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Buying into retail

Released at: 07:33, 28/04/2018

Buying into retail

Photos: Viet Tuan

Vietnam's retail sector is growing at an impressive rate, helped in no small part by foreign players.

by Ngoc Lan & Hai Van

Japan’s leading retailer, the AEON Group, broke ground on March 11 at its shopping mall in Hanoi’s Ha Dong district. Covering nearly 9.8 ha, the mall is scheduled to open by the end of 2019 and will have three floors with a combined floor area of nearly 150,000 sq m able to accommodate 200 shops, including an AEON supermarket. The total floor area for business activities may be up to 74,000 sq m. AEON Mall Vietnam also signed a memorandum of understanding (MoU) last September with the Hai Phong Tourism and Trade Promotion Center to build a mall on 9.3 ha in Le Chan district in the northern port city. The project has estimated investment of $180 million and is expected to be completed by 2020 and become the sixth AEON Mall in Vietnam.

Wave of expansion

Among giant retailers, Lotte Duty Free, a retail arm of South Korean conglomerate the Lotte Group, entered Vietnam in the middle of last year. The company opened its first duty-free shop, at Da Nang International Airport, on an area of 1,000 sq m, making it the first South Korean firm to tap into Vietnam’s duty-free market. “Vietnam is a new market with surging numbers of foreign tourists, and we expect to foray further into the Southeast Asian market through this entry,” Lotte Duty Free CEO Jang Sun Wook said in a statement. In late 2017, a South Korean news agency quoted Lotte Duty Free’s leaders as saying that a second store will be built at Cam Ranh International Airport in south-central Khanh Hoa province and be put into operation in the first half of 2018, with a leasing period of ten years. Lotte Duty Free expects to earn total revenue of $644 million over the next decade. 

After many years of venturing first into Ho Chi Minh City, a number of international brands have now expanded to Hanoi. Since setting foot in Vietnam in 2014, the world’s leading fast-food retailer, McDonald’s, opened its first outlet in Hanoi’s Hang Bai Street, near Hoan Kiem Lake, last December, bringing its total number of outlets in Vietnam to 17. Zara, a brand from Spanish fashion corporation Inditex, opened a store at Vincom Ba Trieu in Hanoi recently. The arrival of international brands in Vietnam quickly received a warm welcome from customers and put pressure on the local competition. 

As a major international brand in Vietnam’s fast-fashion market, a representative from H&M told VET that Vietnam has emerged as one of the markets of most potential in the region, especially in fashion retail, with more and more shopping malls opening over the last few years and setting a good foundation for the retail business to thrive. “Young Vietnamese are catching up with global trends very quickly,” the representative said. “Such factors make Vietnam quite an attractive market for any international brand or business.”

Notably, foreign developers such as the TCC Group and the Central Group from Thailand, Mapletree and Keppel Land from Singapore, Lotte and Emart from South Korea, and AEON and Takashimaya from Japan are planning to invest heavily in Vietnam. “We are happy to finally have Vietnam as our latest market in the Southeast Asian region and the 68th market in the H&M family globally,” the representative from H&M said. The participation of these foreign entities will also contribute to market dynamism and provide consumers with more professional products and services.

The e-commerce segment is also gradually entering the retail sector, according to Mr. Vu Vinh Phu, former President of the Hanoi Supermarket Association. The latest report from Kantar Worldpanel Vietnam showed that the rate of shoppers on e-commerce platforms has increased from 5.4 per cent to 8.8 per cent of the total urban population in the four major cities of Ho Chi Minh City, Hanoi, Da Nang and Can Tho, in the last year, and the value of online shopping has tripled the value of traditional shopping. 

Mr. David Anjoubault, General Manager of Kantar Worldpanel Vietnam, told local media that this is an important time for investors to enter this promising market because the major players in the retail market are gradually moving their services to online sales and taking advantage of being brands with a multi-channel strategy to achieve success and maintain market position. The appearance of giant e-commerce players such as Alibaba and Amazon has made Vietnam’s retail market become more exciting and competitive. 

Sound policies

Vietnam’s retail market is showing signs of flourishing. Along with advantages from the country’s economic development, the government has also made great efforts to support the retail sector. “Vietnam is constantly upgrading and evolving the legal landscape,” Mr. Troy Griffiths, Deputy Managing Director Savills Vietnam, told VET. “This is one of the latent bonuses for foreign investors as governance and the legal environment are constantly improved.”  

