WWD.com/beauty-industry-news/marketing-trends/vying-for-vietnam-1339718/
government-trade
government-trade

Vying for Vietnam

With GDP growth of over 8 percent and a population of 85 million, this southeast Asian country is beauty's next big hope.

View Slideshow
Appeared In
Special Issue
Beauty Inc issue 05/09/2008

With GDP growth of over 8 percent and a population of 85 million/ this southeast Asian country is beauty’s next big hope.

It doesn’t take much time in downtown Ho Chi Minh City to get a sense of the buzz that’s building about Vietnam. The center of the city’s District 1, the area also known as Saigon, churns out a near-constant cacophony of fast-paced activity: Motorbikes speed down streets by the dozens, emitting a steady whirr of loud motors and lingering clouds of fumes. Sidewalk coffee shops teem with locals, who cluster on low stools at curbside tables to slurp strong coffee and share newspapers. Crowded street markets brim with hawkers offering daily necessities from cuts of meat to conditioner.

And then there are the unmistakable signs of major change. On the central shopping artery of Dong Khoi stands the gleaming Opera View complex, which opened last year with the city’s first Louis Vuitton and Burberry stores, joining an equally shiny new Gucci boutique just down the road. The steel frames of construction sites rise over the skyline, a promise of more to come. And at Diamond Plaza, one of the city’s most prominent modern department stores, a stream of well-dressed young women in heeled sandals and filmy floral blouses can be found clattering through the cool, bright cosmetics department, their glossy dark hair swinging behind them and a variety of logoed bags banging gently at their hips. The back pockets of their skinny jeans are emblazoned with a roster of big brand names: Armani, D&G, Versace. They pause to sniff fragrance samples, try L’Oréal mascara and listen carefully to the virtues of Shiseido eye cream.

After the steamy, sweaty bustle of the street outside, the shiny interior of Diamond Plaza provides a welcome respite. The store’s first floor is packed with more than 20 different beauty and fragrance counters, including Lancôme, Clé de Peau Beauté, Elizabeth Arden, Revlon, Clarins, Bourjois, Clinique and Estée Lauder. As Vietnam’s economy continues to grow—and spending power rises right along with it—all are vying for a piece of Vietnamese salaries.

After focusing in recent years on heavily hyped countries like China, Russia, India and Brazil, cosmetics companies are turning their eye to a new contingent of emerging markets. For many, the top of that list includes Vietnam. Of the “Next 11,” a term coined by Goldman Sachs for the group of growing consumer markets, such as Turkey, Nigeria and Mexico, that are considered the key new areas to watch, Vietnam has emerged as one of beauty’s biggest potential players.

The country’s booming economy, which has grown more than 8 percent a year since 2004, and overwhelmingly youthful population—more than half of its 85 million citizens are under age 30—have helped it become one of the most exciting markets in rapidly rising Asia. For now, Vietnam’s cosmetics and toiletries market is estimated at a modest $610 million, but high-growth categories like skin care and color cosmetics are expected to rise by 10 to 15 percent a year for the next five years, according to a recent Euromonitor report. The appeal for beauty companies is further enhanced by a long-held cultural interest in beauty products and a history of Western exposure that has helped make foreign brands especially appealing.

“Vietnam really stands out because of its growth potential,” says Carsten Fischer, corporate executive officer for Shiseido, the country’s prestige market leader whose offerings include Shiseido, Clé de Peau Beauté, Serge Lutens, Carita and Decléor. “If you look at emerging Asian markets, Vietnam is one of the top contenders because of the size of the country, the youth of the population and because the beauty lifestyle development is moving very quickly through the growth stages. There are not many markets remaining that have such strong buying power, wide economic growth and a demographic that is geared toward the young.”

While some brands made their first forays into the country years ago—Shiseido arrived in 1997, Clinique in 2001 and L’Occitane in 2002, for example—it hasn’t been until the past few years, and particularly since Vietnam’s entry to the World Trade Organization in January 2007, that the market has begun to really flourish. According to Euromonitor, about 90 percent of its beauty market is centered around the 6.5 million residents of the southern economic hub of Ho Chi Minh City, and, to a lesser extent, the three-million-strong northern capital of Hanoi, and most brands have focused on growing their presence in both cities.

“Since early 2005, we’ve expanded from one point of distribution [a stand-alone store for Clinique in Hanoi], to 14 points as of this June,” says Margaret Chooi, vice president for regional business development in Asia-Pacific for the Estée Lauder Cos. “It’s quite a fast expansion, but it’s really in tandem with the pace of growth in Vietnam. In the past three years, [local Vietnamese] salary levels have doubled, and that has helped fuel much of the consumerism we’re seeing in the country. If you look at the segment that we’re going after, the prestige shopper, we have seen a very good growth, which implies they have the money to spend and they’re very willing to pay for quality products.”

What has also helped are major advancements in the country’s retail options. Until recently, most brands entering the market had to rely on creating and promoting stand-alone stores, as modern multibrand department stores were extremely rare. A recent growth of newly built large retail spaces, along with the arrival of established foreign retailers such as the Malaysia-based department store chain Parkson, has helped diversify brands’ options for opening more doors. Many prestige brands now operate both stand-alone stores and department store counters, a dramatic change from the time when shoppers could only find a small range of beauty products at mom-and-pop stores or public markets.

“In the past, shoppers would have to go to a local street shop or market to get their beauty products, many of which had been hand-carried into the country,” says John Lam, deputy general director and general manager for Parkson Vietnam, which will open its fifth department store in the country in June. “Today, the retail landscape is quickly becoming modernized. The department store concept is no longer an alien idea, especially in city centers.”

