household income or consumption by percentage share: Lowest

10%:

3.17%

lowest

20%:

7.51%

second

20%:

11.21%

third

20%:

14.83%

fourth

20%:

21.05%

highest 10%: 29.89% The 20% of highest income people generates already 45.39% of the country’s total income. This figure clearly shows the wealth of high-income classes. They only account for a small percentage of the population but represent the main driving force of the economy with growing power.

Consolidation of middle class (monthly income of more than US$ 435) and emergence of wealthy class While the super-rich represent only 1% of the population, the number of upper middle class luxury consumers is growing at a staggering rate. This portion of this class is estimated about 17% of the population (2007) and has reached 25% by 2009 (PwC Thailand, 2009). It is really difficult to estimate the real percentage of this class as Vietnamese tend to keep private cash at home. "In America, you pay in installments," said Nguyen Hoang Trieu, a luxury car dealer in Ho Chi Minh City. "Here, you pay all at once, in cash. Sometimes people come in here with $400,000 in a suitcase." They are becoming increasingly open about showing their status and are willing to spend larger amount of their income to non-essential consumption, including luxury goods.

14

With the success from the economic and social reforms two decades ago, Vietnam benefited from a remarkable reversal of fortune. Not only the poverty has been decreased by half, but also growing FDI and export levels contribute to a steep rise in consumer confidence and spending with the apparition of new wealthy class, who are private entrepreneur, executives of foreign firms… They represent a social class that make fast money with the doubled of GDP per capita compared to 10 years ago, and are more willing to spend. Thus, the lifestyle and consumption trends have changed accordingly. About 1.5 – 2 million of Vietnamese travel oversea each year, mostly to Asian countries and also to the US and Europe. Motors and scooters still remain the main transportation means but car ownership is increasing dramatically despite de poor roads quality. About 5% of the population own a car, and mainly concentrated in luxury sector

Emergence in demands for luxury goods: Establishment of a society of consumption and effervescence of luxury market. In 2010, Vietnam has imported $5.7 billion of luxury goods, increased of 14.2% from 2009 (Ministry of Industry and Trade) Vietnam is following India and China in becoming a new booming market for luxuries. High-end brands such as Louis Vuitton, Prada, Bulgari, Dolce & Gabbana, Cartier, MercedesBenz, have built a visible presence in Vietnam’s major cities, and together they’re spending millions of marketing dollars (billions of Dong) to capture the attention of Vietnam’s nouveaux riches. The penetration of foreign brands into the Vietnamese market is relatively recent (American embargo was only stopped in the 1990s) and making a fast-developed market, especially for advanced technology equipment (Smart phones, Flat screen TVs…) and luxury products (cosmetics, perfumes, clothes...) It is important to notice that Vietnamese people are very sensitive with foreign products as they believe the origin of products is synonym to quality. Cosmetics and prêt-a-porter products are highly demanded and also the case for foreign agro-alimentation. The presence of foreign restaurants, more remarkable in the South, is greatly making the Vietnamese to be more interested to the international cuisine. The luxury market is the principal beneficiary of the concentration of wealthy population in the urban area, which represents in a short-term an important potentiality of development

15

The

needs of luxury consumers are increasing and diversifying dramatically, but are actually

unsatisfied, meaning there still be a strong gaps between luxury demand and supply. However, since the beginning of 2006, there was a rapid take-off of luxury sectors and the consumptions habits have changed profoundly with the opening of numerous adapted shopping malls in just a short period. The commercial surface dedicated to upscale product will strongly increase in the very near future with the numbers of ongoing projects of opening noteworthy of luxury department stores.

1. The fancy for luxury goods of young people The wealthy class show their desire to expose their new social status. Luxury goods are considered as a symbol of succes and are widely recognized among the population. %

of

the

Total

population

Classification socio – economic : High to low monthly income Class A

Class B

Class C

Class D

Class E/F

(+$1000)

($500-

($300-$500)

($150-$300)

(< $150)

$1000) I want to own products from brands to attest my success Totally agree

36.4

48.1

35.9

35.1

35.8

33.4

Agree

32.6

34.6

36.2

34.1

27.7

25.6

Indifferent

19.9

10.6

15.4

20.9

24.9

25.4

Disagree

7.8

4.3

9.2

6.7

9.6

8.6

Totally disagree

3.2

2.4

2.4

2.8

2

6.2

(TNS Media Vietnam)

2. A new trend : The demand for more sophisticated products If the vietnamese qualification of a luxury product is almost exclusively based on the price, there is a new criteria started to appear more important for the wealthy consumers: the critera of quality, uniqueness and originality of luxury goods. Also, a large proportion of consumers are willing to spent for a higher amount to obtain a product of a best quality brand %

of

the

Total

population

Classification socio – economic : High to low monthly income Class A

Class B

Class C

Class D

Class E/F

(+$1000)

($500-$1000)

($300-$500)

($150-$300)

(< $150)

I am willing to pay for the high-quality brands Totally agree

54.8

60.6

58.1

55.1

52.6

46.1

Agree

23.9

21.9

24

23.2

28

21.9

Indifferent

10.3

10.3

9

10.3

8.9

16

16

Disagree

7.6

7.6

7

8.3

6.4

11

Totally disagree

3.6

3.3

2

2.9

2.9

5

For some consumers, a discreet logo and somes subtle signs of quality also started to be preferable as a conspicuous display of a well-known brand. This new trend benefit some local creators, both vietnamese and asian who came to place their own label in the market segment directly concurrent with luxury foreign brands which are more classic. The local brands such as Minh Hanh, Minh Khoa, Vu Van Chuong, Khai Silk, Mai Lam or the Tawainese Ipa Nima are particularly appreciated by young local consumers and tourists who look for exotism of asian products. Among these, only Mai Lam and Khai Silk can be listed as the leader among Vietnamese luxury brands in term of size, quality and commercial plan.

Vietnamese Luxury Consumers: The luxury customers’ profile of Vietnam is getting similar to the new industrialized Asian countries’ and in addition has a strong propensity of consumption. According to the US Central Bureau of International Statistics, 56% are under 30 years old, which are 48 million people. The population is also very dynamic thanks to the improvement of education system of the country in recent years. 41.7 % of the population graduated from high school and 32.1% went for higher education. If the traditional values are always present in the society, the citizens are, however, very opened to technologies innovations, foreign cultures, and new consumption products from Japan, Korea, Europe, and the US. More than 40% have daily access to the Internet and 97% of middle and high-income class possess a mobile phone. They represent a part of population having access to the international information and are very permeable to international trends in both technology (Smartphone, Table Computers…) and products of consumptions (anti-age creams, slim jeans…) Also, the Vietnamese consumers, particularly those who belong to middle and upper classes, are modifying their habits. In term of diversification, they look for new concepts and new products, especially in sectors of alimentations, cosmetics and skin care, perfumeries and fashion, proving by the enormous numbers of new boutiques recently appeared in big cities. Consumers are upgrading their demands with more sophisticated criteria: special designs and superior quality. In term of adoption and frequency of new distribution forms, there is a significant development of modern distribution form that is driving an increasing turn-over, which increased dramatically from only 8% to 15% of the total purchases from HCMC and Hanoi from 2004 to 2007. Vietnamese people now are getting used to go shopping in supermarkets commercial centers, and department stores instead of the traditional market, 17

and small stores. This development is still having a big gap with other South East Asia countries like Thailand, and Singapore where modern distribution represent more than 20%. Vietnamese consumer profile is somehow similar to Chinese, not only on the big amounts they spend but also in the criteria of product choosing. Analysts consider Vietnamese wealthy consumers are sophisticated.

Profile of Vietnamese luxury goods consumers : They are young generation, who are generally born after the war ended (1975). They are mostly well educated (nearly 45% of young people graduated from University or post-graduate education) updated to the technology, prudent and respectful to the traditional values (According to TNS, a big part of disposal income (26%) is reserved for family contribution), optimistic and festive As the talent in Vietnam is in tight supply and demand, and wages are appreciating steadily for young and skilled professionals. Therefore, luxury consumers usually are: 

Employees of the many multinational corporations currently expanding into Vietnam.



Managers of Vietnam’s large and powerful state-owned enterprises.



Participants in Vietnam’s relatively small but explosive private sector

Recent opinion surveys showed that 60% of young people who are born after 75 are very optimistic about the country’s future, and are determined to enjoy the here and now. On the other hand, the older generations, shaped by the hardship of war are more likely to save for the future, convinced that catastrophe lurked around every corner. They are against the new “materialistic enjoyment” of the youth. The optimistic consumerism is the main driving force for luxury goods. Additionally, it is not common in Vietnam that unmarried young Vietnamese live rent-free with their parents, have greater disposal income. To this young generation, purchasing a luxury good is a status expression of success, self-confidence, and independence from their parents’ strict conservatism. All of those characteristics explain a strong spending power, as illustrated the high consumptionspending ratio, which account for 70% of the GDP, at a sensibly highest among neighbor countries The consumption of Vietnamese people is, thus, deeply changed during recent years: the amount spent for necessary goods remains stable while the spending for entertainment and hobbies (mobile phones, restaurant, and other distracting activities…) explode. Hennessy consider Vietnam is from now on its seventh worldwide market for cognac with a progression of turnover of +40% yearly.

