Why Japanese Retailers Continue to Expand in Vietnam’s Retail Market

Japanese retail firms are expanding their presence in Vietnam in a big way. This is at odds with many retailers pulling back amid global economic uncertainty. So what is it that Japanese retailers can see that other foreign firms may not?

According to a recent survey by the Japan External Trade Organization (JETRO), 60 percent of Japanese enterprises operating in Vietnam plan to expand their businesses in the burgeoning Southeast Asian nation in the next one to two years.

This is despite the current weak purchasing power and the deserted state of many shopping centers.

So what is it that is driving Japanese retailers to expand in Vietnam against the trend?

Japanese businesses currently expanding in Vietnam

Shopping malls

Aeon Group is accelerating the opening of more shopping centers and supermarkets in Vietnam. It intends to triple its malls in the country by 2025. To consolidate its advantages over other domestic and foreign competitors, Aeon is also seeking more market share in the central region with its first mall in Hue due in 2024.

Supermarkets and convenience stores

BRG Retail is coordinating with Sumitomo Group to expand the FujiMart branded supermarket chain. They are expected to have about 50 stores in big cities by 2028. Takashimaya, Family Mart, MiniStop, and 7-Eleven are also expanding too.

Footwear and apparel

Uniqlo has announced that it will add its 17th store in Ho Chi Minh City to its retail network later this year. The opening of an additional retail store reaffirms the long-term business commitment of this Japanese brand to Vietnam.

MUJI Vietnam has also said it will open more stores in Hanoi in the second quarter of 2023 in addition to the five stores it currently has split between the city and Ho Chi Minh City. Notably, this MUJI has adapted to theVietnamese retail market with its stores having an average area of about 2,000 square meters, nearly twice as big as its stores in Japan.

What’s driving Japanese firms to expand in Vietnam?

Vietnam’s economy is growing fast

Vietnam’s GDP in 2022 increased by 8.02 percent, the highest annual increase in the last ten years. Total retail sales of consumer goods and services also increased by 19.8 percent, a positive number in the context of inflationary pressure and global economic uncertainty. This is a promising trend and is partially why Japanese brands are continuing to expand–by preparing early they may have a first-mover advantage.

Japanese goods are seen as high-quality

The success of big names such as Honda, Sony, and Panasonic in Vietnam during the 2000s has left a strong impression on Vietnamese consumers. The quality of Japanese goods is perceived by Vietnamese consumers as of a high-standard and good-value. As a result, Vietnamese people often prioritize Japanese products when they want good quality items that last.

This explains why Japanese firms have gained a foothold even though they have higher prices than many of their competitors.

To take one example, AEON has taken just 12 years in the Vietnamese market to rank number five in the top 10 Most Prestigious Retail Companies in 2022. This is particularly notable, in the current gloomy situation of many shopping centers such as Vincom, Mipec Tower, or Discovery–AEON Malls are still doing well.

Furthermore, the pandemic has made people more concerned about their health and has driven them to search out healthier foods. And, according to Source of Asia, Vietnam’s middle-class households are willing to pay extra for it. Ergo, this is beneficial for Japanese supermarket chains that are known for their high-quality products.

Japanese retailers operate in a unique niche

Instead of having a diverse customer profile, Japanese brands tend to focus on the middle-class with Japanese retailers often pricing out a large section of the population.

It’s estimated that up to 36 million Vietnamese could move into the consumer class over the next decade, making the middle-class a pivotal consumer market in Vietnam. With a rising disposable income, and a desire for a more engaging shopping experience, the consumer class is driving a shift from traditional retail with small, streetside stalls to more modern supermarket chains and convenience stores.

MUJI is a clear example for this thesis. Realizing that there was a gap in the mid-range segment of Vietnam’s retail offering, MUJi found its niche with a latent target group: students and office workers who have financial potential and are big fans of minimalism.

Furthermore, the middle-class is not as affected by economic volatility. Middle-class consumers tend to have an income high enough to cover their daily necessities, overcome income shocks, and still have enough left over for additional expenses.

The ability to please customers

Japanese brands have won Vietnamese hearts by garnering insights and using them to sell “localized” products for Vietnamese consumers.

“We research and develop useful products for Vietnamese people based on their daily habits and needs. In the near future, we will introduce more new products specifically for the Vietnamese market”, said Mr. Tetsuya Nagaiwa, General Director at MUJI Vietnam.

Recently, MUJI has launched a product line of raincoats specifically for the Vietnamese market, designed to be easy for customers to use when riding motorbikes. Products made in Vietnam account for about 30 percent of MuUJI products, and the proportion is likely to increase, according to Nagaiwa..

Deputy General Director of Aeon Vietnam Office Division, Tanaka Kosei also shared a similar thought with Kinh Te Do Thi.

“We will continue to develop multi-channel sales, keep prices and increase Vietnamese goods in supermarkets,” he said.

Uniqlo is also using a localization strategy to increase its sales. After entering the Vietnamese market, Uniqlo launched a line of T-shirts customized for the region imbued with motifs drawn from traditional culture. In addition, Uniqlo often implements projects supporting Vietnamese agricultural products, creating space to bring Vietnamese items to consumers at its stores.

Loosening regulations and free trade agreements

As a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam plans to lift foreign investment restrictions in a range of areas as early as 2024. Specifically, Vietnam has committed to removing restrictions on “opening more retail points” after five years from when the agreement comes into effect.

The CPTPP will also offer lower or zero tariffs and simplified import procedures, creating more advantages for Japanese products and services. This will create more room for Japanese retailers to expand in the Vietnamese market in the long term.

Japanese retailers in Vietnam moving forward

The Vietnamese retail market has been showing positive signs of recovery after a hard time during the COVID-19 pandemic, but some challenges still remain.

Japanese retail brands, however, have not been dissuaded in their expansion plans. This is because they target customers less affected by economic downturns, have an ability to meet their needs and build long-term trust, and are provided a number of benefits through free trade agreements.

Expanding in, or entering the Vietnamese market now, may give Japanese retail firms a first-mover advantage. However, this advantage may not last for too long as other foreign and domestic retail firms adapt their operations to follow in the footsteps of these Japanese firms.

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