The government has indeed improved the business environment, focusing on resolving difficulties and problems in administrative procedures, land, business conditions, and cost, so that businesses can arrive and succeed. 

Mr. Phu said that, recently, the Ministry of Industry and Trade (MoIT) has cut down 675 business conditions, which was welcomed by the business community. With foreign direct investment (FDI) enterprises investing in retail chain development, he explained, the government exempts retailers with less than 500 sq m from conducting an Economic Need Test (ENT), under the recently-issued Decree No. 90-CP. “Accessing land and completing taxation and customs processes have also has been liberalized,” he added.

Experienced in Vietnam’s retail market, Mr. Lee Joong Kook, CEO of JK Partners and former President of External Relations at Lotte Vietnam, pointed out that exchange rates have stabilized recently due to the abundant foreign reserves held by the State Bank of Vietnam and low demand for foreign currency by business at the beginning of the year. Furthermore, core inflation during the first two months rose 1.32 per cent, indicating monetary policy is being well managed by the government. The government aims to tame inflation at 4 per cent this year after it came in at 3.53 per cent in 2017. “Current policies and procedures already support our business,” he said.

Pressing matters

In the time to come, however, the development of new supermarkets is forecast to not be as rapid or easy as previously, especially in major cities. According to Mr. Phu, supermarkets are considered no longer appropriate in the context of increasingly competitive retail markets and changing consumer shopping habits. Over the last three years, though the market has witnessed a series of large-scale mergers and acquisitions (M&A), the new managers did not open new outlets. Another barrier to their development is the tightening of openings by foreign retailers. Deputy Chairman of the National Assembly’s Economic Committee, Mr. Nguyen Duc Kien, has said it will strengthen the management of foreign businesses in the country’s retail sector. 

Competition is also forecast to be more intense. According to Savills Retail Research, Emart, BigC, Co.op mart, and Satra are all racing to conquer the Vietnamese market but face a host of challenges. “There are still barriers for FDI enterprises to invest in Vietnam, such as poor transportation infrastructure and high logistics costs compared to other countries in the region,” Mr. Phu said. 

Vietnam is relatively “open” for foreign investors, having allowed 100 per cent foreign ownership in the retail sector since 2015. This hasn’t, however, had a major impact, as many foreign investors prefer to partner or establish joint ventures with local companies to access sites and open stores quickly, according to Mr. Pham Thai Binh, Head of Retail at Savills Ho Chi Minh City.

For Vietnam’s retail environment to remain sustainable over the long term, there needs to be balancing measures put in place by the government. The existing retail environment is not sustainable if it doesn’t provide for long-term transfers in skills and technology, doesn’t take into account environmental factors, and doesn’t consider the possible negative effects of too much foreign capital inflows.

Enterprises have suggested that the government build frameworks that enable local retailers to access capital and know-how more easily while also providing the legal and administrative framework to enable their business ideas to materialize and take off. It is also necessary to designate special economic zones that provide for the free flow of goods, services and labor without encroaching on local retailers’ market share, according to Mr. Phu. 

Mr. Griffiths said the business environment is constantly improving and will need to do so to remain competitive in an increasingly global environment. “Retail is the most dynamic of all property classes and needs to be constantly changed to keep up with consumer behaviors,” he said. “The cost of doing business throughout the retail supply chain in Vietnam must therefore be competitive.”

“I think that large retail groups such as Alibaba and Amazon coming to Vietnam recently is a good sign for the country’s retail market, as it confirms its potential. It is also good because we have more suppliers and have fair competition between domestic and foreign retailers. This will drive the development of the country’s retail sector. From the consumer side, I think they will be happy because they will have greater access to products from international brands.”
Ms. Dang Thuy Ha, Research Director, Nielsen Vietnam

“In terms of commodities and businesses, the fact that foreign retailers and e-commerce companies are coming to Vietnam is a good sign and provides more potential to domestic enterprises. It would be good for the retail sector to advertise and send products to global markets.”
Mr. Dang Hoang Hai, Director General, Department of E-commerce and Digital Economy

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