18

Also, similarly with Extreme Orient countries, the attraction for new technologies is very noteworthy. %

of

the

Classification socio – economic : High to low monthly income

Total

population

Class A

Class B

Class C

Class D

Class E/F

I am used to new technologies and I am interested in buying them Totally agree

41.6

50.7

52.6

39

38.9

25.2

Agree

23.4

30.4

20.1

24.5

21.3

23. 8

Indifferent

17

9.4

14

17.6

18.5

24.4

Disagree

10.5

7.2

8.9

10.5

8.4

19.1

Totally disagree

7.1

1.9

4

7.9

12.5

8.6

(TNS Media Vietnam)

The conspicuous mode of consumption (or Status Consumption) Status consumption refers to the “motivational process by which individuals strive to improve their social standing through the conspicuos consumption of consumer products that confer and symbolize status both for the individual and surrounding significant others” (Eastman et al 1999). Veblen in The Theory of the Leisure class has described it as consumption activities undertaken by nouveau riche consumers for the purporse of exhibiting their newly minted wealth by extension, their social standing. The growth of the economy has paved the way for a thriving middle class, the democratization of access to resources and the continuing desires for higher quality of goods and services make the sake of status become a omnipresent phenomenon. Urban Vietnamese consumers share some common characteristics with China, who tend to engate the consumption of luxury goods and services, and aspire to own foreign imported brands for an image of status (Forde, 1998).

“Goods, brands, and symbols associated with popular culture and Status

Consumptions are very much a part of Vietnam now and their popularity is increasing exponentially” (Shulz, Pecotich & Le, 1994) Prior to the economic reform of the country in the late 1980s, most of the income of a Vietnamese family was spent on necessities. After then, with the increased revenues, people started to pay attention to luxury items. Although the nouveaux riches were generally poor and “unsophisticated”, they were changing fast. Along with economic reforms, there are also social changes of consumer values, attitudes and behaviours. Some buying and consuming behaviours that were not socially accepted in the past due to market constraints now become increasingly popular. 19

Vietnam is considered a typical case of “emerging economy” undergoing significant changes (Truong et al.,2010) and thus has great potential as a consumer market with many consumers exhibiting strong desires for luxury goods. With a high growth rate, improved living standards and changes in the patterns of income distribution with the presence of emerging middle class. A research has been conducted by the National Economics University of Vietnam among 800 emerging urban consumers in Ha Noi and Ho Chi Minh city in one district down-town where considerable number of emerging consumers are living and two other randomly chosen districts . The result

idicates

promising opportunities for foreign companies offering luxury products to Vietnamese market since high level of Status Consumption is displayed. The important factors contributing to the prevalence of Status Consumption were the accentuated levels of Modern Status Orientation, materialism and individualism among these consumers. The values of urban Vietnamese consumers have evolved along with the growing market-based economy. In term of materialistic tendencies, there were changes in vietnamese consumers’ beliefs with regard to the importance and acquisition of material possessions in recent years. They believe that luxury objects can attest one’s success and achievement, and bring happiness in life. The study also demonstrated a relatively low level of urban consumers who prefer local than foreign brands. Foreign products enjoy an advandate over the local competitors due to their sympolic values and statusenhancement is considered a primary motive for consumers to engage in the purchase of foreign products (Chan et al., 2009). However, this poses challenges for luxury brands which sell products at high price because consumers in emerging economies are price-senstive. Consumers may switch to buy local products when the image, visibility and quality of these products are considerably improved, especially when Vietnamese consumers generally show a great deal of pride and identification with the country (Lantz et al.,2002)

VI. HOW TO DEVELOP LUXURY MARKET IN VIETNAM Luxury market outlook by sector 1. Cosmetics and Perfume Principal brands implanted: L’Oréal, Lancôme, Shiseido, clarins, Carita/Decleor, O Hui, Clé de Peau, La Neige, Cavil Klein, Versace, Bulgari, Guerlain, Clinique, Estée Lauder, L’Occitane… 20

The cosmetics sector in Vietnam is still developing. The major big brands like L’Oreal, Guerlain, and Shiseido have come to Viet Nam for more than ten years and enjoyed great successes. In fact, the female consumers devote a significant budget to cosmetics and body care products and despite high custom duty, the higher price does not appear to be the main obstacle in their purchasing decision. The Vietnamese customers pay attention on the product quality and require authenticity. Department stores warranting the authenticity of products and reserve in general their ground floor to cosmetics and perfumes brands The most privileged beauty cares are whitening creams and lotions. Lancôme has its launching campaign focusing on this type of product, which is the stereotype of female beauty of Asian countries as opposed to Western women with white skin. Also, there is a real trend of anti-age cream and conditioning products. However, the main difficulty of luxury cosmetics brands in Vietnam is the competition of a wide range of uncontrolled fake, mislabeled, and smuggled products. Those products usually target lowincome people, who have the spending around $3 per year for cosmetics purchases. Vietnamese consumers in general spent $82 million on beauty and skin care products in 2006. Illegal and unofficial imports are estimated to account for as much as 60 percent of these sales Consumer tastes and preferences for more sophisticated products are maturing and shifting towards quality brand names, especially younger consumers. Foreign brands that already joined the market recognize the market’s future potential and are advertising aggressively. To capture more market share, local manufacturers are investing in more research and development, as well as marketing and distribution activities to compete with superior international brands. This growing and rapidly developing market offers numerous opportunities for American companies in the following segments: finished beauty products, raw cosmetics material and manufacturing technologies and related equipment for beauty products. Consumer trends for Cosmetics: 

Vietnamese women are senstivie to the marketing argument “clean skin”. Therefore, the current preference is for cleaning products, even more than whitening creams stay the leading products marketed by brands, followed by anti-ages preventions



From 30 years old, Vietnamese women started to use anti-ages preventions



Hydratant products and treatments for oily skins are in vogue



Skincare products are purchased with whole product line instead of only one item



Women often purchase shaving products for their husbands 21

Consumer trends for Make-up products: 

Preference for natural colors make-up (Korean trend)



Active women prefer basic colors : rose, brown, black



Celebrities and trendy women: more braw and showy colors



Best seller : foundation cream and eye shadow

Consumer trends for Perfume: 

“Eau de parfum” is more preferred than “Eau de toilette” because it stays longer with the hot weather, humidity and the wind (Vietnamese people mostly use scooters as transportation means)



Best sellers are bottles of 100ml. The north regions preferred small bottles (Hai Phong customers are much likely to purchase 30ml bottles)



Important sale volumes are from purchases for gifting, especially in special occasions such as Women’s day, Valentine and Chrismas



Local products (Miss Saigon) only target mass market while prestigious brands, especially “madein-France” perfumes are favored by wealthier consumers. A large portion of customers are young people from wealthy families

About L’Oréal Luxe Vietnam (according to the Interview with Ms Giang LE, Junior Brand Manager) 

L’oreal subsidary in Vietnam opened 2009. Since then, many new products have been successfully introduced to the market. This year L’oreal enjoy a high growth rate in the Vietnam market , about 30%



Best sellers : Skin cares (come products are specialized for asian skin), make up and then Fragances



After the policies of the government to reduce importing of luxury goods, L’oreal has a lot of difficulties to import its products from 4 manufacturer to Vietnam. It has to deal with more complicated custom procedures : every products imported should have a sample for quality check, and should have certificate from L’oreal France that the products is currently being sold in Eu market and L’oreal would be responsible for the quality… The imported products used to be able to pass by planes, now only waterway through 3 international ports of Vietnam allow luxury goods to pass by with stricter controls. Sometimes, products are stored at the port’s warehouse up to 3 months waiting for customs procedures to be done.



