Why the mid-market segment of fashion retail in Vietnam is ripe for digital transformation

by Anh H. Nguyen



Once a poor country ravaged by war, Vietnam is now the home of a booming, hugely promising fashion market, reportedly worth almost US $400 million. For those who closely follow the country's economic progress, its transformation from textile and garment manufacturing hub to dynamic consumer market is inspiring, but not surprising. Without delving in too many nuances, there are three major contributing factors to this recent vigor:


1. A rising middle and upper class: The country's middle class has jumped from 10% of the overall population in 2014 to 33% in 2020, and is projected to reach 95 million by 2030 - the highest growth rate in South East Asia. The number of millionaires has also tripled within the last decade. In 2016, Vietnam's share of individuals having a net worth of at least US $30 million is the fastest growing in the world. The country's GDP climbs at a steady 7% a year. The consumer confidence, i.e. people's optimism in the economic future, is also steadily increasing. All of these figures mean more disposable income to spend on clothing.


2. A predominantly young population: Currently, 70% of Vietnamese people are in the 15 to 64 years old age bracket, which fit the "golden" social structure of consumer demographics. It gets better: when the millennials today age into 35-54 years olds, this particular base will reach the peak of consumer market. Why? Because they are the ones with both the spending power and a relentless appetite for fashion. The World Bank also estimates that 60% of the whole Vietnamese population will be under 35 by 2035, which means a huge swath of young, educated, trend-driven professionals with wide, easy access to the Internet, the ideal target for fashion brands, especially mid-range ones.


3. An open economy: Since 1986, market reforms, collectively dubbed Doi Moi, have turned Vietnam into a coveted playing ground for global players. Vietnam's policies have allowed for vibrant trade activities with an immense, ever soaring amount of foreign investments. In Hanoi and Ho Chi Minh city, the luminous storefronts of luxury powerhouses like Louis Vuitton and Dior dominate prestigious areas, while mass-market retailers like Zara, Uniqlo, and H&M rule the commercial high street. At the same time, foreign companies are showing great interest in acquiring local labels, e.g. the M&A at Nem, Vascara, and Elise. Backed by robust financing, management experience, and other resources, those chosen brands are poised to expand their network and take the nation's fashion scene by storm.




Physical stores remain an indispensable part of Vietnam's fashion retail


One of the most impressive aspects of Vietnam's retail is the unshakeable prevalence of the brick-and-mortar segment. Online shopping has made some remarkable strides in recent years, but physical stores still hold the lion's share with an overwhelming 97% of the total market. As much as people seem live in the virtual world nowadays, e-commerce still does not suffice for the success of fashion companies. These used to be an argument that many fashion retailers collapsed because people shifted to online shopping. Ironically, the Covid-19 pandemic has laid this debate to rest once and for all: the forced closing down of physical stores has had a devastating effect on fashion companies despite the available online channels. It appears that brick-and-mortar stores are the main course, and the online equivalent is merely the side dish. People still prefer going to the stores by a large margin, and Vietnamese folks are quite the avid shoppers.


Since traditional fashion outlets remain steadfast in their popularity, it is inevitable that some retailers, foreign and local alike, would be ambitious to try out some forms of AI solutions to improve their business operations. As we have touched upon the topic in an earlier article, this reflects a natural progression in operation methodology. No matter how well a business is doing, the time will come when it reaches a kind of "ceiling", or equilibrium. This "ceiling" is invisible yet impossible to break unless said business revamps its processes. Think of it as upgrading to a new vehicle. And in the meantime, AI-powered digital transformation ranks as the most radical, potent kind of "vehicle" there is. However, not all segments of Vietnam's fashion market are ready for the transition to data-driven, automated process.


Three segments of Vietnam's fashion market


In spite of the splendid economic growth rate, inequality in Vietnam is still a big thing. The population could be roughly divided into three strata based on income and there are significant gaps between them. This constitutes a kind of consumer pyramid. In time, a corresponding market pyramid has also emerged.


-The largest segment at the base is the traditional marketplace. There are at least 8000 units spread across the country, 75% of which are in the rural areas. Those old-school establishments become mainstays in their respective communities by serving the working class, which make up the majority of the populace. They usually feature clothing kiosks with cheap, mass-produced goods imported from China. Although the quality is often suspect, the affordable price and convenience ensure that these markets are not going away any time soon. While the customer base is big, implementing digital transformation for this segment is simply infeasible due to the lack of infrastructure and resources.


