Southeast Asia: The next boom region for luxury?

This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. Singapore’s status as a fashion centre may be relatively modest on a global scale, but signs of progress are evident. The island nation was selected in March as the location for trunk shows from LVMH-owned Louis Vuitton and Bulgari. Activity is also picking up in Bangkok, capital of Thailand, which hosted a Louis Vuitton’s men’s Autumn/Winter 2022 spin-off show, and Ho Chi Minh City, Vietnam’s most populous city, where Gucci presented a repeat show of its Spring/Summer 2022 Love Parade collection to celebs and VIP clients. Could these signs of luxury brand interest in Southeast Asia mark a turning point? The region has often been overlooked for such events, with Japan, China and trendsetting South Korea given preference. Many of the 10 member states of Asean (Association of Southeast Asian Nations), however, have growing economies, expanding high-net-worth populations and increased flows of tourists as well as tech-savvy entrepreneurs. There are some drawbacks. Real estate across the region is a challenge, experts say, with a lack of sophisticated retail developments. Southeast Asia also lacks a frictionless economic union that could make business easier (compared to the shared currency and open borders of the European Union). That said, Southeast Asia’s economic prospects are highly promising. The six largest economies in the region — Thailand, Vietnam, Singapore, Malaysia, Indonesia and the Philippines — are forecast to grow 4.2 per cent this year and 4.8 per cent in 2024, according to HSBC, outpacing the 1.1 per cent expansion predicted for the developed world in 2023 (and next year’s estimated 0.7 per cent). Consultancy firm Bain & Company says Southeast Asia is set to outpace other emerging regions such as Eastern Europe and Latin America over the next decade, thanks to surging entrepreneurial activity, favourable demographics and a relatively benign international environment. Luxury sales across Southeast Asia topped €12 billion in 2022, experiencing strong growth year-on-year of more than 70 per cent, according to Bain. That’s compared to 20-30 per cent growth in the US, Europe and Japan — and a contraction in China linked to lockdowns, says Federica Levato, EMEA leader in fashion and luxury and senior partner at Bain. Southeast Asia is expected to have an additional 25 to 30 million mid- and high-income consumers by 2030, around 15 per cent of the numbers achieved by China between 2014 and 2022. Levato says Southeast Asia will “represent a new and significant pocket of growth for luxury going forward, and brands should prepare to capture and capitalise on it”. China’s economic slowdown has prompted luxury executives to rethink their global retail footprint, says Nick Bradstreet, head of Asia Pacific retail for global real estate firm Savills. China has been a growth engine for luxury brands for the last five to seven years, but its current economic challenges have caught many executives off-guard, he says. While the luxury market in China, at least, is showing signs of recovery in the post-lockdown period, Bradstreet identifies “a lot of problems” on the horizon. “Brands wanting to diversify are going further afield and Southeast Asia is becoming a focus,” he adds. Singapore is a leader in the region, says Damien Yeo, consumer and retail analyst at market research firm BMI. Its luxury shopping destination, The Shoppes at Marina Bay Sands, recently opened a flurry of new flagship stores, including Acne Studios’s first boutique in the subcontinent. The Ion Orchard mall now houses Dior’s first standalone facial boutique in Asia as well as a first Southeast Asian boutique for The Onitsuka, footwear brand Onitsuka Tiger’s dress shoes line. Gentle Monster and Hugo have also reopened stores with new concepts, while Marimekko is making its debut in late September in Singapore with a flagship store and cafe. Last week, Prada celebrated the opening of its first dedicated beauty store at Singapore's VivoCity with global ambassador, Thai actor Win Metawin, and Singaporean stars including Chantalle Ng, Glenn Yong and Mae Tan. Vietnam is evolving fast too. The Vietnamese luxury goods market is expected to be worth £957 million in 2023 and forecast to grow by 3.3 per cent annually through to 2028, according to BMI’s Yeo. Big brands have begun expanding their footprint. In July, Vietnam-based multi-brand luxury retailer Runway opened its largest flagship store in Ho Chi Minh City, selling a broad portfolio of brands ranging from Chanel to Rick Owens and Self-Portrait. Hermès, Tory Burch and Korean streetwear label ADLV have recently opened stores in the city, while Dior and Louis Vuitton opened flagship stores in Hanoi, Vietnam’s capital city, in 2022. “The rapidly growing segment in Vietnam could position it in the future as a major Asian market for luxury fashion alongside regional leaders in developed Asia such as Japan and South Korea,” says Yeo. Retail: Street or mall? Unlike Western markets, where luxury shoppers are used to visiting street-based stores in major cities, luxury retailers in Southeast Asia and Greater China prefer to be based in shopping centres. In 2022, 78 per cent of first stores opened by international brands in China were in shopping centres, according to CBRE’s latest China real estate