L’Oreal’s advertising Agency is Publicis. Every campaign should be validated by L’oreal Asia, Publicis Singapour and finally by Publicis Paris before going to the wide public. The procedure 22

sometimes takes too long and the validation of Publicis Paris is the hardest. Usually, the validating process should be passed by Publicis Vietnam – Publicis Singapore – Publicis Paris, which take longer time. Recently, L’oreal Vietnam team choose to passe by L’oreal Asia – L’oreal Paris – Publicis Paris for higher chance of validation

2. Prêt-a-porter, Lingerie It is important to note that fashion in Vietnam is mono-seasonal. The demands for luxury reade-to-wear used to be very limited in Vietnam. In fact, the Vietnamese consummers only purchased luxury clothings very occasionally and in limited quantity. Also, some well-known foreign brands, principally italians and britans are present in the market, and the proposed collection are generally incomplete (only Spring/Summer collections) and not up-to-date compared to thoses of Occident market. This weakness of the luxury ready-to-wear market can be explained by the low price of fabrics and materials and the workforce in Vietnam. Also, tailored clothes are particularly popular and Vietnamese consumers used to not contribute a large budget for clothing. However, since 2006 with the apparition of a lot of foreign brands, the vietnamese consumption habits have changed dramatically. Thanks to the development of adapted commercial surface, as well as the apparition of leisure activities (clubs, bars, opera…) consumers started to spend more for luxury clothes. Since then, the market has enjoyed extremely high growth rate with the arrivals of big fashion brands. The website of Asian Clothing & Fashion, a business information center for the fashion industry has interviewed young businesses men and women in Vietnam about their fashion spendind. International fashion and lifestyle magazines such as Elle, Bazaar, Harper’s Bazaar, and the famous local one Dep (beautiful) has significantly contribute to promote high-class fashion. Those magazines also play a important role in introducing Vietnamese people to foreign trends, as well as creating brands awareness among consumers. Most of young people are early-adaptors, any new comer to the market with proper communication campaign has enjoyed dramatic sale increase. Well-known luxury fashion brands are Gucci, Prada, Burberry, Versace, Dolce&Gabbana, Gianfranco Ferré, Just Cavalli and lingerie brands Aubade, Chantelle There is also a strong development of high-class local brands. Khai Silk was the most famous local luxury brand created in 1980, specialized in clothes made by silk. The brand has consolidated its position not only in the country but is also expending to international markets. In addition, some 23

experienced and young designers graduated from local or international schools are creating their own brands offering more diversified to customers who look for specialties. No longer just acting as subcontractors to foreign partners, some domestic apparel companies are lifting the profile of Vietnamese-made fashion in the local market. Young designers for Eternity Gruz, a brand owned by the garment company May 10, combine luxury and practicality into their product lines. Other players such as Viet Tien, Nha Be, Phuong Dong have been experienced garment companies and subcontractors in the market, now started to upgrade their products quality to enjoy the promising fashion market. Lingerie: 

Demands for luxury and haut-de-gamme lingerie are still limited



Vietnamese men purchase very rarely lingerie items for their wives or girl-friends



The consumers privilege bras with frames and paddings, and the most popular size is B



They can wear slips or strings but not are not used to tangas, popular size are 36-38



Vietnamese consumers are very classics in choosing colors: white, black and complexion



Transparent items are difficult to sell



Comfort is the main criteria for buying decision

3. Leather and Accessories French and Italian luxury brands are popularly preffered for their creativity and elegance. Most of those brands outsource their production in South East Asia countries and some Vietnamese leather brands products of good quality. However, local names cannot compete with international brand names due to the latters’ well-known prestige and history This market sector is in full expansion with numerous distributors who chose to invest for luxury accessories, especially leather before turning to ready-to-wear sector. The main advantage is leather goods do not suffer strong seasonal effects compared to clothing, and their price s relatively abordable. Internationally well-known brands were introduced to the market for years such as Louis Vuitton, Bally, Salvatore Farragamo, Furla, Longchamp, Dunhill, Bally, Lancel… Other accessories such as belts, eye wears, scarfs … enjoy the increasing demands with diversified needs to satisfy. Accessories is considered as a entrance gate for consumers to the luxury world because of its afordable price but still allow consumers to distinguish themselves and show their social status. Bags 24

-

The models of zebra-striped or leopards bags are best-sellers in Vietnam as the consumers look for trendy and ostentatious bags. They want designs that can show the values and sotisphicated details. Small shoulder strap and colored bags are also privileged.

-

Bags made by suede are difficult to sell because they are considered dirty

-

Local products are very diversified and are improving in quality, foreign brands should be able to justify their high price with better quality.

Shoes: Vietnam is the 3rd world producer of shoes after China and India but the products are estentially in sport sectors. Foreign brands like Adidas, Puma, Nike, Converse have been popular in the country for years. For fashionable shoes, the market is still very young with only some brands like Jimmy Choo, Nine West, Bally, Balenciaga, Salvatore Ferragamo and the recent comer Christian Louboutin since last August 2011 The italian Salvatore Ferragamo has celebrate its 5th exclusive brand store opening at the Rex Hotel Arcade in Ho Chi Minh city March 2011. The brand was one of the pionner to the market with its first store opened March 2006. “Vietnam is a very promising and highly prestigious market, we have great expectations for the future, and we are proud to offer the same exciting shopping experience of other international fashion capital to our sophisticated Vietnamese clientele.” said Michele Norsa, Managing Director, and General Manager of the Ferragamo Group who attended the ceremony. With a surface area of roughly 200 square meters, the new boutique offers a complete range of Ferragamo products.

4. Jewelry, Watch The vietnamese jewelry is still remain very traditional in both fabrication and design. Classic designs set with diamonds or jade are largely appreciated among consumers. Distributors and importers are often cautious to bring prestigious international brands to the market because of two reason. Firstly, imported taxes are high. Secondly, the buying method of imposing a minimal volume of pieces applied by foreign brands are percieved risky for importing agents. Only few jewelers have joined the vietnamese market but he situation has improved rapidly and many new brands announced their presence since 2007 Except japenese brands and Cartier, the upscale and luxury watch market in Vietnam is dominated principally by Swiss watchmakers such as Longiness, Rado, Rolex, Tag Heuer, Chopard, Piaget… -

Technical watches are not very privileged. Lack of watches collectioners

-

Purchasing criteria: price and design

-

White gold is more preferred than yellow gold in Ho Chi Minh than in Ha Noi

-

Pens are usually purchased for gifts

-

Customers rarely customize their products 25

5. Home equipment and Real Estate Luxury home decoration sector in Vietnam face a real concurrence with local brands as Vietnam is specialized in producing and exporting furniture and home decoration items. The main companies specialized in importing items for home equipment and decoration are Eigh Lions, Pho Xinh and An Duong for furnitures from Europe. Those importers manage commercial locations situated at the same times in residential districts of the big cities and also some stores implanted in luxury commercial centers of Ho Chi Minh City and Hanoi. Eigh Lions has recently launched its new brand “Home Studio Plus” with a corner at Parkson and some locations in the center of Ha Noi and Ho Chi Minh city. Principal implanted brands are Christofle, Leonardo, Spinella, Alessi The customers often priviledge the set of furniture in rooms that are visible by visitors and guests such as living room, dining room. Some Vietnamese consumers, similarly to Chinese culture, decorate their houses based on the principles of Feng Shui for purpose of harmonisation the energy of the space to favor the health and well-being of the owners. The rapid blossming of real estate sector with the increasing numbers of luxury residences encourages the development of interior design sector . Wealthy people demand condominums, penthouses with more sophisticated decoration. Influenced by new magazines of decoration and architecture, nouveaux riches invest the more and more in their housing equipment.

6. Entertainment (Golf, Spa) Similarly to other Asian countries, golf is the main leisure sport for the high society. In 2007, there were around 15 golf clubs in Vietnam plus another 15 ongoing projects with the license of investment already signeed. Spas constitute somehow an feminine equivalence of golf. It is hard to enumerate the existence of luxury spas incorporated in 4 –stars and above hotels. Also, the apparition of foreign spas with the great notority from over the worlds has brough the international leisure standards to the market such as l’Apothiquaire, Qi (Shiseido), QT Salon (Clinique), Clarins

