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Coping with international competition in fashion

Released at: 14:11, 20/01/2019

Coping with international competition in fashion

Photos: Viet Tuan

Local fashion brands are still struggling with their business strategies as international brands take the lead in the domestic market.

by Phi Linh

Vietnamese fashion brand Eva de Eva had an official meeting with South Korea’s Daegu Textile Industries Association in Hanoi in mid-November to identify better material sources for producing and distributing high-quality clothing at affordable prices. “Partnering directly with such a foreign provider will help us secure high-quality raw materials rather than higher-priced imports from China via a third party, as previously,” said CEO Ms. To Thi Dung. “This cooperation is expected to improve the quality of our products so they meet the diverse demands of customers and bolster our competitiveness in the local market.”

New pressures for newcomers

Eva de Eva has been in Vietnam’s fashion market for eleven years and is popular among female customers over 30 years old for its mainly office wear. As the local fashion market has seen solid growth over the last few years, brands like Eva de Eva have recorded sound business results and expanded their distribution channels. The brand now has 40 retail stores around the country. 

Three other Vietnamese fashion names - IVY Moda, Elise, and NEM - have also recorded solid business results, with retail stores numbering 70, 100, and 59, respectively. In 2016, sales turnover at NEM’s stores was VND219 billion ($9.3 million); 1.5 times higher than in 2015, according to its financial report. One of the first office fashion brands for women, at that time NEM was introducing 500 new items each month and conducting major marketing campaigns. “Local fashion brands were developing quite strongly back then,” said Ms. Dung. “The competition wasn’t so strong.”

As such, international fashion brands saw Vietnam as a market full of promise. A representative from local textile and garment group Vinatex told VET that Vietnamese people are known for buying large volumes of high-end clothing from overseas, especially from Singapore, and the domestic garment market is valued at $4.5 billion each year.

The market has been changing sharply as international fashion brands like Zara and H&M have arrived in Vietnam over the last two years, Ms. Dung added. According to a report from Vietnam Industry Research and Consultancy (VIRAC) last July, total revenue of Spain’s Inditex, Zara’s owner, and three sister brands - Pull & Bear, Stradivarius and Massimo Dutti - operated by Mitra Adiperkasa (MAP), increased from VND321 billion ($13.8 million) in the first four months of operations to VND1.1 trillion ($47 million) in 2017. Revenue then grew 133 per cent in the first half of 2018 against the same period of 2017. 

With only a few retail stores in Hanoi and Ho Chi Minh City, the four powerful brands recorded VND950 billion ($40.8 million) in revenue in the first half of 2018, according to VIRAC. “The four big brands earned more than the four Vietnamese fashion brands of Eva de Eva, Ivy Moda, Elise, and NEM,” said Mr. Nguyen Cong Minh, CEO of Denmoz Corporation, which specializes in R&D and provides solutions to local and foreign fashion markets. Ms. Dung acknowledged that the presence of global brands made her company’s business activities more difficult. “Local consumers now have more choice between local and foreign brands,” she said. “Local brands need to adopt a better strategy to compete with their foreign counterparts.” 

Eva de Eva and other local brands have focused on expanding their distribution channels and launching new fashion items over the last two years. The brand also changed its strategy two years ago, moving towards the younger segment to expand its market share and improve the brand’s identity, as the country’s population is mainly young, Ms. Dung added. 

These local brands have constantly been recruiting staff in sales and design positions via their websites to implement their expansion plans and secure staff before more global names arrive. “The advantage in the retail industry is that the more stores there are the more customers there are,” Ms. Dung said. “We will open more 20 outlets in the northern and central regions next year to rapidly cover the market.”

IVY Moda, established in 2005, also spent a significant sum on investing in its distribution network and on high technology over the last two years. A brand representative told local media that it intends to be a fast fashion brand like Swedish fashion retailer H&M. At the opening launch of IVY Kids last October, Deputy CEO Ms. Le Thi Ngoc Linh told the associated press conference that applying high technology into production and sales will help the brand shorten the time from completing products to putting them on the shelves at its 70 stores. “It now takes us three days to do this, instead of the previous ten days,” Ms. Linh said. “Our revenue growth has increased 30 per cent as a result.” 

FASHION RETAILERS

Sources: VET research and fashion companies

Leading the way

A strategy of focusing on distribution expansion was right in 2015 or earlier but not at present, according to Mr. Minh, and Zara will pretty much retain its current number of stores in Vietnam. The brand launched an online channel just prior to opening physical stories, as its target customers are in major cities. It will focus on an omni channel strategy more so than offline due to the changing behavior of Vietnamese shoppers, the widespread adoption and increased ownership of smartphones, laptops, and tablet devices, and the readiness of the market. 

According to the 2018 Nielsen Connected Commerce Report released by Nielsen Vietnam in December, fashion continues to account for the largest proportion of online transactions in Vietnam in addition to stalwart e-commerce categories like travel and books. “Expanding offline distribution without a database for researching customer behavior and habits will result in local brands recording losses,” Mr. Minh said. 

NEM is a typical case of failure due to an expansion strategy, he added. According to its financial report, total debts were VND534 billion ($22.9 million) and inventory VND62 billion ($2.6 million) as at December 31, 2016. Inventory value was then VND33.9 billion ($1.5 million) as at June 30, 2018, according to a Vietinbank announcement when it sold the fashion company’s debt last September. “Opening many retail stores plus a wrong product strategy and other factors made the local brand suffer losses,” he said. 

Zara in Vietnam, meanwhile, is well known for its youth fashion, according to local insiders. Its competitive edge relies on understanding current fashion trends customers want and delivering them efficiently and quickly. A representative from the brand told local media that it is not a fast fashion brand, it simply meets customer needs. “Our success is correlated to an understanding of customer psychology, which is based on information collected,” the representative said. “With such an approach, customers in Hanoi and Ho Chi Minh City will become influencers for our design team and global customers.”

As such, fashion items at Zara will be updated twice a week at each store. Each store in each region will have different orders due to the special demand of certain customer groups. For this reason the number of customers visiting the store is always more than its rivals, according to Mr. Minh. “Local brands haven’t recognized or done this,” he added. Most local brands haven’t invested in building a database of customers, standardizing anthropometric measurements, and applying high technology, which all count as weaknesses. 

For Eva de Eva, improving the quality of materials compared to Zara to produce high-end fashionable clothing that is more competitive than the foreign brand is part of its journey to reach VND400 billion ($17.2 million) in revenue by 2019 and have 100 retail stores over the next three years, according to Ms. Dung. It will also apply technology into its operations system shortly to cut costs and enhance its digital marketing. It recently received financing from a fund so it can compete with foreign giants. 

In the near future, Vietnam’s fashion market is expected to be even fiercer once Uniqlo, owned by the Singapore-based Fast Retailing, is launched in Ho Chi Minh City in 2019. Recruitment of local talent will commence immediately in preparation for the opening in one of Southeast Asia’s most exciting, high-growth economies.

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