Garment firms should tap niche markets: Vinatex chairman

By Duc Minh   February 3, 2023 | 04:00 am PT
Instead of copying or competing directly with foreign firms, Vietnamese garment companies should tap niche markets, chairman of the Vietnam National Textile and Garment Group (Vinatex) Nguyen Tien Truong told VnExpress.

What do you think about local garment firms’ inability to dominate the domestic market of 100 million people here in Vietnam?

Vietnamese textile and garment enterprises are still [only beginning to] tap the domestic market. Last year, the domestic market increased by 40% against 2021.

Local enterprises performed very well in the first half of last year and began to face difficulties in the third quarter. In the fourth quarter, many good Vietnamese brands like Viet Tien saw sales decrease.

In late 2022, the Vinatex Fashion Center retail outlet in Hanoi made revenues of only VND500-600 million ($21,200-25,400) a day, compared with daily revenues of over VND1 billion in previous years.

Over the past two years, many domestic fashion brands have reduced their number of stores and limited new openings.

They have had to focus on certain locations to reduce costs, optimize operations and try to offer products that are most suitable to consumers’ incomes.In fact, domestic consumption depends on the economy and people’s income level.

According to the Ministry of Planning and Investment, the average salary in production sector in 2022 was just around VND6.5 million per person per month. With this income foundation, although businesses cut all costs, and accept low profit margins, it is still difficult to stimulate demand on a large scale.

Nguyen Tien Truong, chairman of the Vietnam National Textile and Garment Group (Vinatex). Photo by Quang Nam

Nguyen Tien Truong, chairman of the Vietnam National Textile and Garment Group (Vinatex). Photo by Quang Nam

Demand decreased, but foreign fashion brands like Uniqlo still opened new stores in Vietnam last year. What do you think about this trend?

For foreign firms, investing in Vietnam is just one of their strategies and goals. Fashion brands such as Zara and H&M are not profitable in Vietnam. They accept losses here to expand globally and reap profits in other markets. That is one advantage of global brands and global businesses.

With Vietnamese businesses, it’s different. We need to develop the domestic market by making brands that correspond to the capacity of our distribution system.

Vietnamese garment and fashion enterprises cannot copy what big brands do – opening stores and centers massively for wide coverage. We cannot fight directly [with foreign companies] like that, but we can rely on our own internal analysis and do business in our own way.

Such garment firms as May (Garment) 10, Duc Giang and Nha Be are gaining strong footholds in the domestic market by doing business professionally. Last year, May 10 launched the DeTheia women’s fashion brand after carefully investing in design, production and tailoring line with international processes, but according to Vietnamese tastes.

This is like guerrilla warfare – conquering niche markets into which big foreign fashion brands, in all their cumbersomeness, cannot enter.

This is the story of the fight between David and Goliath. The issue is to choose which way to fight. If we choose to fight like a giant, we will surely fall.

Looking back at 2022, how do you see it?

Last year was a very special and emotional year for textile and garment firms. The first six months of the year saw good growth and demand increased again after two years of the Covid pandemic. But we noticed something a bit unusual. Orders in the first and second quarters were very high.

Individual consumers in other countries tended to buy more than they needed, causing order volumes to skyrocket.

Corporate customers ordered in larger quantities because they were worried that shipping and delivery times would be delayed for several months. This caused the order volumes to soar. Textile and garment growth in the first half of the year was 30%, 5-6 times higher than the average of previous years.

The situation changed dramatically in the second half of 2022. At the end of June, many consumer goods firms saw their inventories increase by 50-60%. The market began to deteriorate in August and then it sank low in September.

Higher interest rates and inflation in many key export markets such as the U.S. and Europe caused demand to fall very quickly. Textiles and garments are one of the 5 main consumer goods whose sales suffer most from high inflation.

Amid low demand, manufacturers competed with one another to obtain orders. The unit price of Vietnamese goods was more expensive than that of competitors in Bangladesh, India and Pakistan, because the VND/USD exchange rate was higher. This forced businesses to slash prices to keep orders.

This pressure was a struggle for many businesses. Without good accumulation of capital, it is difficult to maintain cash flows. Working in the textile and garment industry for 25 years, I have never seen market signals turn around so drastically in just one month.

What is the position and competitive advantage of Vietnam’s textile and garment sector?

In 2022 Vietnam’s textile and garment exports reached $44-45 billion, ranking third after China and Bangladesh globally. However, in terms of growth rate, Vietnam was second after Bangladesh, an increase of 10.5-11% year-on-year.

Vietnamese enterprises are characteristically different from their competitors abroad. We can fulfil small orders with a variety of products created using difficult production techniques. Small orders will be a trend in the coming time. Buyers do not want to order quantities that are too large, maybe just a few thousand units per order.

In principle, for small orders, it is difficult to manage production at a large factory which specializes in making dozens of products at the same time. In addition, good labor productivity is a factor that helps Vietnamese businesses offset high prices.

Demand is currently low, but it will recover. Global buyers are not reducing orders and purchases at all local businesses. They place orders at well-performing businesses. Last year some enterprises grew 5-10%, while others were in dire need of orders.

What advantage does Vinatex have? Why should it be the buyers’ choice when the market recovers?

We define two goals that must be maintained – retaining employees and securing a position in the global production chain.

Last year textiles, footwear and woodwork saw the largest reductions of workforce in Vietnam. But Vinatex did not downsize. We recruited more employees, and our average salary increased by 15% against 2021 to VND9.7 million per person per month.

To do this, we accepted a sacrifice of profits and short-term finances amid difficult market conditions in order stabilize the workforce, especially skilled people. It is difficult to recruit skilled and experienced workers once they quit.

Without a stable policy to retain employees, it will be difficult for businesses to maintain a competitive position.

Regarding the goal of maintaining its position in the production chain, Vinatex still fulfills orders that do not bring high profits. If buyers start placing orders at other firms, it is not easy for us to get their orders back later.

Vinatex accepts short-term financial sacrifices to wait for the market to recover. When the recovery comes, buyers will come to us first.

Workers at a Dong Xuan Knitting Company plant, which operates under Vinatex. Photo by Quang Nam

Workers at a Dong Xuan Knitting Company plant, which operates under Vinatex. Photo by Quang Nam

What is your forecast for garment and textile industry recovery in 2023?

Last year was a lesson for textile and garment businesses. It is difficult to forecast long-term scenarios.
If interest rate hikes, especially in the U.S., do not stop, and inflation is not curbed, no one dares to say that the global economy will have a "soft landing" in the first half of this year.

Many forecasts indicate the possibility of a large-scale global economic recession. On the contrary, if the global economy has a "soft landing" in the first two quarters of the year, demand will rebound very quickly, as the recent decline is largely due to psychological factors.

At present, no one dares to forecast the textile and garment growth scenario in 2023. The current situation shows that demand is still low in the first quarter and depends heavily on world economic signals.

What solutions can businesses use to cope with weaker demand?

The entire Vietnamese textile and garment industry currently has 13,000 businesses, and they can use different responses. There is no common prescription for all. Even within Vinatex, its affiliates have different solutions.

Of course, Vinatex has the advantage of having a wide variety of production fields – such as yarn, textile, dyeing and sewing – so when the demand is low [in one field], we tap the advantage [in another] to strengthen our internal chains.

Increasing internal links also helps us better connect in terms of working capital and inventory, thereby sharpening our competitive edge with better prices and stable workforces.

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