Distribution 1. General characteristics of luxury goods distribution in Vietnam There is an actual revolution of distribution in Vietnam. Commercially, from 2008, the obligation for foreign firms or FDI to have only one distributor for the whole country has already partially raised, allowing the presence and the penetration efficiency of foreign brands into Vietnamese territory. Most 26

importantly, in the point of view of foreign implantation, after 2009, the distribution sector started to be completely open to foreign investors, who can own 100% capital of their boutique, or any distribution structure (Ubifrance, 2010). Suffering from numerous deficiencies, logistic is certainly one of the most delicate problems in Vietnam, notably in land transportation, which causes the market to be divided into different parts along the morphological North/ South of the country. Because of the inefficient transport of merchandises on land, enterprises often have recourse to maritime and fluvial transportation, which benefits from a more developed infrastructure and the presence of international logisticians at the ports. In the financial plan, the practices done by wholesalers and retailers stay rudimentary and largely inadequate to international trading, forcing foreign suppliers to pass by intermediaries. There is an almost systematic application of consignment sale in which foreign suppliers send goods to the reseller who pays them only as and when the goods are sold. This working method is traditional in Asia, still remains one obstacle for foreign brands who wish to enter the market, especially for the goods which have expiration date or used under temporary trends. In addition, the payment of retailers to wholesalers is generally by liquid, which do not favor direct exchanges between both parts. This leads to an organization of a complex and often costly logistic. However, the retailing sector is going through a period with tremendous changes, notably in two extremities, with the development of mass-market and on the other hand, the apparition of a luxury market. From 2006, the acceleration of luxury brands’ implantation to Vietnam is clearly seen. Real estate investors, high-class boutiques, and arcades commercial of big hotels are contributing to the rise of this segment by multiplying the surfaces more adapted to luxuries. An increasing number of commercial firms and investors are entering the Vietnamese luxury market, including all sectors: hotel, restaurant, cosmetics, spas and entertainments… This development is accompanied by a higher bid between investors to be able to be present in the best locations, contributing to the skyrocketing of the real estate price in cities centers as well as nearby urban peripheries. Only 150 000 to 200 000 m2 of ground are available for the cities of 8 million inhabitants Ho Chi Minh City. Despite being more flexible since the adhesion to WTO of 2007, the legislation used to allow only 49%-owned for foreign firms, making obligatory the local partnership. The engagement taken by the Vietnamese government of total opening of distribution sector from 2009 will make a more dynamic market, which is already favored by a strong growth rate. The apparition of new foreign players, but also nationals, will consequently create new forms of distribution (for instance franchising, branch office) that allows new channels for importers. Also, there is the new ways of packaging, merchandising 27

and more diversified choices of communication and advertising… Those opportunities are still being difficult to quantify, but are truly potential.

2. Chosing the right distribution system The new legislation has allowed 100% owned subsidary in Vietnam. Subsidary allows many advantages such as : in-depth marketing development of specific message to Vietnamese market, the sale of products at wholesale price, and a more impressive brand image at the local market (Chevalier M. and Mazzalovo G., 2011). However, only the giants and well-established brands such as Louis Vuitton, L’oreal or Esteer Lauder can afford for this distribution system due to the heavy cost of establisment and operation. Also, sale volume of some luxury producst in Vietnam is still low to cover the expenses necessite at the introduction phrase. Most of the cases, it is less risky and costly for foreign brands to firstly enter the market via a local distributor or importers, and after certain succes, the brands may consider to open their own subsidaries. The local distributors purchase goods with their agents, and are responsible for the stocks and sale performance. This system constitutes, as a result, an approach less costl as the distributors represent as the same times several brands to spread the distribution cost. The experienced distributors can assume all the financial risks for the brand in the market, and are generally able to obtain premier locations that meet the brands’ image and to negotiate reducted costs for advertising using their power of having a rich porfolio of brands. As the Vietnamese market is totally different from Western countries, specific approach strategies are crucial for the succes of the brands, even for those who have been succeful in other asian countries. Having the knowledge of the local market , the distributors can offer to the brands appropirate entrance methods, which efficiently reduce the market research costs for the brands. Some well-known distributors in the market such as An Tran, Apple Tree, C&T group, Eight Lions, Duy And Co.Ltd … have established strong distribution channels over the country, bringing luxury brands from all over the world to the market. Each distributor is specialized in one market sector such as fashion, cosmetics, perfume, accessories etc. to efficiently build up their specialized distribution channels with tailored promotional strategies. Besides the advantages listed above, this system of going through local distributors reduce the control of the brands over the promotional and marketing campaigns as the distributors, in some cases, choose themselves their marketing plan rather then following the brand’s recommendations. Also, relationship brand – distributor is crucial for the brands’ success in the market due to the typologie of vietnamese society where businesses rely heavily on relations. The first important criteria is trust. One distributor can be excellent for some brands which have good mutual relations and at the same time, a worst partner

28

for thoses which have no trust. Once a brand failed in the market due to damaged brand – distributor relationship, it is very difficult for the brand to rebuild its image, even by switching distributor.

3. Rapid development of distributors/ importers Many world-well-known brands have entered the market, making a very effervescent landscape. Some have been present in Vietnam for more than 12 years like Louis Vuitton, one of the first entrants on the Vietnamese market, have been operating two stores, one in Ho Chi Minh, and a second one in Hanoi, within the Sofitel hotel. Gucci have been operating two stores in Vietnam, one in Ho Chi Minh City (Sheraton Hotel) and the second one in Hanoi (Hong Kong Land Centre). Hermes is represented with a mono-brand store in Hanoi, within the Metropole Arcade at the Sofitel Hotel.

Among the latest

openings was the first mono-brand store of Cartier in Ho Chi Minh City earlier this year, within the Rex Hotel situated in the center of the city. Cartier plans a second boutique in Vietnam and this store would possibly be in place in Hanoi in the future. Other top jewelry brands operating mono-brand boutiques in Vietnam are: Piaget (Continental Hotel), Chopard (Diamond Department store). Through its local exclusive distributor, Rolex is present with two boutiques, one at the Diamond Department Store and one within the Rex Hotel, both in Ho Chi Minh City The number of enterprises active in the luxury sectors has been increased considerably in the period of 2005-2006, notably in the fashion-related fields. It is estimated that around 70 firms are distributing for luxury brands in all sectors combined: -

Around 20 in Perfumery

-

Around 15 in Fashion (ready-to-wear, accessories…)

-

Half-dozen in Watch and Jewelry

-

2 to 3 in high Technology (Bang & Olufsen and Vertu)

-

Around 40 in Leisure services (golfs, spa, cinema, bar and high-class nightclubs…)

-

Half-dozen of Hotelier groups which manage 5-stars hotels.

-

Half-dozen in Fine food and beverage, including wine

(Please refer to Appendices for the detailed lists of distributors, importers and their porfolio of brands as well as their distribution locations) As the Vietnamese luxury market is still young, even with the most extended distribution channels contain rarely more than ten locations. In addition, beside some enterprises which are specialized in a specific sector, some distributing firms are building a portfolio of brands and activities that allow covering a larger spectrum in many luxury fields. It is a very recent phenomenon of some firms that have been successful in this development path. This was the case of only some such as Thuy Loc 29

(cosmetics, spa, ready-to-wear, leather, shoes, real estate…), Openasia (automobile, jewelry, fashion, high technology, real estate…), Apple Tree (real estate, cosmetics, tourism, fine grocery….), Imex Pan Pacific/ Duy Anh (fashion, cosmetics, duty free), Khai Silk (fashion, catering, real estate…), Eight Lions (home equipment, fashions…)

4. Insufficient commercial surfaces adapted for luxury distribution Real estate stocks in Vietnam are totally satured The Vietnamese real estate market is actually characterised by a profound shortage of offerings, the undertaken of numerous construction site and the

extremely high prices. The occupation rate of

residentials, offices or hotel businesses are superior than 95% and the price are at least comparable and often higher than in big capitales of neighbor countries : 4 time greater than Manila or Jakarta. The shortage of real estate stocks has the same effect for commercial surface, and this weakness represents a real constriction for luxury market. Even though building projects are multiplying and upscaling since 2006 when the authority announced an increase of 42% investment flow for real estate, an expectation of the balance between demands and by 2009 remain difficult to achieve. In 2006, all rare additional surface announced for 2007 such as Pacific Place, Opera View were already already rent before its inauguration by Louis Vuitton, Zegna, Burberry. The same case for projects of 2008 such as Paragon, Saigon Pearl, Asia Tower were all reserved in 2006. Only by 2009 with the opening of many department stores in the city centers such as Tax Center, Time Center, Kumho Asiana Place in Ho Chi Minh city , and Opera Business Center, Ruby Plaza in Hanoi that the situation started to cool down. However, there are still unsatisfied needs of adequate locations for luxury brands. While waiting for future projects that are expected to solve the problem, the only alternative for the brands is to rent boutiques on the streets, which is risky due to the juridic insecurity in Vietnam in the real estate field (no recognition of goodwills, rental contract limited to 2-3 years with no garuanty of renewal , the complexity, and sometimes the opacity of local administration) Distribution of luxury products and services is traditionally concentrated in only some districts of Ho Chi Minh city and Hanoi, and recently, in some Department Stores Contrary to many other asians cities, the city centers of Ho Chi Minh city as well as Hanoi have the advantage of having some main streets (Dong Khoi and Hai Ba Trung in Ho Chi Minh city; Ly Thai To

30

in Hanoi), and even districts (district 1 in Ho Chi Minh city and Hoan Kiem district in Hanoi) which are reputed for being dedicated zones of luxury or, at least, upscale products. The choice of a location in Ho Chi Minh city is still easy insofar as the streets and commercial centers are all concentrated in a quite restreint radius of the District 1, while the positioning of actual and future commercial centers in Hanoi is much more scattered.

