With the current Vietnam fashion retail market reported to be worth US $358 million, Vietnam is attracting global industry players drawn by its double-digit growth figures of 22.5%. For the consumer, that means choice across different segments; for the retailer, that means new strategies are required to increase sales both on- and offline.
Despite impressive growth of the online retail segment put at 61% in a single year, an important fact to remember is that online retail sales are a small share of the total domestic retail market—just 2.8%. Brick and mortar establishments remain the most popular type of retail outlet for Vietnamese fashion brands. And so here we explore how the future will look for retail outlets and what innovative business practices they are adopting to stay ahead of the pack.
Shopping malls are at the forefront of the modern retail battle. Currently, there are approximately 160 shopping malls in Vietnam, mostly located in major cities like Ho Chi Minh City, Hanoi, and Danang—cities which account for 22% of total nationwide retail sales.
In order to ensure the desired target market is reached, brands carefully select their location in malls that pursue a similar demographic. Megamalls like Takashimaya Saigon Center and Vincom Center, for example, prioritize a high-end customer base, thus attracting a wide range of international names like Zara, Pull&Bear, and H&M who, here in Vietnam, look to be perceived as “premium” despite being lower-end “fast fashion” brands in other countries.
In Vietnam, international brands account for 60% of the total fashion retail market, leaving Vietnamese fashion brands to fill the remaining 40%. Retailers like Aeon and Lotte Mart are better locations for those other international and local brands as they cater to the middle class through affordably-priced clothing lines.
With the fast pace of urbanization, a report by VIETRF (Vietnam International Retail & Franchise Show) suggests that shopping malls will play a crucial role in Vietnam’s future retail sector. As shopping center chains like VinMart continue to grow, demand for collaborations with local Vietnamese fashion brands is also on the rise.
These positive figures are paving the way for unique opportunities for both foreign and local fashion houses to expand their network nationwide. But, the real question is, how can Vietnam continue to enhance its shopping experience whilst maintaining below average prices? This is perhaps the biggest challenge facing the Vietnamese retail sector in its current state.
Despite the dominance of traditional outlets and the rise of mall culture, independent retail locations still have lots of room for growth. The common ground between a fashion startup and a global brand is that they’re all looking to gain local exposure. To make a great first impression, it’s better not to stand in line for a spot in a crowded mall. Brands perceive a single location as a worthwhile investment as the consumer’s free time isn’t shared with numerous established brands and other leisure activities like eating out and going to the cinema.
Vietnam is home to one of the world’s fastest emerging luxury markets with around 1.5 million Vietnamese now accessing high-end retail outlets. In the past, it wasn’t Vietnamese fashion brands, but powerhouses like Louis Vuitton and Dior who dominated the heavily populated commercial streets of Dong Khoi and Nguyen Hue in Ho Chi Minh City. Initially, these brands were strategically placed in prestigious areas in order to target Vietnam’s niche affluent consumer demographic.
In recent years, Vietnamese retailers have also entered this luxury market. Names like Bon Mua, Runway, and Labels have begun selling selected goods from international high-end brands—stores referred to as “multi-brand outlets.”
The availability of both international and domestic high-end brands has impacted the buying behavior of the Vietnamese people. In the past, consumers traveled to countries like Singapore to access exclusive fashion items, but now, something approximating the same level of shopping experience can be had right here in Vietnam.
Vietnamese fashion brands: Small and medium-sized enterprises (SMEs):
The shift in favor towards local fashion brands is developing quickly, proven by the contrast between millennial fashion brands and long-established midrange shops. While fashion-forward retailers like Dotties and Hnoss are starting to expand nationwide, long-established midrange shops like PT2000, The Blue Exchange, and NinoMaxx have shrunk in size.
In fact, smaller millennial fashion brands have many advantages over heavy-hitting retailers. With fewer departments and more simple procedures, it’s easier to develop long-term customer relations, receive feedback and adapt to changes.
For online retailers, a brick and mortar establishment is often the ultimate goal. However, in making the transition, online retailers must be aware of factors such as rental cost, infrastructure, logistics, staffing, and the evolving trends surrounding foot traffic versus online traffic to maximize profits.
With little detail on infrastructure and marketing, traditional markets still play king in Vietnam’s market. The formula for success is pretty simple—when it comes to bargain hunting, there’s no place more appealing than traditional markets.
With over 9,000 units spread across the country, traditional markets are still the preferred way locals shop for clothing and accessories. Small fashion kiosks operate in almost every market across the country, often appealing to the working class. Shop owners can maintain low prices by having goods imported from places like China.
And just as with any of other product, fashion has its own specialty markets like An Dong and Hanh Thong Tay markets in Ho Chi Minh City, and Dong Xuan and Phung Khoang in Hanoi.
It’s not an over-exaggeration to say that Gen Z are shaping the future of retail in Vietnam. According to Decision Lab, Vietnam’s Gen Z population is around 11.4 million people who are highly self-aware and digital engaged, which might help to explain the hype around online shopping today. So, to attract this group of consumers to shop in-store, physical experiences need to be brought to another level.
Additionally, these kinds of stores can serve as a sustainable and highly-effective marketing tool to expand a brand’s community, extending consumer reach beyond the confines of print and digital marketing methods while leveraging their social media influence.
So, what does it all mean?
Figures prove that for Vietnamese fashion brands, a brick and mortar format undoubtedly exceeds its online equivalent. As Vietnam’s spacious market is not a one-size-fits-all scene, perhaps it’s time for fashion retailers to rethink their primary target market and decide which retail channel will maximize their profit margins.
Of course, traditional markets will remain the most dominant form of retail for the majority of the Vietnamese market for the foreseeable future, but the rapid pace of retail globalization cannot be ignored. As the retail sector in megacities continues to become more competitive, eventually suburban and rural areas might emerge as legitimate alternatives to what are currently exclusively inner-city outlet locations.
Added to that, Vietnam’s young, tech-savvy population are hungry for new experiences which looks likely to help further the expansion of concept stores. So, in order to optimize conversion rates, it’s time for fashion retailers to consider the omnichannel model—an approach that provides an integrated shopping experience to the customer—to extend their online and offline transactions.