Exploring Vietnam as a Prime Destination for Luxury Clothing Brands: A Haven for Foreign Investors

The luxury clothing industry in Vietnam presents a promising landscape for foreign investors seeking new opportunities. Vietnam’s fashion industry, evolving consumer preferences, and growing middle class make it a top luxury clothing destination. This article aims to highlight the advantages and opportunities Vietnam offers to foreign investors in the luxury clothing industry.

The booming luxury clothing industry in Vietnam attracts foreign investors due to various favorable factors, including:

• Changing Consumer preferences towards high-quality and sophisticated products, showcasing advanced technical fabrications and craftsmanship.
• Perfect alignment between the demand for superior quality and the offerings of luxury clothing brands.
• A surge in the spending abilities of consumers alongside the increase in popularity of high-end fashion brands as status symbols.
• The rising impact of social media, coupled with celebrity endorsements and extensive promotions.
• Strong sustainable commitment; key players adopt eco-friendly practices, and use ethical and recycled materials. Such an emphasis on sustainability aligns with global environmental concerns and also attracts conscious consumers.

Besides, the integration of augmented reality (AR) technology in the fashion industry has transformed the shopping experience for customers. By offering virtual in-shop buying experiences, luxury clothing brands are catering to customers at their homes. This innovative approach adds convenience and enhances customer engagement, contributing to the overall growth of the market. Vietnam’s allure: brand loyalty, online sales, and demand for premiumization and customization drive luxury clothing brands.

Additionally, the middle class in Vietnam has seen a substantial increase in salaries, contributing to the growth of the luxury market. The World Bank’s 2016 report projects Vietnam to achieve upper-middle-income status by 2035, with a per capita income of USD 7,000. Expected 32% rise in individuals with a net worth of USD 1-30 million due to increasing high earners and ultra-wealthy.

The luxury goods market in Vietnam is expected to surpass USD 1 billion by 2025, driven by robust demand. Therefore, foreign investors have ample opportunities to explore and establish their presence in Vietnam’s luxury goods market.

Moreover, the EU-Vietnam trade agreement along with the investment protection agreement, has proven advantageous to the luxury goods sector. By virtue of the same, there was an elimination of 99% of all taxes and mitigation of regulatory obstructions. This caused luxury items to be more readily available, for the customers to spend on them. For instance, Porsche built a studio in Hanoi, its second outlet in the Southeast Asian region. Also, in March 2021, Ho Chi Minh City saw the inauguration of the first store of Bvlgari.

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The Rise of Vietnam in the Luxury Clothing Market

Shifting consumer preferences and the rise of the middle class

According to the Centre for Economics and Business Research (CEBR), Vietnam is projected to outrun Indonesia’s economy, in Southeast Asia, by 2036, indicating its strong potential for continued expansion. To ensure the sustained progress of its economic development model, Vietnam has outlined a comprehensive five-year plan from 2021 to 2025.

This plan focuses on supporting the manufacturing sector by actively participating in global supply chains, fostering trade alliances, and diversifying exports. Vietnam’s economic prospects have enhanced over the years, as a result of its expanding middle class. Furthermore, Vietnam has made notable strides in improving its business environment, better access to markets, and supply chain relocation to countries with lower costs.

Increasing demand for luxury fashion

The increasing demand for luxury clothing in Vietnam has attracted the attention of numerous renowned brands. One notable example is Salvatore Ferragamo, whose flagship store in Vietnam’s capital has achieved remarkable success since its establishment in 2006. Recognizing the immense potential of the Vietnamese luxury goods market, the brand has further expanded by opening its fifth store.

Louis Vuitton also has a strong presence in the country, with three stores – one in Ho Chi Minh and two in Hanoi. On the other hand, Burberry and Gucci have four and two stores, respectively. Another prominent brand, Ermenegildo Zegna, has recently entered the Vietnamese market with its first outlet in Ho Chi Minh and plans to open a second one in Hanoi in the near future.

Over the years, the number of luxury hotels and shopping centers has snowballed. This has led Vietnam to solidify its position as a top destination for well-off Asian and Western tourists. There are no customer barriers in Vietnam, which sets it apart from other luxury markets that are coming to the fore. Moreover, new free trade agreements with reducing tariffs make Vietnam all the more appealing to shoppers.

Strategic Advantages for Foreign Investors in Vietnam

Cost-effectiveness and competitive manufacturing capabilities

As per ASEAN’s trade statistics for 2020, Vietnam ranks as the 15th largest trade partner of the European Union (EU). The country imports crucial goods like aircraft, machinery, automobiles, and pharmaceuticals from the EU. Conversely, the country exports products such as shoes, electronics, and textiles to the EU. According to the EU Trade Commission Data, in 2019, the EU made substantial foreign direct investment (FDI) in Vietnam’s industrial processing and manufacturing sector, amounting to USD 6.1 billion.

Vietnam has also successfully exhibited multilateral diplomacy, cautiously navigating its relations with both China and the United States, amidst trade disputes between the two powers. While Vietnam has always prioritized its close alliance with China, it has also sought to strengthen its relations with the United States. 

Vietnam’s fostered ties present promising prospects for foreign investors in the country. The country’s cost-effectiveness and competitive manufacturing capabilities make it a much more viable option. Vietnam offers significant financial advantages over China, such as favorable labor rates, stable currency, and considerable tax incentives, making it an attractive choice for foreign direct investments.