HCM city

Hanoi

Positioning of commercial streets and upscale Deparment stores in Ho Chi Minh city and Ha Noi (Syrena, Asia Tower and Ruby Plaza are situated outside the map)

5. Locations in Ho Chi Minh City and Hanoi for luxury retailing Locations in Ho Chi Minh city: Hotels: 

Sheraton : Vertu, Longiness, Prada, Gucci, Tod’s, Dolce & Gabbana …



Caravelle, belongs to Saigon Tourist : Dan Jewelry, Jeager Le Coultre, Chopard, Gucci…



New World , Marriott Group: Ipa-Nima, Dunhill, Carita/Decleor, Shiseido, L’occitance, Clarins…



Park Hyatt, Hilton Group: Giorigo Armani, Max Mara, Prada…



Rex Arcade: 2000 sm of luxury boutiques for Chanel, Burberry, Salvatore Ferragomo, Cartier and Ralph Lauren (CBRE 2011)

31

Department Stores: 

Parkson, belongs to the malaysian Lion Group, was the first truly international depatment store of 17.000 m2 to be opened in Ho Chi Minh city by 2005 by signing a contract with Saigon Tourist, and then the 2nd in Hai Phong city. Parkson dispose a license for open in total 10 department stores in Vietnam and 7 have been opened so far : 5 in Ho Chi Minh city, 1 in Ha Noi and 1 in Hai Phong (18.000 m2 inside TD Plaza where located Clinique, Clarins, Lancôme, Estée Lauder, Lancel, Calvin Klein, Elle, Levi’s)



Artex Plaza (alias Opera View) : property Artex Saigon, subsidiary of Satra, the galery was opened in 2007 with a modest size but ideally situated at the angles of two important commercial axis Dong Khoi and Le Loi, in front of the Caravelle Hotel. The first floor is reserved for luxury brands Louis Vuitton, Zegna, Burberry, Salvatore Ferragamo, Bally. The 5 other floors of Opera View are principally offices.



Time Square: a complexe of residential, hotel, offices and distribution surface for upscale products with 43 floors on 4500 m2 , built by Larkhall in joint venture with Savico – a big vietnamese enterprise and real estate developer.Located in the very center of the city, between the Le Loi avenue and Dong Khoi streee, this project of $95 millions finished its construction in 2009.



Saigon Paragon: its real estate developer is the stylist-businessmen Hoang Khai – the owner of the luxury vietnamese brand Khai Silk, and Mme Le Hoai Anh – the director of Thuy Loc distributor. It is a commercial galery of 8000 m2 in the heart of the new high-class residential district Phu My Hung. It was opened by 2008 with the presence of ready-to-wear brands Kenzo, Jean Paul Gaultier as well as cosmetics brands Shiseido, Clarins, L’Occitane

Commercial Centers: 

Saigon Center: Developed by the singaporian firm Keppel Corporation in joint-venture with Sowatco&Resco, the building is situated in one of the principal commercial axis of the city. This center is specialized in furniture, luxury interior design, kids wear and toys.



Diamond Plaza: Belongs to the korean investor IBC Corporation in joint-venture with Vietnam Steel, this center was the first upscale one opened in 1995 and restored in 2001. It is situated in ce 32

heart of Ho Chi Minh city, in front of the cathedral Notre-Dame. Although Diamond Plaza has some aspects of a department sotre, it has no proper distribution activity and operates like a classic commercial center with the presence of Bulgari, Shiseido, Clarins, Gucci, Cartier, Mont Blanc, Longchamp, L’Oréal, Furla, Salvatore Ferragamo… 

Saigon Pearl : a real estate project positioned as an upscale standard, developed by Vietnam Land SSG in joint-venture with 7 vietnamese enterprises and the group Sun Wah from Hong Khong. It was partly constructed by Bouygues, consists of 8 towers of 37 – 40 floors, plus 162 villas and a haut-de-gamme commercial center of 40.000m2 . Inaugurated from 2008, althought being far from the city center, this commercial center has the capacity to position itself correctly at an upscale standard with its size and its location in the chic residential district An Phu and the future business district Thu Thiem.



Tax Center: The historic commercial center of the city belongs to the public group Satra (Saigon Trading Corporation), it has 5 floors and locate just in front of the City Hall was completely distroyed and replaced by a real estate program of 43 floors. The investment was $121 millions

Locations in Hanoi Hotel: 

Métropole Arcade, situade in Sofitel Métropole: Louis Vuitton, Cartier, Chopard, Montblanc, Salvatore Ferragmo



Hilton: Furla

Department Stores: 

Trang Tien Plaza, belongs to Vinaconex, a big vietnamese construction firm, renovated in 2005. This store of 8000 m2 is situated in the heart of the capital, just next to the Hoan Kiem lac. However, its positionment in the luxury sector is not yet not totally affirmed as the infrastructure is just above the average standard. Some upscale brands like Valentino Rudy, Elytis (frangances distribution) or Pierre Cardin, Philippe Charriol, Samsonite… are present here.



Vincom City Tower: belongs to the ukranian-vietnamese group Vincom Jcs, opened its first tower in 2004 and the 2nd twin one in 2010 with 6 floors reserved to shopping mall.



Ruby Plaza: a complex building of 16 foors, specialized in selling jewelry, precious stones, diamonds, and also perfum, cosmetics and accessories.

33



Pico Mall : The newest one opened in September 2011, belong to Pico Ltd and CBRE Vietnam is the biggest department store in Hanoi with 30 000 m2 of surface

Commercial Center: 

Ocean Park: Commercial galary 5000 m2 welcomes about 15 exclusive boutiques of ready-to-wear and accessories italian brands: Gianfranco Ferré, Versace, Versace Sport, D&G, Roberto Cavalli, Just Cavalli…



Pacific Palace: Residential complex with offices and commercial centers belongs to the french investor Jaccar. It was opened in 2007 with the 2 first floors of 9.000m2 consist of luxury boutiques



Syrena: the first commercial center of West Lake zone opened in 2007, offers a commercial surface of 5000m2 for boutiques of ready-to-wear, accessories and jewelry. Chesterton is the principal agent renting boutiques spaces.



Opera Business Center: launched in Mars 2007 and managed by the real estate developer CBRE which reserved its ground floor for the big luxury brands



Garden Shooping Complex: Garden I Bitexco was the 2nd development phrase of the project The Manor already present in Ha Noi and Ho Chi Minh City. This complexe of 51.000 m 2 has a upscale commercial center of 5000 m2 was opened at the late 2007 with one part dedicated to the promotion and launching of new brands.

Duty free shops 

They are situated in international airports and ports of Ho Chi Minh City, Da Nang and Hai Phong as well as some border gate to China, Cambodge and Laos. There are some duty free boutiques in the center of Ha Noi and Ho Chi Minh city but the sale volumes are unimportant.



The duty free market is developed under the effect of the increasing number of tourists and the “mise a niveau” of 3 principal airports of the country with the increasing number of passengers via 34

international and national terminals. The turn over was about $150 million (2006) and the market is controlled by only 2 firms : Savico and Imex Pan Pacific (disposes 80% of market share) Locations in other cities 

TD Plaza: Commercial complexe consists of 2 towers situated in the center of Hai Phong city and is managed by CBRE



Vinpeeal Tower: The famous touristic international destination opened in 2007. The project was developed by the rusian firm Technocom who is also the owner of Vincom City Tower in Ha Noi.

6. Retail Market Updates for 2011 Ho Chi Minh City The table below illustrates the supplying situation of Department Stores and Shopping centers from 2008 and the future new vacancies expected for this year 2011

The below table summarizes the changes in retail market of HCMC by Quarter 2 of 2011. Comparisons of vacancy rate and rents price have been made with the 1st Quarter and last year’s .

35

According to the lastest report of CBRE, Ho Chi Minh Market Insight 2011, the overall vacancy was higher than the last quarter of 2010 due to the opening the new Department Store and Shopping Center. Centre Business District (CBD) department stores rent increased by 1% to an average of $125.38 US psm / month as renovations have been made in some shopping centres. There was new boutique shop grand-openings such as Burberry, Cartier (Rex Arcade) and followed by Chanel, Bulgari and Ralph Laure. Rent in non-CBD shopping centers continue to decline to around $33.13 psm due to its disadvantage of their location, and catchment areas. The rents in prime locations would still increase in the next four quarters due to a lack of avaialble space. However, more projects of Department stores and Commercial center are under development and are expected to be ready for use in the near futures. Most of them locate in the busy District 1. New vacancies bring more choices for locations for luxury brands, and would help to decrease the rent price

36

Hanoi:

Total stock of the modern retail spaces in Hanoi decreased by 11.8% in the first quarter of 2011 as Trang Tien Plaza is temporary closed for renovation and the restructuring would allow it to achieve the premier status in the city. More new high-end and luxury tenants are anticiapted to enter the market Numbers of projects are lauching and leasing activities are beginning. Savico MegaMall and Mo Market was launched in March 2011. The giant Vincom revealed it aggressive plan of introducing 10 shopping centers nationwide with total GFA of more than 1 million squaremetres in the next 4 years under 2 brands: Vincom Center and Vincom Mega mall The rental price is continuing to increase in the Centre Business District (CBD) but decline outside the CBD due to the rent discount policies offered by some new buildings. In the next few year, luxury retailers will have more choices as the market is expected to welcome large new supply from major regional projects: Vincom Mega Malls (230.000sm), Royal City (200.000 sm) and Ciputra Mall (200.000sm)