market outlook. That’s a problem for Southeast Asia, which has a lack of quality shopping centres, according to Bradstreet of Savills. He visited Vietnam last September and observed that more luxury brands were looking to set up shop. But, he says, “it doesn’t have sophisticated property developers as in China and Hong Kong. They create an environment where retailers are very happy and also design it very well. In Southeast Asia, there’s not enough real estate.” A more likely scenario is that brands opening stores in Vietnam will be obliged to go for street locations, which require different kinds of negotiations, either with a government body or an individual landlord. Thailand and Singapore are considered slightly more mature markets and do have some quality shopping destinations. Tos Chirathivat’s Central Group, Chadatip Chutrakul’s Siam Piwat Group and Supaluck Umpujh’s The Mall Group are among the leading Thai retail landlords providing boutique space for brands in locations such as Bangkok, Chiang Mai, Pattaya and Phuket. Frasers Property Singapore is currently building One Bangkok with over a million square feet of retail, while Central Group is working on a mixed-use Dusit Thani development in Bangkok that includes a shopping mall, luxury hotels and residential apartments. Much hinges on maintaining a good relationship with landlords. In Hong Kong, several luxury brands, including Prada, Burberry, Omega and Longchamp, have preferred to move out of their street locations in the Causeway Bay area and into malls in recent years. “Streets were the thing seven or eight years ago when brands wanted a bigger store to showcase their products, but many have been burned by too-high rents or they’ve dealt with local landlords who are difficult,” says Bradstreet of Savills. “Today, most brands feel very comfortable in a shopping centre and they tend to follow each other and the best developers. There’s a hierarchy; Louis Vuitton, Dior, Gucci, Cartier, Hermès and Chanel — if you get four of any of those in a development, the rest will follow.” Brands are seeing changes in consumer shopping patterns as intra-regional tourism takes over. At Singapore’s Marina Bay Sands (MBS), 60 per cent of revenues once came from long-haul tourists, Bradstreet claims. That figure has flipped post-lockdown and the majority of sales are now driven by locals and visitors from neighbouring countries. This has required retailers to rethink their approach. Some are responding to the shift by enhancing and enlarging their food and beverage offering. MBS has brought in chefs from US and Europe and operates Michelin star restaurants. “It’s taken a lot of business away from competitors on Orchard Road,” says Bradstreet, referencing Singapore’s best known boulevard. Across Asia, shopping is viewed as a national hobby and prime social activity, says Yeo Mui Hong, chief executive of Singapore’s Ion Orchard. “Malls are not merely places to buy products but they are also spaces for socialising, dining and entertainment,” she says. Ion Orchard makes much of art exhibitions, cultural experiences and social media-friendly activities that can enhance a visit. The Ion Sky observation deck on the 55th floor boasts panoramic views of Singapore’s skyline. For SS23, the retailer unveiled a waterfall garden that “served as the perfect photo backdrop during the day and came alive at night with a light show — providing a visual treat for shoppers,” says Hong. Ion Orchard also attracts visitors through in-store exclusives and events, such as the Kai x Gucci collaboration sold only at the Ion Orchard store in Singapore. Gentle Monster’s Jentle Garden pop-up, which travelled to only five venues globally, included Ion Orchard on its tour. This summer, Fendi staged a pop-up for its capsule collection celebrating astrological signs and Mediterranean beach lifestyle, while Veuve Clicquot and Moët Hennessy held events to encourage shoppers to personalise champagne boxes with a name of their choosing. A digital moment In line with worldwide trends, Southeast Asian consumers are shopping more online, a shift given extra impetus during the Covid pandemic lockdowns. From 2016 to 2021, the total value of e-commerce sales in Southeast Asia grew 40 per cent annually, while e-commerce’s share of all retail sales surged to 20 per cent from 5 per cent, according to data from McKinsey. E-commerce in Southeast Asia is expected to sustain robust double-digit annual growth of between 15 and 25 per cent for the next five years, the consultancy predicts. The number of online consumers in Southeast Asia is projected to hit 402 million by 2027, up from 370 million in 2022, according to Bain. The region’s rapid e-commerce development can be likened to China’s — although it will take some time before Southeast Asia, at 20 per cent of all retail sales, can match China’s penetration rate of 47 per cent. Southeast Asia’s e-commerce surge has been boosted by improved access to the internet as well as the proliferation of online marketplaces such as Lazada and Shopee, and new social commerce platforms like TikTok Shop, which stepped up its presence in the region in 2022. Until recently, most e-commerce transactions in Southeast Asia were for low-value goods and electronics, but luxury goods are now being bought online. Balenciaga, Prada, Saint Laurent and Burberry all sell via Lazada, although