High land lease prices, local preference on exported clothing, and the custom of shopping at local stores may not favour Japanese-based UNIQLO’s plan to make waves in Vietnam.

Fast-fashion seeks speedy solutions (illustration photo, source: kenh14)

Early this December, the first UNIQLO store in Vietnam will open in Parkson Saigon Tourist Plaza in Ho Chi Minh City’s District 1, opposite to Zara, H&M, Mango, and others located at Vincom Dong Khoi. The news was met with surprise however, with many pointing to Parkson’s prolonged financial troubles in recent times.

Signs in Vietnam are not too rosy for companies like UNIQLO in general when looking at the performance of other fast-fashion brands in Vietnam so far. The likes of Zara and H&M have now been present in the market for a few years, but the shift to go shopping at these international fashion outlets in this country has been taking place at a snail’s pace.

Vincom Dong Khoi, which is home to many fast-fashion brands, has no space for any new stores, according to Savills. Therefore, selecting Parkson for launching the first UNIQLO store was perhaps seen as the only option.

According to land lease price website odinland.com.vn, one square metre in Parkson Saigon Tourist Plaza is offered at $24 per month. With a space of 3,000sq.m for the launch of UNIQLO’s first store, the Japanese company has to pay about $72,000 in monthly leases – a high expenditure for a newcomer.

Regarding the selection in position, Yukihiro Katsuta, group senior vice president at Fast Retailing Co., Ltd. and head of the Research and Development Department at UNIQLO, said that real estate prices in Vietnam, especially in golden sites, have been skyrocketing, so “finding a favourable destination with suitable space and at a reasonable price is burdensome in the local market.”

Along with UNIQLO, other fast-fashion brands have to shoulder sizable burdens in land lease prices.

Talking to VIR about the land price in shopping malls over the country, Vo Thi Phuong Mai, CBRE Vietnam’s deputy director and head of its Retail Land Leasing Service Department, said that they have tended to increase sharply. “Some spots in shopping malls have even doubled in price against just five years ago,” Mai said

Statistics from property service firm Colliers International Vietnam show that in 2019’s second quarter, one sq.m at Vincom Dong Khoi is offered at $102 a month, ranking in the top seven most pricey shopping malls in Ho Chi Minh City.

H&M last year ran its operation through six stores in Vietnam, all of them located at Vincom centres with thousands of sq,m in space for each store. With the $102 in leasing price per sq.m in Vincom Dong Khoi, H&M may have to pay nearly $225,000 per month for the outlet’s space of 2,000sq.m.

Similarly, Zara has two stores in Hanoi’s Vincom Ba Trieu and Vincom Dong Khoi. With the outlet’s space of 4,500sq.m, Zara has spent up to $420,000 so to maintain operation in Vincom Ba Trieu.

Both Zara and H&M have been silent on queries over land-leasing-cost hardships they may be facing.

Clarifying the reason behind brands pouring money into such land spaces, Mai from CBRE said that many of them readily pay a huge cost for the golden spots for brand promotion alone, and as a quick-fire method to set foot strongly into the market.

Vietnam is experiencing a shift from middle to higher incomes, which is expected to lure in even more retailers in the future.

A survey conducted by market researcher Asia Plus Inc. with over 500 Vietnamese male and female respondents between the ages of 18 and 39 showed that fashion is one of the categories drawing the highest interest, with the rate especially high among female respondents and those who earn more than the average household income.

The scale of the Vietnamese fashion market was valued at $3.8 billion in 2018 and is expected to increase to $5 billion by 2021.

However, the cake has been split into various segments, including the expenditure on products ordered from abroad and shopping at local vendors. According to the latest survey by Asia Plus’ Q&Me with another 500+ local consumers, nearly half (48 per cent) shop at local stores, while the rate of those visiting brand stores is only 24 per cent.

Local shops include vendors and small stores specialised in purchasing goods from other markets.

Nguyen Thi Van Anh, a 30-year-old online goods trader in Hanoi, is regularly busy with a large number of orders from local consumers.

Anh told VIR that she recently carried out big orders for on-sale fashion products for customers on the occasion of the November 11 super sales, having to mobilise money from seven bank accounts to serve the demand of customers. Nearly 350 of 365 orders were successfully carried out.

Anh is one of many individuals running businesses by purchasing fast-fashion goods from other markets.

Clarifying the huge demand for the kind of goods, most young people say that prices are more reasonable compared to local outlets because goods purchased elsewhere do not shoulder taxes.

According to the latest survey on local consumption demand published by market research company W&H, the consumption rate for parallel imports occupies 38.7 per cent. A parallel import refers to a non-counterfeit product imported from another country without the permission of the intellectual property owner.

Along with cosmetic and electronics, clothes are one of the most popular parallel goods in Vietnam, with better quality and more reasonable prices often cited. Those respectively accounted for 57.4 and 42.4 per cent of total consumers involved in the survey.

Regarding the reality in the local market, Fredrik Famm, country manager for H&M Southeast Asia told VIR, “We understand that the fashion retail landscape is changing rapidly and we are driving our transformation work to future-proof the H&M Group.”

H&M is opening its 8th store in Vietnam in the central city of Danang this week.