37

7. Renting price of a corner or a boutique Department Stores:

Prime retail rents in Vietnam is quite high compared to South East Asia neighbours, even higher than Malina and Bangkok. According to the international real estate service provider Savills Vietnam, the high rent in the city center is a big challenge for current and future retailers. The increasing in price of those locations may cause retailers to look for other commercial surfaces outside the CBD with more reasonable rent. Luxury Department Stores like Parkson, Diamond Plaza are paid with a rent plus a profit sharing amount. In Hanoi and Ho Chi Minh City, department stores announe before negociation a rent price generally around $120 pms and a debit of around 30-25% from the revenues. For ground floor surfaces, the rent can be much higher, depending on the strategic location of the building (inside or outside CBD, on commercial axis…) We observe a continuous upward trend of rent inside the CBD over the years The rental of luxury and upscale commercial locations are managed by two foreign real estate agencies: CB Richard Ellis and Chesterton. The situation of quasi-duopole contributes an alignment of renting prices. 38

Boutiques: The rent of boutiques located on the streets present a larger price range due to variable factors and depend largely on the negotiation between two parts. The best locations often belong to State-owned organisms. The price maximum for an exclusive boutique in central street (such as Dong Khoi or Le Thanh Ton in Ho Chi Minh city) can be almost similar to a location in a Department Store.

Marketing and Communication 1. Magazines Luxury brands have a large choice of magazines to communicate their brand images. Just some years ago, it was hard to find a reliable and sophisticated magazines specializing in promoting luxury brands and target the audience. Nowardays, the apparition of Vietnamese version of internation high-end fashion magazines such as Elle, Harper’s Bazaar and other lifestyle magazines such as Cosmopolitan, Her World have greatly improve the dynamism of communication channels.

Beside Fashion

publication, high-end magazines specialized in different sectors such as cars, sports, food and beverages, watch and jewlery can help to tailor the marketing messages to specific customers High-end magazines are specialized in many luxury sectors -

Fashion and Lifestyle: Dep ( Beauty : the local but trendiest magazine acts a reliable luxurious

trend setter and fashion & beauty guide) , ELLE Vietnam, Harper’s Bazaar, Herworld, Cosmopolitan, Lady Luxury, Thoi Trang Tre (Fashion for the Youth), The Gioi Mot (The world of Fashion…) -

Sport : The Thao Van Hoa & Dan Ong (Sport Culture& Men) , Vietnam Golf Magazine

-

Business: Business Styles, Businessmen…

-

Car: Autocar Vietnam

2. Advertising, Media Used to be practically inexistent at the early 1990s in Vietnam, advertising has considerably developed, with the sector turnover of 300 million $USD by 2005, in progression of 50% compared to 2002. The advertising means are also more diversified, covering all the Media types, including television, radio, press, displays, and Internet. Only some weaknesses still exist in urban displays, which is still lowstructured

39

With an audience rate of 96% in Hanoi and 92% in Ho Chi Minh City (Ubifrance, 2011), the television still play a medium choice for advertising campaigns. In 2005, it received 70% of expenses compared to the press’s 28%. The other media means cover the remained market parts With the development rapid of Internet and mobile phone, the brands are using the more and more this communication support. Nowadays, there are around 3000 advertising agencies. 60% of which are implanted in Ho Chi Minh City. The market is dominated by foreign firms that represented 80% the activities of the sector. Local agencies

Foreign agencies

Dat Viet

Léo Burnett

Vinexad

BBDO Asiapacific

Kim Minh

J.Walter Thompson

Lotus Communication

Mc Cann-Erickson

Goldsun

Prakit & CB Public Company

Youth Advertising company

Dentsu Inc.

D&D

Olgivy and Mather Advertising

Viet My

Saatchi and Saatchi

Sunflower Media

Publicis

In term of policies, the advertising sector is strictly supervised. The foreign agencies still cannot enter the market through an affiliate 100% of foreign capital. They have to build an obligatory co-enterprise with a Vietnamese firm where they have to contribute at least 30% of the capital.

Constraints 1. Counterfeit market Numerous illegal production and distribution of counterfeit products, usually from China still supply for markets and boutiques in Vietnam. There is also illegal imporation of authentique products which are sold afterward in stores that do not have exploitation license from the brands. However, the Vietnamese authority started to be aware of the necessicty of banning the distribution and manufacturing network of counterfeit luxury goods. The Civil Code of 1995 included articles about the protection of interlectual property in Vietnam and this subject was discussed when the negociation for the adhesion of Vietnam to WTO Although counterfeit problem in Vietnam is not as serious as neighbour countries such as China or Thailand, it can be a real menace for the growth of luxury market. 40

2. Uncompetitive price due to heavy taxes and tariffs Imported products generally must incorporate the following elements into the pricing structure: -

Import agent fees (typically 1 to 2 percent of the invoice)

-

Customs duty, depending on product category

-

Value-added tax (VAT) in the range of 5 to 10 percent is levied on the landed cost when the goods change title

-

Luxury/Consumption Tax (especially autos, beer, and alcoholic beverages)

Import taxes, value-added tax (VAT), luxury tax/special consumption taxes, customs service fees, and delivery delays can quickly price products out of the market or cut margins. The fragmented distribution system creates multiple layers of wholesalers, dealers, and vendors, with markups at each stage. Moreover, foreign suppliers are often frustrated by their inability to maintain control over the product's pricing. Random and frequent price fluctuations are common for distributors and wholesalers Price plays an important role in the consumer's perception of the product. Although Vietnamese consumers expect to pay a premium for a foreign label or brand, in practice, the actual number of consumers who are willing to pay the higher price is limited. Most Vietnamese buyers are very pricesensitive. With the abundance of less expensive products in the form of smuggled or counterfeit goods and “copycat” brands, the competition is keen. For tourists, it is clear that luxury products in Vietnam are more expensive than other Asian countries, especially Singapore. The revenues brought buy foreign tourists are very little. Shopping tourist has always been attractive in countries like Singapore, Thailand, or Malaysia. Tourists only come to Vietnam for its culture and beautiful landscape but not for shopping. Also, due to the high price, wealthy local customers prefer to purchase luxury goods when travelling.

VII. RECOMMENDATIONS Products: -

The proposed collections have to be as up-to-date as those in Occidental countries. One current issue of the luxury markets is the gap between local collections and those in Occidental ones. The customers’ starts losing the trust into the local luxury market and only purchase when they travel outside their countries, believing they can get the latest trend. The creating of “limited edition” is a competitive advantage for brands, especially in this area, where the client really sick for being unique. 41

-

Having a long-term vision as the emergent markets need giant investment (due to undeveloped infrastructure, distribution channels) therefore the Return on Investment cannot be quick.

Place: -

Choose geographic emplacement strategic that is adequate to the image of the brands.

-

Controlling the distribution circuit of products and supervise the counterfeit market

-

Choosing a good regional partner in case of association with an intermediary

-

Having a visible, central, and convenient location is indispensible in expanding the brand’s exposure to its target customers. The lack of prime locations in HCMC is preventing niche/high end luxury

companies from further expansion while creating barriers to entry to new entrants. As a result, high-end luxury companies are currently expanding in Hanoi as opposed to HCMC. -

There is a general lack of distinction between “selective” brands and “niche luxury” brands as the words do not exist in the Vietnamese language. As such, consumers tend to categorize selective and

niche luxury brands into the same segment.

Promotions: -

Consolidate the communication: Sensitize and initiate the consumers to the culture of consuming luxuries, including brands unique character, products, services, history, and expertise.

-

The communication and relation are key factors to success that brands should not neglect. The welcome inside a boutique is very important, especially in Asian culture. The customers should feel being unique and recognized

-

Communication: Specialized magazines, word of mouth, and events are regarded by niche luxury brands as the most effective marketing channels to allure consumers. Intensive selection of invitees

list for events is necessary to ensure high attendance rates since a proportion of high-net-worth individuals prefer to keep low profiles. -

The majority of high net-worth Vietnamese is considered to be “nouveau rich”, with most unfamiliar with luxury brands. Education and brand management are critical to success.

-

Vietnamese consumers tend to be influenced by peers, especially friends, family, and celebrities. It is

also a common habit among Vietnamese nationals to observe other people in public places to become aware of new products and styles.