Still, some brands—especially those looking to compete in the mass categories—have found it advantageous to straddle both the old shopping models as well as newer options, like supermarkets and multibrand stores. “At least 70 percent of our business comes from the open trade,” a sector which includes small stores and shops in public markets, says Raul Falcon, the Vietnam country manager for Procter & Gamble, whose current offerings focus on mass products such as Olay and Pantene. “We expect the open trade business to be the bigger source of retail sales in Vietnam for many years to come.”

While P&G does not have any prestige products in Vietnam, it’s considering bringing in the skin care brand SK-II within the next year to tap into the growing amount of wealth being created in the country.

SK-II would be in good, if increasingly crowded, company. In addition to the number of foreign cosmetics companies already in the market, which also includes a significant selection of Japanese and South Korean brands, Parkson launched the country’s first YSL Beauté counter in Hanoi in early April. The retailer is also expecting to make more room for MAC, Chanel, Biotherm, Christian Dior and Bobbi Brown in the near future, according to Lam.

Brands are bullish on the market’s growth despite the fact that the average annual salary in Vietnam is only $726, a low number even in Asia. Though an influx of multinational companies and the accompanying demand for skilled labor has helped drive up salaries for educated urban employees, a typical salary of a young professional is still only about $500 per month with increases up to $2,000 to $3,000 per month for a senior-level employee.

Still, even Vietnamese shoppers with lower salaries are striving to buy high-end goods, particularly beauty products, says Andre Hoffmann, managing director for L’Occitane Far East, whose longevity in the market has helped make it one of the prestige category leaders. “Originally, because of our price positioning, there was a very small segment of the population that could afford our brand, even though we’re not considered superexpensive in other markets,” he says, noting that L’Occitane’s typical prices range from $5 to $80. “Now, we’re starting to see a wider customer base. Salaries are quickly increasing and there’s a middle class that’s growing and eager to spend.”

Adds Lauder’s Chooi, if you look beyond the chaotic bustle of areas like downtown Ho Chi Minh City, it’s not difficult to find a growing group of newly wealthy Vietnamese elite who are also extremely interested in luxury goods. “If you only saw [Ho Chi Minh City’s] District 1, you might not be convinced by the growing wealth and aspirational tendencies of the Vietnamese consumer,” she says. “It’s modern, but it’s certainly not as modern as you might expect, given all the interest [in the market]. But if you venture into other areas of the city, especially the residential areas of District 7, you can see progress has been quite intense. There are beautiful gated communities and high-rise condominiums, on par with what you’d see in any modern city. It’s a segment of Ho Chi Minh [City] that tells a very clear tale of where the Vietnamese consumer is going.”

It’s also beneficial that beauty and health are particularly prized in Vietnam, where a typical woman’s beauty routine—no matter her salary—includes weekly visits to a salon for facials, massages and other treatments. Many of the prestige brands, including Lauder, Shiseido and L’Occitane, have incorporated spa cabins into their retail spaces to offer a high-end alternative for facials and other popular treatments.

And while Vietnamese buying patterns mimic the rest of Asia with a strong preference toward skin care products, especially whitening ranges, the country’s consumers also have shown a unique interest in color cosmetics and fragrances, which brands say is a promising indicator of strong future growth in these segments. The Estée Lauder Cos. estimates that about half of its overall sales in Vietnam come from skin care, with 30 percent from cosmetics and the remaining 20 percent from fragrances and accessories. Vietnam’s history as a former French colony from the mid-1800s until the Fifties and the subsequent American presence during the Vietnam War have given citizens wide exposure to Western habits, including the use of products like fragrances and makeup, making them an easier sell than in some other Asian countries.

“There is more potential for fragrances in Vietnam compared to some of the other Southeast Asia countries simply because they’re more accustomed to using them,” Chooi says. “They’re also an aspirational goal for some Vietnamese. Fragrances like DKNY and Tommy Hilfiger do very well for us because they’re Western brands and the young Vietnamese consumer associates them with fashion trends and designer labels.”

The past French and American activity also helped create a large Vietnamese diaspora in Western Europe and the U.S., which has helped increase awareness of foreign brands even when few were available in the local market.

“The high numbers of overseas Vietnamese has created a communication network that reaches globally,” notes Fischer. “Because of that, Vietnamese consumers are already well-informed of many Western brands and a certain lifestyle imprint.”

Despite many positives, Vietnam still presents its share of challenges. Companies say the biggest hurdle right now is the government’s strict product registration procedures, which means it can take many months for new brands or products to get the approvals needed to enter the market.

In addition, current requirements call for foreign companies to work with local distributors to open new retail spaces, creating a middleman situation that slows down growth. Brands say they’re eager for restrictions on foreign direct investment to relax as Vietnam continues to meet its WTO requirements in the next few years, and that such changes would likely result in the creation of local subsidiaries thatcould help push the market along much faster.

By all accounts, the future of beauty in Vietnam looks impressive. A growing number of retail options, including Parkson, which aims to have 18 stores in the next three to five years, are helping fuel growth and garner new customers. While Ho Chi Minh City and Hanoi are still considered the country’s main targets, Parkson recently opened a store in the port city of Hai Phong and is planning stores in the secondary cities of Da Nang and Nha Trang, paving the way for possible growth in other regions of the country. And although the Vietnamese government recently announced that economic growth will slow slightly in 2008, it is still anticipated to be around 8 percent, a sign that there will be plenty of rising incomes to vie for.

“There has been so much development in just the past three years, and the next three will see even more change,” says Chooi. “In a very short time, we’ve watched [the Vietnamese] as they’ve moved from bicycles to motorbikes and now to cars. There is an incredible amount of potential. This is really just the tip of the iceberg.”
 

View Slideshow