-At the top is the premium market which caters to the upper class. It is composed mainly of a small number of luxury boutiques, most of which are foreign brands. Its clientele is upscale and usually educated with generous means. A big portion of this particular group go abroad regularly and prefer to do their shopping while overseas, one of the reasons this is the most difficult patronage to cultivate. It is all about quality, not quantity with luxury consumers. Although this affluent, discerning segment makes up a tiny part of the population, Vietnam's relatively fluid upward mobility ensures it will grow. One big thing that AI could help with this niche market is personalization, since elevated services are the true hallmark of luxury. This article elaborates the point further.


-In the middle is the mid-tier market. The target demographics are mostly middle-earners who want fashionable clothes with acceptable quality and affordable pricing. Not only do they hold the most potential for the Vietnam's fashion market, they are also responsible for most recent developments in that realm. This segment is perfectly suitable for a complete, AI-powered overhaul of processes. Here is why Vietnam's mid-tier fashion market is the perfect candidate for digital transformation of business:


The sheer size of mid-range customer base calls for more effective managing and deeper insights



While not as big in number as the working class with limited income, the target demographics for mid-tier brands are not to be underrated. Conservative estimate puts the number of 33 millions and counting. Obviously mid-priced brands, both international and local, have noticed that as well. It seems like everyday there are some new Vietnamese brands popping up, offering beautiful, affordable pieces in a wide array of styles. On the other hand, Zara, Mango, Topshop, H&M, Gap, and Uniqlo have all entered the market with varying degrees of success. With so many choices, professionals in urban areas could dress fashionably if they so choose, and most of the time, they do.


While a large customer base is a positive thing, mid-priced brands still have many competitors to contend with. Foreign brands deal with an extra layer of difficulty: the challenge of a new market with completely different habits, mentality, and expectations. While Zara and Uniqlo, for example, both drew huge crowds during their first days of opening, what will happen when the novelty wears off? Understanding customers is crucial for a business' success. For fashion retailers whose business revolves around finicky, elusive ideals like styles and trends, it is even more important to capture the ebbs and flows of customers' interest.


The best way to make sense of such an enormous and diverse group is to invest in AI Analytics technology which could categorize customers based on ages, genders, and other specifics. The data stream is fed directly from the existing in-store camera system, which allows retailers an omnipresent overview of their customer base. This lays the groundwork for all future marketing campaigns, tweaks in operations, and improvements. All manners of business operations could then benefit tremendously from this foundation.


A visualization of customer demographics


Let's look at one example. Fast fashion consumers, by definition, are receptive to of-the-moment trends, viral campaigns, and promotions. This is in direct contrast to luxury consumers whose taste veer closer towards the timeless and classic. While this makes fast fashion consumers the ideal target for online marketing, it does not imply that any campaigns will hit the mark. In order to keep the number of failed campaigns to a minimum, fashion retailers should test their marketing efforts on a centralized location and monitor the resulted in-store traffic and sales. This allows them to compare the effectiveness of different campaigns before applying them on a large scale. Just as fast fashion consumers like to stay in vogue by buying the latest trends, the brands would do well to keep their fingers firmly on the pulse of their target demographics.


AI Analytics solutions could help Vietnam's mid-tier fashion retailers scale their business with ease


Opposed to luxury retailers which foster an air of exclusivity by operating in only a few selected venues, mid-range fashion brands aim for exposure, mass production, and rapid expansion. New stores being opened is a cause to be celebrated, but they also put more pressure on the retailer. Problems that never existed before may materialize, while existing problems will multiply and get out of hand. Cashier fraud, for example, is a constant pain in the neck for Vietnamese fashion companies, so much so that shoppers often encounter signs warning them against paying without a receipt. Other concerns may include handling staffing, managing when traffic is low, and avoiding missed sales opportunities.



While each and every one of these concerns is troubling by itself, when accumulated, they could strain a business to its limit. Mid-range fashion brands that grow too fast are especially vulnerable. They may lose track of finance, have cash flow problems, hire the wrong kind of people, i.e. make all sorts of mistakes that come with "failure to scale". Stars that burn too bright often risk being gone too soon. Apart from extensive planning and funding, a business needs systematic guards in place so that these issues, once manifested, could be nipped in the bud without causing too much trouble. In this instance, AI Analytics solutions is comparable to a vaccine that protect a growing business from anything that may hamper its development.


Conclusion


Despite the long-held belief that fashion and technology do not mix, more and more fashion retailers are embracing a data-driven approach to conducting business and using technology to achieve that end. For mid-range fashion companies eager to break into the market of Vietnam, there is no need to look elsewhere: Palexy is a home-grown startup that provides retailers with customized AI solutions to suit their every needs. Looking to add more value to your business? Join our long list of esteemed clients at https://www.palexy.com/customers.







84 views
logo_trans.png

© Copyright 2020. All rights reserved