42

VIII. REFERENCES 

Chevalier M. and Mazzalovo G., Marketing et Management des industries de luxes, 2nd edition, Paris, 2011



Okonkwo U, Luxury Fashion Branding: Trends, Tactics, Techniques, 1st Ed, Palgrave Macmillan, 2007



Bastien V. and Kapferer, Luxe oblige, Eyolles, 1st edition, Paris, 2011



PRECEPTA, Les groupes de luxe dans le monde, Les défis stratégiques de la globalisation, Septembre 2007



Ubifrance, 2010, L’essentiel d’un marché



Ubifrance, 2010, Ouvrir un point de vente à Ho Chi Minh ville, Tisserand G el all



Ubifrance, 2011, POLI J., S’implanter au Vietnam



Les nouveaux modèles de distribution des maisons de luxe, Eurostaf, 2005



Asia’s temples of luxury – How consumer behavior will change in the dawning age of responsibility, Interbrand.



GLOBALTRADE,

“Using

an

Agent

or

Distributor

in

Vietnam”,

, 2010. 

CROWE HORWATH DTL AUDITING COMPANY, “Vietnam attempts to raise tariffs to restrict luxury imports”,

, 2010 

BUSINESS-IN-ASIA, “Asia’s inflation will cause economic slowdown”, , 2009.



LUXURY

SOCIETY,

“

The

important

changes

in

the

luxury

consumer”,

, 2010. 

CAMPAIGN

SINGAPORE,

“Luxury

and

the

new

consumer

mindset”,

, 2010. 

UNCOMMON

WISDOM,

“Asian

Luxury

Market

Sparkles”,

, 2010. 

DEUTSCH

BANK

RESEARCH,

, 2007. 43

“Understanding

Vietnam”,



LOS ANGELES TIMES, “Vietnam's nouveaux riches fuel luxury shopping market”, , 2007.



THE

SAIGON

TIMES,

“Young,

high-income

people

to

drive

retail

growth”,

, 2009. 

VIETNAM BUSINESS NEWS, “Vietnam spends $5.7Bln importing luxury goods in 2010: MoIT”,

, 2011. 

INDEX MUNDI, “Facts about Vietnam”, .



TRADING

ECONOMICS,

“Indicators

for

VIETNAM”,

. 

ASIA

FASHION

CLOTHING,

“Vietnam

Luxury

-

Brands

Extravagance”,


. 

VIETNAM LUXURY, “Grand Opening ceremony of the largest luxurious shopping mall in Vietnam”,

, 2010. 

VIETNAM LUXURY, “The Garden Shopping Center”, , 2010.



VIETNAM

LUXURY,

“Flagging

demand

for

luxury

property

in

Vietnam”,

, 2010. 

VIETNAM BUSINESS & ECONOMY NEWS, “How basic wage increase affects inflation in 2011 remains unknown”, , 2011.



VIETNEWS,

“September

inflation

set

for

small

rise”,

, 2010. 

VIETNAM BUSINESS NEWS, “Restraining inflation rate at 17% poses major challenge”, , 2011.



THANH

NIEN

NEWS,

“Inflation

no

barrier

to

luxury

binges”,

, 2011. 

CPP-LUXURY, “Vietnam, among the fastest growing luxury markets worldwide”, http://www.cpp-luxury.com/en/vietnam--among-the-fastest-growing-luxury-marketsworldwide_1059.html>, 2011.

44



PRLOG, “Luxury travel increasing in Vietnam - Luxury Travel Vietnam Group Reports”, , 2008.



GOLIATH, “Driving consumer behaviour: an analysis of middle-class consumer habits in Vietnam.”, , 2010.



VIETNAM BUSINESS FORUM, “Vietnam Is One of the Five Most Lucrative Retail Markets”, , 2011.



ECC INVEST, “Participate in Vietnam”, , 2011.



INTELLASIA,

“Spike

in

imported

luxury

consumer

goods

bleeds

forex”,

, 2008. 

NIELSEN, “Doom or Boom in Vietnam in 2009: What will the global economic tsunami wash upon Vietnam's shores?.”, < http://www.acnielsen.com.vn/news/BoomorDoom.shtml>, 2009.



NIELSEN, ”Keeping Up with Generation V, One of the World’s Youngest Populations”, , 2005.

45

APPENDICES: Luxury Brands and Distributor in Vietnam Distributo r/ Importer

Section

Brand (s)

Communication/ Marketing

City

Store (s)

An Tran

Accessories specialized in eye wear

Brands of the Italian group SAFILO, Bulgari, Roberto Cavalii, Prada, Versace, Gucci, D&G, Fendi, Giorgio Armani, Max Mara, Ray Ban, Police Distributor of leather bags from Just Cavalli, Missoni, C&C, Exit

Fidelity program with price deduction. Events: fashion shows, PR and pubs in magazines

HCM

Cosmetics, Perfume, Tourism, Wine

Exclusive Importation, Distribution: Annam Fine Food: The Warehouse (wines Baron Phillipe de Rothschild, Joseph Drouhin, M.Chapoutier, Georges Duboeuf, Louis Rosderer, Antinori) Annam Prestige (Lancaster and Coty brands: Marc Jacob, Kenneth Cole, Lancaster, Sarah Jessica Parker, Chopard, Davidoff, David Beckham, Adidas, Lulu Castagnette, Aspen, Jovan, Joop!) , Hospitality Equipment (Schoff Zwiesel)

Public Relation

Own distribution channels: EYEWEAR HUT, SUNGLASS, OPTIC One luxury eyewear boutique in Park Hyatt (2005) A lot of prestige locations Caravelle Hotels, Diamond Department Store Metropole Arcade (Cartier, Montblanc)

Haut-de-Gamme and Luxury brands: Calvin Klein, La Neige, OPI,Tony Wear, The Undershop, Red Earth, Guess, Polic, Zinth, Swarovski, Lancel 3 parfumeries called Zen : Lotita Lempicka (exclusive), Guess, Lancôme, Cartier, Guerlain, Christian Dior, Calvin Klein, Chanel, Boucheron, YSL, Versace

-Hire designers for the merchandising in sale locations. -Events, advertising in local magazines, “echantillon”, partner, “atelier de maquillage”, affichage, celebrity endorsement (Ex: Lancel was launched

Importer, Distributor

Apple Tree Importer, Distributor, Fabricator

C&T Group Distributor

Cosmetics, Leather, Fashion Accessories

HCM

HN

HN, HCM, Hai Phong

45 locations through Vietnam Lancel: Parkson HCM and Hai Phong

Year of Establi shmen t 1990s

Empl oyees

Came to VN 1992

1992

Customers

Notes

Middle to Upper class , local

96% of international eyewear brands market

3000

Perfumes: sophisticated, young active women (executives in Vietnamese and internationals enterprises)

French company implanted in Vietnam, started in tourism then real estate and distribution Tourism, Leisure: Exotissimo, Emeraude Classic Cruise, Kamu Lodge Real Estate : Archetype, Imo Development, Bamboo Factory, Lacquer Factor

550

Majority of clients are women

Started with the name Saigon Trade Co., and transformed to “societe par actions” in 2000

DAN JEWELRY

Jewelry

-Alphana: high-income customers ($500-$ 100 000/ ring) -Dan: wealthy people with different collections of precious and semiprecious stone ($300 - $60 000/ ring)

Fashion, Leather, Cosmetics

Exclusive of Salvatore Ferragamo, Lancôme (launched 2006 at Parkson and Diamon Plaza), Bally…

Decoration, “art de table”, fashion

-Decoration: Christofle (exclusive), Daum, Wedgwood -Bedroom: Sealy, Santas, Frette, Schlossberd -Bathroom: Spirella, Alessi -Spa: Mt.Sapota -Kitchen: Siematic, Leifheit, Peugeot, Afi, Siemens, Rubbermaid -Epices: Mc Cormick Fashion: FCUK, Hermes (watches) Furla

Fabricator Distributor

DUY ANH Fashion and Cosmetics CO. LTD

on 2007 at the Opera Hoc Chi Minh with invitees from Vietnamese authorities, medias, and represents of Richemont Asia) Merchandising: group of 4 internal designer + freelance Using principally PR activities: events cocktails Don’t use brand embassadors Fidelity card from $5000 for price reduction

HCM

2 boutiques: DAN JEWELRY (Caravellle Hotel) and ALPHANA (Dong Khoi street)

Written press articles.

HCM and Hanoi

Parkson, Diamond Department Store

-Written articles.

