2021 turned out to be a very different year than expected, for Vietnam. Having recorded the region’s strongest economic performance in 2020, many expected a surge to 6% growth or more. It was not to be. The Delta variant hit hard, with tough “zero Covid” lockdowns and supply-chain disruptions hurting production and depressing the economy which, in Q3, actually contracted for the first time since 2000. Around 1.8 million lost their jobs, pushing unemployment up from 2.73 to 3.98. Despite this, GDP was still up nearly 2.6% for the year overall. As Vietnam’s doors slowly re-open, her government forecasts growth to climb to 6.0-6.5% in the next 12 months, and foreign investors are optimistic.
It’s in that context that personal luxury goods revenues reached $976 million last year – obviously less than those of China and Japan (China’s revenues in this sector are about 50 times greater), and not even particularly high in per-person terms yet, but significant nevertheless and outpacing GDP growth. Why is this?
From “command economy” to new “dollar billionaires”
Since 1986, Vietnam has been leaving behind its former “command economy” model, and transitioning into a “socialist market economy”, through economic reforms known as Đổi Mới (“renovation”, “innovation”). Most of the nation’s young population, median age 32.5, have known only the Đổi Mới era.
As such, a good proportion of Vietnam’s workforce are not only employed in highly productive manufacturing and service jobs, but they are also keen to improve their living standards, and aspire to own and enjoy the trappings of an affluent lifestyle. In fact, some of these young, adult, earner-consumers will have parents who also fit this broad category too, making them the second generation.
Young, educated earners are, the drivers of future luxury consumption. Before the pandemic, market research firm Nielsen estimated that the number of middle-class Vietnamese would reach 44 million by 2020. Furthermore, at the “top end” of the income spectrum, Frank Knight now estimates that the number of people with net worth of $1-30m will jump 32% to more than 25,800 by 2025. Zero “dollar billionaires” were evident recently as 2012 – last year The Economist reported that there are “probably” six. As a powerful emblem of these changes, just a few months ago Oxford University’s Linacre College announced that it will be renamed after Nguyen Thi Phuong Thao, chairwoman of Vietnamese holding firm Sovico, following a $207m donation to that seat of graduate learning.
Luxury – a changing scene
In a recent article, Luxury specialists Jing Daily noted “high demand” for luxury goods in Vietnam, especially true since now “consumers are confined at home and cannot travel to Singapore or Greater China”. In Hanoi and Ho Chi Minh City, consumers now feel confident showing off the signs of their wealth, and they are increasingly seeking out more than just internationally recognised brand names – an increasingly discerning wealthy class is seeking out quality, personalisation, craftsmanship, and the bespoke.
Whereas the last couple of years have been challenging ones for many other areas of international trade, with a new protectionism becoming evident across the globe, Vietnam is benefitting from new tariff-cutting trade agreements including: ASEAN Free Trade Area membership; agreements with other key Asian nations including China and Japan; recent FTAs with the EU and the UK. An FTA with the EFTA countries of Norway, Iceland, Lichtenstein and Switzerland is under negotiation. Many of these agreements are making luxury goods even more accessible to Vietnam’s consumers.
The prospects for luxury brands in Vietnam look very healthy overall, for those who can rise to the challenge and adapt well to local needs and requirements.
Melchers in the Luxury Space
Numerous international luxury brands rely on our know-how and our network in Asia for the sales and marketing of their products. With our infrastructure, competence, and trusted staff, we operate exclusive mono-brand luxury retail boutiques on behalf of our clients, in a number of countries. We understand and respect the requirements of luxury brands.
The Melchers Group started activities in Vietnam in the 1980s and officially inaugurated its first branch in Ho Chi Minh City in 1990. Nowadays, the company runs offices in Ho Chi Minh City and Hanoi to coordinate Melchers’ trading activities in Vietnam.
Whether you are a buyer, producer, supplier or entrepreneur, join us as we continue building a future of business opportunities.
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