Expanding infrastructure and logistics capabilities

Vietnam’s potential as a thriving market for international trade is evident in its expanding infrastructure and logistics capabilities. The country boasts a diverse network of nearly 50 seaports, including two international ports, namely, Cai Mep International Terminal and Hai Phong International Terminal. With a sea area spanning over 1 million square kilometers, Vietnam presents significant opportunities for trade, imports, exports, and overall economic development.

In stark contrast to other ASEAN nations, whose average infrastructure spend stands at 2.3% of their GDP, Vietnam commits approximately 6% of its GDP to infrastructure projects. This places Vietnam as a leading country in terms of infrastructure investment within the region. Over the period of 2022-2027, Vietnam’s infrastructure is projected to grow at an annual rate of approximately 4%.

Vietnam has also entered into various trade agreements with neighboring countries and actively participates in the ASEAN to facilitate reduced tariffs within the region. Notably, the recent EU-Vietnam Free Trade Agreement, signed with the EU, aims to enhance investments between Vietnam and Europe.

The Vietnamese government is dedicated to boosting the country’s infrastructure improvement. Therefore, it has made significant budget allocations in recent years towards the same. Enhancements in infrastructure will not only contribute to more efficient and immaculate logistics services within Vietnam but also create new prospects for foreign investors.

Growing domestic market and regional accessibility

Vietnam’s strategic location, in Southeast Asia, makes it a hatchway to the ASEAN market which comprises over 650 million people. The country, with its network of seaports, airports, and highways, is fit to function as a regional logistics hub.

Vietnam has the advantageous position of being a key driver in shaping Asia’s future consumption landscape. In the coming years, there is a potential for an additional 36 million individuals to enter Vietnam’s consumer segment, which is defined by a minimum daily expenditure of USD 11, in purchasing power parity (PPP) terms. This represents a significant shift from the past. In 2000, less than 10% of Vietnam’s population belonged to the consumer segment, but this figure has now risen to 40%. Projections suggest that by 2030, this percentage could reach close to 75%. 

The growth in consumer power is not only attributed to new entrants into the consumer segment but also to the rapid expansion of the existing consumer class within the income pyramid. Notably, the upper two tiers of the consumer segment, comprising individuals who spend $30 or more per day, are experiencing the fastest growth and are projected to encompass 20% of Vietnam’s population by 2030.

Navigating Challenges and Risks

Addressing potential challenges faced by foreign investors

Foreign investors in Vietnam may face challenges related to intellectual property (IP) protection. Although Vietnam’s IP legislation aligns with international standards set by the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, there’s room for improvement in enforcement. Raising awareness among Vietnamese consumers about IP protection is crucial.

Vietnam has been on the U.S. Trade Representative’s Special 301 Watch List for over a decade, signaling the need for stronger IP measures. The 2020 Notorious Markets report lists Dong Xuan and Ben Thanh Markets as areas of concern.

To tackle these challenges, companies should prioritize obtaining IP protection before entering the Vietnamese market. Patents, trademarks, designs, and geographical indications must be registered with IP Vietnam.

The demand for branded goods in Vietnam is rising rapidly leading to a proliferation in the number of shops claiming to be authorized distributors. However, many of these products are counterfeit rather than genuine branded goods. Analysis suggests that about 10 businesses have commercial licenses to deal in products of famous jewelry, fashion, and cosmetics brands.

Most distributors in Vietnam operate as limited trade companies handling both distribution and import. Milano is an exception, registered as a business household focused on retail, using other companies for import and transportation. Business households are subject to fixed tax on income and personal income tax.

Mitigating risks through strategic planning and partnerships

Strategic planning and local partnerships are crucial for manufacturers in mitigating risks. Sirois Tool recognizes the benefits of building and maintaining local, regional, and national partnerships with vendors and customers. Collaborating with local businesses offers advantages over distant, low-cost suppliers.

Building strong relationships with local authorities and stakeholders is crucial when conducting business in Southeast Asian countries. Benefits include valuable market insights, stakeholder understanding, and navigating development cooperation systems. US-ASEAN Business Council and OECD drive economic growth and connect businesses with regional stakeholders in Southeast Asia. To build strong relationships, businesses should engage stakeholders, listen to concerns, and understand local needs through thorough research. By doing so, businesses can position themselves for successful investments in the region.

Conclusion

• Vietnam has emerged as a growing market for luxury clothing brands, offering opportunities for foreign investors.
• The country’s rising middle class and increasing disposable income have contributed to the growth of the luxury fashion market.
• No customs barriers and favorable trade agreements create ideal conditions for luxury brands entering Vietnam’s growing market. 
• Established luxury brands’ presence and expanding outlets in Vietnam’s cities signify its potential as a booming luxury fashion destination.
• Vietnam’s potential for trade and investment, successful diplomacy, and cost-effectiveness attract foreign investors to Southeast Asia.
• Improved infrastructure, expanded logistics, and stronger trade ties with the EU foster a favorable environment for foreign investment in Vietnam.
• Foreign investors must prioritize IP protection, form local partnerships, and stay informed on market dynamics to capitalize on Vietnam’s luxury clothing growth.