Racheal Lee
Nov 2, 2012

LUXURY REPORT: Vietnam a growth hot spot

Rising incomes and a large young population point to the potential for rapid luxury market expansion in the emerging SE Asian nation.

LUXURY REPORT: Vietnam a growth hot spot

Developing countries such as Vietnam have seen rapid urbanisation, rising new wealth and higher disposable income. Its retail landscape has subsequently witnessed major development, and it has since become a hot spot for the luxury market due to the perception of luxury items as the driving factor in the “tangibalisation of success”.

Such desire is generally driven by a small of group of wealthy people, as well as a younger population looking to make a social statement through what they wear and carry. It is worth noting that the retail landscape in Vietnam still has a long way to go, especially if it is to catch up to its neighbours in Bangkok or Kuala Lumpur.

Sabyasachi Mishra, CEO at JWT Vietnam, says, “I think the local luxury market is at stage one of evolution with key consumption motivators being externally driven — display and social recognition as opposed to, say, personal rewards or self actualising experiences.”

While it sees rapid urbanisation, rising new wealth and higher disposable income, Vietnam is also facing the problem of wages not keeping up with inflation. Heavy government import taxes and high commercial rental rates mean that a massive percentage of the population simply cannot afford luxury brands. 


This article appears in the Luxury Report in the 
November 2012 issue of Campaign Asia-Pacific

Subscribe online

or call +852 2122-5227

Vietnam’s underdeveloped infrastructure, as well as its complicated and time-consuming administrative procedures in establishing a company, are also factors that discourage new international players from entering the country.

“This is not the sleeping giant many think it is,” Matthew Collier, chief executive at Y&R Vietnam, says. “Those consumers who can afford luxury items can also afford to travel and will often have a shopping weekend in Bangkok or Singapore rather than splurge on exorbitant prices for the same item in Vietnam.”

In a study last year involving the top four urban cities in Vietnam for people aged between 20 and 65, only 14 per cent were found to have made a ‘luxury’ purchase. 

Collier says the Vietnamese definition of luxury also differs to other markets, as it is led by premium price and quality rather than exclusiveness or uniqueness. “Even scarier for top-end luxury brands is that a luxury purchase is considered anything from as little as US$480 and is primarily driven by smartphones,” he adds. “When asked unaided, the top four ‘luxury’ brands recalled are Apple, Sony, Toyota and Honda.”

Nevertheless, there is potential for the luxury market due to the country’s large young population. Launched by Y&R, the Generation Asia 2012 study on Vietnam shows that life is about trying new things and experiences for Vietnamese aged between 18 and 35 years old, and 64 per cent of them think that luxury is about new experiences.

Other industry players are optimistic of the luxury industry in Vietnam. Michel Borelli, managing director at Lowe Vietnam, says although luxury goods can currently be afforded by only 1 per cent of the population, the base is growing. 

“Economic reform, coupled with the emergence of a middle class, which didn’t exist only a few years ago, have seen the average per capita income double in the past five years,” Borelli adds. “It is a clear sign that the growth [average per capita income] will continue to accelerate. With US$10 billion worth of imported luxury products in 2012 and new brands opening up weekly, the luxury category is poised to continue to grow steadily.”

While there is money to be spent and a huge demand for luxury goods, he warns that the concept of luxury has yet to be fully assimilated by the Vietnamese. He notes that there are two main challenges luxury brands are facing in Vietnam, which is the lack of familiarity and low brand loyalty. Education clearly has an important role to play to create awareness and understanding.

Hugh Pile, marketing and innovation director at Diageo, notes that the global alcoholic beverages company has seen rapid growth in its luxury portfolio in the past few years, as consumers look to trade up its core portfolio such as Johnnie Walker Red and Black Label at $1,500 per bottle. “Luxury within Vietnam offers a whole host of opportunities because of its excitingly varied nature,” he adds. “Alternatively, there is a burgeoning new wealth, where consumers look to demonstrate their new-found status with the hottest new brands of vodka, such as Ciroc, whilst out in VIP clubs and bars.” 

He says Diageo emphasises the importance of creating luxury experiences, rather than luxury products to reach these varied groups, as well as “the importance of building physical spaces that are the perfect embodiment of our brands and the importance of exclusivity”. 

Mishra, meanwhile, says the luxury trend varies according to regions, and brands can deliver a completely wrong message if they don’t know such underlying drivers of luxury. “Practicality is a primary driving force for luxury consumption, so the rational hook can’t be ignored completely,” he says, adding that it is then important for international products to offer ‘relevance’ to wealthy Vietnamese as a justification for the price tag.

He notes that the people in the South tend to be motivated by necessity, expectations or the desire to ‘fit in’. Northerners, meanwhile, express more of a desire to ‘stand out’, a strong reflection of their overall desire for status and face, and luxury can be a vehicle that helps express this desire.

Besides education on the appreciation of quality, image and heritage of luxury brands, Borelli notes that specialised/experiential marketing is regarded by luxury brands as the most effective marketing channels to entice consumers to relate to the ‘dream or aspiration’ they can offer to consumers.

“Clearly, there appears to be a gap in consumer, social dynamics and buying habits understanding. Invest in these upfront and they’ll pay great dividends down the road,” he says.

Source:
Campaign Asia

Related Articles

Just Published

14 hours ago

Timeline of a mega-merger: The origins of Omnicom ...

See the full timeline of advertising's new powerhouse merger here.

21 hours ago

40 Under 40 2024: Neel Chhaya, DDB Group

A people-first leader, Chhaya has been instrumental in fuelling DDB Group’s client growth, reshaping service delivery, and fostering a culture of inclusivity.

21 hours ago

Leo Burnett and OMD lead Agency of the Year APAC awards

Publicis Groupe led in creativity, PR, and culture, with OMD dominating media.