HCM

Diamond Department Store, Parkson, Zen Department Store

-Relation de presse -Events -Direct marketing: emails, phone calls to

HCM et HN

3 locations -Diamond Plaza (HCM) -Hilton Hotel

Weeding rings purchased by men, mother-in-law Payment in liquid Best seller: rings and earrings Sale increase from October - Mars 25 to 60 yo, 60% locals, most foreigners are Australians 1994

Importer Distributor

EIGHT LIONS Importer Distributors

GOLDEN SUMMER Franchise

Leather and accessories

2 types of customers: - “particuliers” (important sale) -Hotelier industry

2000

3 targeted customers: locals, expats, tourists -Hanoi: “officiels”,

Imported diamonds from Belgium and Hong Kong The firm wishes to diversify its activities by distributing leather/eyewear products Short-term goal: to become the national incontrovertible in the Vietnamese jewelry and accessories market -Lancôme: Late arrival to Vietnam and already had 40% of cosmetics market -Developing in luxury duty free sector as the husband of the chairwoman is the president of IMAN PAN PACIFIC (main actor in duty free) -Private firm, American capital

Started being a consultant, and developed into distribution retail in

privileged customers -Service of “entretien” of bags

(HN) -Opera view (HCM)

KIM YEN Trading Co. LTD

Fashion, Cosmetics

-Lingerie: Aubade, Jenna, Huit -Cosmetics: Decleor (exclusive), Carita

-Advertising, brochures

HCM

-Carita/Decleor: 2 beauty salons, 2 corners at Diamond Plaza and Parkson -Aubade: 2 boutiques and 1 corner at Diamond Plaza

LA NEIGE

Cosmetics

La Neige is a Korean brand of AMORE group

-Big-format visuals provided from mother company with Korean models. -Free product sample, fidelity program with 80000 members (2007)

HCM, Ha Noi, Hai Phong , Nha Trang, Hue

-50 locations : in department stores, 4-5 in every big cities

Exclusive : -Watches: Bulgari, Gucci, Cartier (for both Vietnam and Cambodia), Montblanc, DKNY, Armani, Fossil, Rolex, Chopard -Leather: Cartier, Montblanc -Stationeries : Montblanc, Cartier

- Magazines and affiches - Direct marketing - Relation de presse

Importer Distributor

ONE WORLD Distributor

HCM

HN

OPENASIA Group Distributor

Fashion, Accessories Leather Cars

-Exclusive distributor for Louis Vuitton (1999), direct management of the brand in Vietnam -Leather: Hermes (2007) -Lingerie: La Perla

A lot of Public Relation

HN HCM

A lot of prestige locations in Vietnam -Carevelle hotel, Diamond Department Store -Metropole Arcade (Cartier and Montblanc) The firm has a luxury commercial arcade of 1000m2 in the

1995

70

1988

1998

men spend more than women -HCM: business men, private entrepeneurs -Women >30 with high purchasing power -Past: 80% expats. Now: 70% locals -Sales peak on March for international women day -Men rarely purchases lingerie for their wives - Sales peak from September to Lunar New Year. Important profit made by gifts purchasing - Active women 2545 yo

2004 with careful study of Vietnamese market

- Only 2% vietnamese purchase occasionally Cartier - Average age : 2830, most are men - 20% purchases are for glfts

-Vietnamese representation of Singapore firm Luxury International PTE LTD -From 2010, all products range of Cartier are available in Vietnam

Rich Vietnamese that gained from stock market

Hongkong holding firm, created by French “actionnaires” The firm also include 12 firms (Openasia

-Under the control of C&T Corporation - Higher price compared than products in Korean due to heavy imported taxes -Sales are made more in HCM than HN

-Jewelry: Korloff -Cars – exclusive : Chevrolet, Volvo, Audi -Entertainment : Bang&Olufsen (exclusive) -Owner of Catherine Denoual Maison (linge maison brode) distributed in “reseaux selectifs” (Lane Crawford in Hong Khong, Harrod’s in London) and one own store in HCM, and Gaya(concept store 450m2 in HCM) Editor of luxury magazines -Gourmet Saigon (mini guide of local Michelin in English once a year) and -Rest Relax Magazine (specialized in spas and salons) -Thoi Gian (Times) – Jewelry and Watches, used for references to professionals of the sector -Doi Moi (Reforme) to introduce luxury brands to Vietnamese consumers within 6 sectors fashion, accessories, cosmetics, decoration, lifestyle, jewelry (2007) 300 international brands : haut de gamme and luxury -Fashion: Soda Exchange, Baleno, Eternity… -Perfumes, Cosmetics: DTNY, Tommy Hilfiger, Estee Lauder, Shiseido…

ORIENTAL LTD Editor

PARKSON Co.LTD Agent, wholesale, distributor

PHUONG PHAT Co.LTD Importer Distributor

Perfumes Cosmetics

Imported about 2000 references per year, distributed in 9 ParisFrance “parfumeries” : Hugo Boss, Lacoste, Gucci, Dunhill, Escada, Valentino, Dolce Gabbana, Jean Patou, Montblanc, Anna Sui, Laura Biagotti, Giorgio Beverly Hills, Max Mara, Kenzo, Givenchy, Make Up

best street in HN and 260m2 (3 boutiques in Opera Center HN (Korloffm Kenzo, La Perla)

Partners, Openasia Capital) and consultancy for luxury brands to enter Vietnamese market -Luxury activities only started from 2005 although Louis Vuitton was already introduced in 1999 -Bicultural employees

Pacific Place (Band&Olufsen)

The magazines are available in salons of airlines companies, clubs, private suites in hotels, luxury restaurants in HCM and HN

-Magazines -Promotional and fidelity programs with multiple benefits: reduction in restaurants, clubs and coffees; accumulating points for gift voucher -Events: party for special member 5 times a year -Local magazines -Posters -Advertising in cinemas -Launching events (for example Kenzo Amour was launched with a luxury dinner on the bank of Mekong river)

2003

HCM,

4 locations in 2 opened in 2005 (17 000m2) and 2007 (24000 m2)

HN,

1 opened in 2008

Hai Phong HCM, HN, Bien Hoa, Can Tho, Quy Nhon

1 opened in 2007 (18 000 m2) - Paris-France perfumeries are presented in principal city of VN : -Multi-brands st th stores (1 and 5 District) and

20

2005 in VN

Vietnamese firm with mother company in Singapore that offer services: product launching, POS opening, promotional events

-Sales peak in women days (8 Mars and 20 October -70% locals, 20% expats and 10% tourist -70-80% women

-Malaysian chain of Department Store, belongs to Lion Group (1987) -The firm plans to open up to 10 locations by 2012

Peak sales are in Women days, Valentines, and Christmas -Young Vietnamese from wealthy families; >24 (university

2 divisions: -Phuong Phat (distributor,importer) -Paris France (chain of luxury “perfumerie”)

PRESTIGE VIETNAM Importer Distributor

THUY LOC Trading & Construction Co.LTD Importer Distributor

Leather, Cosmetics, Jewelry

Perfume Cosmetics

Forever, Carolina Herrera, Paco Rabanne, Ninca Ricci, Burberry, St Dupont, Paul Smith, Azzaro, Moschino, Alessandro Dell’Acqua, Salvador Dali, Morgan, Cartier, Sonia Rykiel, Balmain, Mauboussin, Jacomo, Lalique, Marina de Bourbon, Leonard -Leather: represents Vietnamese of Longchamp (2004) -Jewelry: Misaki, Zeaders, Hot Diamond -Perfume: Evaflore, Ulric de Varens, Morgan

-SHISEIDO (Exclusive from 1997), L’Occitane, Clarins (Management, from 2004), Iseey Miyaket and Jean Paul Gautier (2006), Cle de Peau, Esprit, Thierry Mugler, Bulgari

…

- Written articles - Public relation - Promotion Longchamp: big fashion magazines, HTV7 television Channels has broadcasted a presentation of the brand in the program LAM DEP (How to be beautiful)

-Magazines, posters, press relations, product launching events -Occitane : VIP card, Occitane Club with reductions, invitation, free spa, sample…

Hanoi -Counters in department stores in cities and provinces -Another perfumery called Winchai 63 -Longchamp: 1 counter at Diamond Plaza, flagship store next to Hoan Kiem lake (center HN) -Misaki- 6 locations:Parkson (HN,HCM, HP) and Diamond Plaza - Zeaders: Diamond Plaza (HCM) -Hot Diamonds: Parkson, Verby Plaza (HN) - 68 boutiques/ counters in Vietnam -20 Perfumeries concept HAL’S in 2 countries - Beauty Salons: Clarins (7) , L’Occitane (2025), QI Spa of Shiseido

graduated) , 30 yo and business men -Tourists (mostly Australians) : 30%

2001

1994

60

Created by a Hungarian and Vietnamese

-Sales peak from November to Mars -High officials or executives of foreign companies -Customers are concentrated only in HCM and HN -Most consumers are women even men accounted for 40% of sales of Spas and 12% of Cosmetics

-Private company, leader of Vietnamese market with 60% in Perfume, Cosmetics market and 68% in Spa and Beauty Salons - Co-investor with KhaiSilk (vietnamese luxury silk) in real estate project SaiGon Paragon – luxury residential and commercial center (2008)

-