Japanese retailer Aeon is taking advantage of freer trade in Southeast Asia to sell popular and affordable private brands in countries like Vietnam – Nikkei reports
Spearheading the private-brand strategy is Aeon’s Tan Phu Celadon mall in Ho Chi Minh City, which opened in 2014. Brightly colored polo shirts with tight fits and large collars, in line with Vietnamese style, sell for about 149,000 dong ($6.40), one-sixth the price of other foreign brands.
Giorno Mimosa, an Aeon-owned store and private label exclusive to Vietnam, handles over 100 goods like clothes, shoes, bags and wallets. Although the store, which debuted in 2016, is built to Japanese standards and advertises Japanese quality, the products are made by local companies. Its sales are expected to grow 50% in the year ending in February.
“We have increased sales 60% by focusing on Vietnamese culture and tastes,” said Yasuo Nishitoghe, general director of Aeon Vietnam.
The strategy has yielded several hit products. “They have more items that I want than before and it is cheaper, too,” said a 25-year-old man who works in a Ho Chi Minh City hotel.
Fueling the private-label strategy is relatively cheap local procurement and the ability to open many stores capable of supplying these products. It first rolled our private brands in Malaysia in the 1990s before expanding to Thailand and Vietnam around 2016. It now carries nearly 3,000 of these products among the three countries, doubling the offering from three years ago.
Overseas growth has long been an issue for Aeon as it confronts a mature home market. The Chiba-based company opened its first overseas location in Malaysia in 1985 and expanded to China in 1996, where it continues to struggle due to such issues as anti-Japanese protests.
Aeon is now focusing on Mekong River nations like Thailand and Vietnam. It has 191 locations in the Association of Southeast Asian Nations, ringing up sales of 334.9 billion yen ($3 billion), far higher than in China.
The retailer has opened up four Aeon Mall locations in Vietnam since 2014, with plans for as many as 20. The company opened its second location in the Cambodian capital of Phnom Penh in June, its largest store in Southeast Asia.
Aeon’s focus on local private labels stems from its failure with Japanese imports. The company brought high-quality, private-brand suits popular at home to Vietnam in 2016, but about half sat unsold due to weak demand. It then abandoned the idea that Vietnamese consumers would simply buy Japanese out of good feeling for that country.
Tariffs within ASEAN have also been lowered to almost zero. Aeon will take advantage of this by developing roughly 20 private-brand products like futons, potato chips and storage containers that can be sold across several borders.
The retail group will concentrate on developing specific private-label goods for each country, such as frozen foods and pet foods in Thailand, rubber products in Malaysia and clothing and shoes in Vietnam. It will also lay the ground for exports to other nations in the region.
“Although it has been said that each country within Southeast Asia is a small market, they are becoming one as trade barriers fall,” said Aeon President and CEO Motoya Okada.
Private brands are considered one reason for the company’s success in Japan. First introduced in 1974, the products now rake in 700 billion yen in annual sales, or more than 10% of the company’s retail sales at home. It aims to duplicate this strategy in Southeast Asia, with a sales target of 1.2 trillion yen for fiscal 2019.
But Aeon is running up against competition from local retailers who have taken the lead on private brands in an effort to attract the region’s growing middle class.
At Vietnamese supermarket chain Co.opmart, 10% of the products are private brands. Supermarkets and convenience stores operated by local conglomerate Vingroup also handle a wide range of their own vegetables, meals and daily goods, although the percentage has not been disclosed.
Convenience store chains like 7-Eleven in Thailand, operated by Charoen Pokphand Group, and Indomaret in Indonesia also have many private-label food products and meals.
Foreign companies, however, have relatively few private brands. Such products made up 1% of all items at 35 Big C stores in Vietnam, operated by Thai conglomerate Central Group, and 3% of products at 13 Lotte Mart stores operated by the South Korean group.
The allure of private brands is their price, but a store could lose its credibility should even a few substandard products find their way onto shelves. Foreign companies like Aeon will have to balance their superior brand power and quality against price to compete with local rivals.