Though Vietnam is still considered to be a developing economy, luxury cosmetics, jewelry and fashion brands such as Dior, Chanel, Louis Vuitton and Cartier are making it one of their prime target markets in Southeast Asia, writes RMIT economics lecturer Dr Daniel Borer.
This may be surprising, as according to World Bank, with a per capita GDP of $4,200 in 2022, Vietnam lies in the lower middle of Southeast Asian countries just below Indonesia ($4,800) and above the Philippines ($3,500), but well below Singapore ($82,800), Brunei ($37,200) and Malaysia ($12,000).
Though the wealth levels may not yet compare to many other Asian countries, Vietnam has something that makes it currently the rising star of luxury. While most countries struggled to recover after the pandemic, Vietnam scored top record economic growth of 7.2% in 2022. In fact, during the past four challenging years for all economies globally, Vietnam managed to keep a healthy and fast-paced growth rate in GDP per capita of over 4% on average.
Why do Dior and Chanel care about economics? Luxury items are one of the rare goods people spend more on as they become wealthier. An increase in income by 10% may lead to an increase in the purchase of luxury goods by more than 10%.
While a wealthy individual may spend VND30 million ($1,215) a month on luxury items, as their salary increases from VND200 million ($8,102) to VND220 million ($8,912) (an increase of 10%), they may increase spending on luxury items from VND30 million ($1,215) to VND40 million ($1,620) a month (a 33.3% increase).
On the contrary, if a person’s salary shrinks, the first thing to go are luxury items. Before the pandemic, China experienced a decade or more of phenomenal growth driven by a demand for luxury goods. Asia became the top selling destination for luxury brands. In terms of online luxury sales, APAC represented a stunning 45% of global sales in 2021, well above the 27% and 28% of the Americas and Europe.
During the pandemic, the Chinese market and sale of luxury products cooled down. Designer brands such as Gucci, Versace and Rolex started looking for new markets which they found in the growing Vietnamese economy. Similar to their Chinese neighbours, Vietnamese are not shy to show off their new wealth with items that only a few privileged can afford. And the new wealth indeed benefitted the upper class more than the lower class, as Vietnam’s income distribution data shows.
This is good news for the luxury brands, as they prefer to have a few elite top-earners rather than sharing new wealth with the masses. If we become equally wealthier, there is not much to show off. Especially in the luxury brand market, exclusivity and elitism are key. The luxury products need to remain unachievable for the great majority to keep their mystique and appeal.
The fact that the impressive growth in Vietnam was paired with a moderate rise in income inequality should not spark too much concern. Commonly, periods of rapid economic growth benefit the upper class first and then slowly trickles down to the middle and lower classes.
Not only are the Vietnamese super rich enjoying the impressive economic growth, but the luxury brands are too. In 2022, the top economic boom year of Vietnam, luxury companies like Gucci, Louis Vuitton, Chanel and Dior increased their profits on average by 140% compared to the previous year.
As we enter into 2024 and all countries are healing from the effects of the pandemic and other economic problems, the question is whether the luxury brands will continue to keep Vietnam as a key market.
In terms of economic growth, Vietnam continued recording a solid growth of over 5% in real terms in 2023. While this is impressive, most neighbours grew at similar rates. Notably, China is picking up economic speed with rates also above 5%. Luxury brands are rubbing their hands awaiting the possibility to return to the huge Chinese market. While Vietnam was the target market in 2022, luxury brands seem to have more attractive choices in 2024 to sell their sought-after products. It would be unsurprising if they shift their marketing campaigns and sales efforts elsewhere.
There is no reason to fear that Cartier, Dior and Chanel will disappear from shopping malls in Ho Chi Minh City, Hanoi and Danang. As long as there is strong demand, luxury brands will make sure to provide the product. The real question is not if the luxury brands need Vietnam, but rather if Vietnam needs the luxury brands.