A street vendor walks past a Chanel store at the Rex Hotel in downtown Ho Chi Minh City
Luxury product companies are expanding even as sales contract amid the economic slump, with economists citing the potential of Vietnam’s large young population and the newly rich to fuel more consumption.
Notices offering discounts of up to 50 percent on all items can be seen at most shops at Vincom Tower, Parkson or Grand Plaza in Hanoi, where Italian shoes and French perfumes are sold to the urban middle and upper classes.
But the stores are vacant save for a few sales people flirting with each other or playing games on their phones.
“Business has never been as difficult as it is now,” said Trang Thi Thuy, a saleswoman at a Giovanni fashion shop in Hanoi.
“Some people visit the shop, but they only look. Sometimes we don’t sell anything for several days.”
Despite the economic slowdown, non-discount prices on luxury items remain high.
“Customers think more carefully before buying luxury goods,” said Thuy.
A salesperson who requested anonymity at the Van Gent fashion shop in Hanoi’s Parkson Keangnam LandMark Tower said her shop often sells only one product a week. She said the same was true at most shops there.
“Very few customers are able to afford hundreds of dollars for a shirt or pants in the current tough economic situation.”
She said some companies have been unable to pay their shop rents and have thus shuttered their stores.
Even daily “essentials” at supermarkets haven’t been selling well.
Vu Thi Hau, deputy general director of Nhat Nam Company, owner of the Fivimart supermarket chain, said sales are down and blamed the economic slowdown. “Our revenues rose only 10 percent in the first half of this year, compared to 20-25 percent in past years.”
With many firms struggling to survive and people’s incomes taking a hit, discretionary spending is down. Hau said sales of home appliances and luxury items are particularly low.
Nguyen Tam, marketing and communications manager at Nielsen Vietnam, said: “Versus previous years, you could say it’s been a quieter year, although some lasting consumer trends remain. Purchasing more on promotion, trading down to cheaper products and buying bigger packages to save money are still popular themes for Vietnamese consumers.”
The Asian Development Bank has recently cut Vietnam’s growth forecasts, saying the pace of economic expansion will likely be influenced by progress in addressing finance sector vulnerabilities.
The economy will expand 5.1 percent this year, compared with an earlier estimate of 5.7 percent, according to the Asian Development Outlook 2012 Update. It also reduced the country’s inflation projection to 9.1 percent from 9.5 percent.
Hope and fairness
Despite the tough business situation, many companies still plan to expand business in Vietnam due to what they see as the massive potential of the country’s young population with spending money.
Ralf Matthaes, managing director of market research company TNS, said famous name brand luxury products were not selling well due to a general economic slowdown.
However, the market, which now is developing on a small scale, still has a lot of potential, as average incomes have increased sharply over the past few years, and the middle class is growing, he said.
The US and EU are also still reeling from the economic crisis, thus foreign firms want to expand in other countries, including Vietnam, he said.
Recently, Vingroup has opened its new trading center, Vincom Center A, in Ho Chi Minh City. Many famous brands like Hermes, Christian Dior, Hugo Boss, Zegna have found new homes there. Up to 95 percent of the retail space has been rented.
Economist Nguyen Minh Phong said whether the crisis is inflation or something else, there are always still people who are not affected and still earn a lot of money. These people still have a demand for consumption, and particularly for luxury products, he said.
However, the gap between the rich and the poor is rising in Vietnam.
“The rich can spend millions of dollars on a car, while it is difficult for the poor to afford a bicycle. This is an issue not only in Vietnam, but worldwide,” said Phong.
“However, the big gap is a matter of concern in a tough economic situation,” he said. “The government should implement more social welfare policies for the poor, strengthen anti-corruption measures, and levy special consumption taxes on some luxurious items to ensure a measure of fairness in the society.”
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By Bao Van, Thanh Nien News (The story can be found in the November 9th issue of our print edition, Vietweek)