the product categories tend to be at the most accessible price points, such as sunglasses, bags and shoes. As consumers in Southeast Asia step up digital purchasing across products and channels, retailers should consider more complex omnichannel strategies and invest in specialised logistics services to support deeper category penetration, says Ion Orchard’s Hong. “Shoppers frequently research products and services on mobile phones while shopping in a physical store, looking up product information and reading customer reviews,” she says. Hong explains that Ion Orchard has responded to these shifts by revamping its mobile app earlier this year and has also introduced an improved loyalty programme to make it easier for shoppers to discover deals and earn rewards. Young consumers are particularly keen on e-commerce. A distinctive characteristic of Southeast Asia is the popularity of social commerce and live streaming, notes BMI’s Yeo. “Apart from the entertainment element, consumers are able to get discounts when buying through these channels,” he says. “That’s still a strong pull factor for consumers in Southeast Asia, who are more price sensitive than other consumers.” A creative scene to watch A one-size-fits-all approach won’t work for brands selling to Southeast Asian audiences, says Bain’s Levato. They must work on tailored strategies to maintain local relevance, such as developing relevant marketing and communications campaigns in the appropriate channels, she notes. A stronger global spotlight shone on Southeast Asia offers local talent an opportunity to make an impact. In August, Balenciaga named actor and singer Krit Amnuaydechkorn (also known as PP Krit) as a global ambassador — the Kering-owned brand’s first from Thailand. Dior has tapped Thai actors Nattawin Wattanagitiphat (Apo) and Phakphum Romsaithong (Mile) as ambassadors. In July 2022, actor Bright Vachirawit was appointed as Burberry's first ambassador from the region and he now travels to London to attend the brand’s shows. Thai-Norwegian actor Urassaya Sperbund (Yaya) has been a friend of Louis Vuitton's for years. Lisa, of K-pop band Blackpink, who is from Thailand, is the face of Celine, while Hanni from K-pop group Newjeans, whose ethnicity is Vietnamese, is an ambassador for Gucci and Armani Beauty. The region’s own creative ecosystem is also drawing attention. Brands such as Chanel, Loewe and MaxMara work with influencers across Southeast Asia, such as Yoyo Cao in Singapore, Oranicha Krinchai (known by her nickname Proud) in Thailand and Quynh Anh Shyn in Vietnam. Publisher Condé Nast (which owns Vogue Business) has been investing, with the launch last September of Vogue Philippines under editor-in-chief Bea Valdes. Condé Nast also has editions of Vogue in Thailand (since 2013) and Singapore (since 2020). Homegrown designers from Southeast Asia are starting to make an impact overseas. Dry Clean Only, founded in Bangkok by Patipat Chaipukdee, is stocked by global retailers such as Hong Kong-based Lane Crawford and worn by stars including Beyoncé. Swim and ready-to-wear brand Isa Boulder, founded by Bali-based designers Cecilia Basari and Yuli Suri, stages a first show during Paris Fashion Week this September. Luxury accessories brand Boyy, co-founded by Thai native Wannasiri Kongman and her husband Jesse Dorsey, operates out of Italy and presents at Milan Fashion Week. Tank Air, a label founded by Bangkok-born, Los Angeles-based Claire Robertson-Macleod, is a favourite of singer-songwriter Olivia Rodrigo, and models Kiko Mizuhara and Bella Hadid. Hung La, a first generation Vietnamese-American based in London, is behind edgy womenswear label Kwaidan Editions, stocked by Net-a-Porter, Antonioli, and Km20, and menswear label Lu'u Dan, sold exclusively at Ssense. The nurturing of a portfolio of Asian designers is “important for cultural relevance as well as newness”, says Alfrayda Ayob-Chew, senior general merchandising manager for fashion at Lane Crawford. The buying team has been more intentional about sourcing buzzy Korean brands and those with Southeast Asian roots. “They can stand alongside and very much complement international designers,” Ayob-Chew says. Among Lane Crawford’s highlights are Gia Studios, founded by Vietnamese designer Lam Gia Khang, and Biyan, by Indonesian designer Biyan Wanaatmadja. Southeast Asia’s long-term luxury potential is immense, experts agree. “Southeast Asia will grow as its own segment even as Chinese demand recovers and continues,” says BMI’s Yeo. BMI forecasts that by 2027, 76 per cent of households in Malaysia will have disposable incomes above $15,000 a year, 28 per cent in Thailand and 23 per cent in Indonesia. That could add up to more than 200 million households, Yeo says. Meanwhile, some degree of patience is required. Brands should be prepared to wait a while and invest time before the full potential of the region’s consumers is unlocked. “As many consumers will be entry-level luxury consumers, buying their first luxury product, they will lack the brand loyalty that may have already been established in more developed markets,” says Yeo. “This means that companies will need to invest more into cultivating brand loyalty, often from scratch — and there will be more competition in the space.” To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com.

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