Local and foreign furniture brands are expected to expand as IKEA joins the market and FTAs make an impact.

With Swedish furniture giant IKEA’s initial steps in investing more than $500 million to build a retail center network and warehouse in Hanoi, Vietnam will be the next Southeast Asian country the brand penetrates into during its global expansion plans. “Expansion to Vietnam is part of the overall plan to make IKEA more accessible to people around the world,” said a representative from Inter IKEA SystemsB.V., the worldwide IKEA franchisor. “We are still in the early stages in the process and are constantly investigating expansion opportunities in interesting markets, including Vietnam.”

Driver of success

Vietnam is considered one of the region’s most attractive markets for foreign investors, with a steadily increasing GDP and booming FDI, according to the 2018 Vietnam’s Furniture & Home Décor report released by the EU-Vietnam Business Network (EVBN). As Vietnam’s economy continues to improve and grow, the home décor and furniture industry can expect to grow along with it. Rising household incomes lead to improving living standards as local consumers become more able and willing to spend on high-quality goods. Recognizing the potential of the furniture market, there have been new foreign-invested brands arriving to meet demand, such as UMA and JYSK.

Consumers in the past were only looking for functional items but are now expecting that products match their personal style and way of life while being of better quality. The accelerating Westernization of the younger generation is the key driver of success for foreign furniture companies in Vietnam, according to the EVBN. JYSK and BoConcept have successfully delivered Nordic furniture and home décor to local customers, while UMA has combined Nordic design and quality with local price and shopping experience.

Pressure to come

As GDP per capita and disposable household income are on the rise, in the future the preference towards Western-style products will put pressure on local manufacturers to come up with innovative designs to compete.  Competition in the market is relatively tame, as each business focuses on special customers and segments, according to Mr. Huynh Van Hanh, Deputy Chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA). A representative from the EVBN, however, said that for retailers in Vietnam, it’s not about the battle for location but the online marketing strategy and supply chain management. 

IKEA’s arrival will result in certain changes, with the AKA Furniture Group seeing its appearance as an opportunity rather than a threat. IKEA will create a new market and recruit a lot of new customers who are budget-minded and are not overly familiar with furniture design. The market is huge and Nha Xinh and other international brands belonging to AKA want to be market leaders with good-quality designs and branding. “Our local brand, Nha Xinh, will compete with IKEA in quality, services and branding, but not pricing,” Mr. Trung said.

Adaptive to integration

One of the most important competitive advantages making Vietnam a top choice for the wooden furniture industry is the favorable environment for foreign investment, according to the EVBN. While wages in China are on the rise, Vietnam still offers a large pool of workers at a lower wage rate. Many new free trade agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam FTA (EVFTA) make it an attractive production location, together with other benefits such as low operating costs and stable political conditions. The furniture industry is forecast to continue to expand by an average of 9.6 percent each year from 2015-2020, given that domestic property demand will also increase in the next four years along with rising trade with partners like ASEAN and the EU. 

 

Read the full article on Vietnam Economic Times.

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