Luxury

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McKinsey has a new report on the Chinese luxury consumer, and I thought this might be a good time to talk about the luxury consumer in Vietnam. My hypothesis is that Vietnam is a decade behind China in terms of consumer spending but that it will follow a similar trajectory, especially for luxury.

A few key points from the report:

  • “Young Chinese consumers view ownership and affiliation with designer brands as a form of social capital; not just something to wear, but a lifestyle choice that marks them as part of a distinct and exclusive community.”

  • “Research for the 2019 McKinsey China Luxury Report shows that the majority of these young consumers are fresh to market, presenting both a tantalizing opportunity and an implicit imperative for brands to stay current, or risk losing out to more digitally savvy rivals.” [See note at the bottom of the post.]

  • “What’s more, while some fashion houses excel at various aspects of online marketing and commerce, even the most popular luxury brands have yet to establish a comprehensive presence across the digital ecosystem.”

  • “China’s luxury market has yet to develop the widespread sophistication necessary to sustain demand for truly niche or boutique brands, as has been the case in the West.”

  • Sales staff are extremely important in driving purchases, “including in the form of WeChat messages.” Consumers want sales people “who keep in touch, more as a friend than merely a salesperson.” [I can only say ugh to this. I do not want salespeople to be my friends. Although, God knows I need some.]

And I thought this was a crazy stat:

  • Mini Yang and Angelababy each have around 100m followers on Weibo. It’s not actually that high, in that it compares to Katy Perry, Justin Bieber and Barak Obama on Twitter. And there are actually a few Instagram stars that have more than this: Cristiano Ronaldo (164m), Ariana Grande (153m), Selena Gomez (149m), the Rock (140m) and the Kardashians. But still, so many followers!

For Vietnam, the luxury market is very nascent. The growth will be quite strong as the country develops, especially if like everywhere else, the top 10% gain the most. And remember, these luxury consumers do not have to make hundreds of thousands of dollars. In the McKinsey report, the minimum income is RMB300,000 or just over $40,000. That’s high for Vietnam (per capita GDP is USD2,300), but there are people that fit that, and there will be more.

A few points about the Vietnamese luxury market:

  • Right now, fast fashion stores like Zara and H&M are considered luxury in Vietnam. They are doing extremely well.

  • Back in 2017, there were 160 malls in Vietnam, and so many more are coming up. These are mostly located in HCMC and Hanoi where 22% of retail sales happen (compared to a population of around 17%). I am actually surprised that this is so low. I would expect retail sales in the two cities would be more like 30% compared to a population of 17%, just because salaries are higher in these cities. And there are more retail shops.

  • Online makes up less than 3% of the market (2017 figures). But it is growing very fast: around 35%.

  • “Affluent Vietnamese themselves, are frequent travelers. On the average, our data found that…they travelled 6 times overseas and 14 times annually – one of the highest in Asia.”

  • Foreign brands like Zara and H&M are making buckets of money in Vietnam from the start.

  • People still love traditional markets. Not just for food, but also apparel and other goods.

  • I think we might also see a boom in healthy and natural products, because consumers are looking for it. Given the attention on air pollution, climate change, plastic [see my many posts about reducing plastic], I think this is going to be a significant trend world-wide. People will pay for health.

Vietnam is where China was a decade ago (based on purchasing power parity). As there are more and more of these luxury consumers, even at lost incomes, it will add up. If 1 million people buy a few small special items every year, it will add up. For example, let’s say there are 1 million people that can consume “luxury” goods, and they spend $500 (right now the luxury consumer in China, according to the McKinsey report spend something like $5,000-10,000 a year, so much less than this). That’s $500m, while in early 2018, the whole fashion retail market in Vietnam was just $358m.

It is very likely that buyers of luxury goods will use them to stand out, to differentiate themselves from the crowd. As they have been used forever and everywhere. Recognizable brand names, therefore, will be the most popular. In the West, you see lots of people with brand-name fashion or bags or shoes, but there is also the search for the new, for the unique, for the piece that no one else has. At the beginning, I think that will be unlikely for Vietnam. Consumers will probably opt for the big names: their Gucci, their Fendi, their Louis Vuitton. Over time this will change, but not for quite some time, as we have seen in China.

This could mean that local Vietnamese brands will find it hard to compete. There are some brands, like Phuong My, (that I wrote about on Feb. 14, 2019) that are trying to build a luxury name for both the Vietnamese and the foreign market. It may be quite hard.

There is lots of potential in Vietnam for so many things. In terms of luxury, it will be interesting to see how the local brands are able to compete against the foreign brands (Western brands at the high end, Chinese brands at the low end). I am rooting for the local brands. It’s always more interesting to have something with its own terroir.

Note: One thing about point 2: For years, I hear complaints that so much advertising is geared towards younger consumers, rather than adults who actually have spending money. Well, there is a clear reason for this. For a long time, a brand felt that if they were able to attract a young consumer, that person would be loyal through their life. If I decide I am a Bud Light drinker, then I will be forever. Or a Marlboro smoker. Or a Levi’s wearer. I think this is true, for the large part. You can see why brands are so focused on getting these younger consumers in order to lock in that lifetime loyalty.