Vietnam's retail industry is in good shape but local retailers face increasing competition from their foreign counterparts and new entrants.
The end of 2014 saw a Japanese retail giant secure a stake in two of Vietnam's biggest supermarket operators, Fivimart and Citimart. AEON acquired 30 per cent of Fivimart and 49 per cent of Citimart, after having first revealed its intention to team up with the Vietnamese retailers last October. "Vietnam's retail market is very similar to Japan's in the 1960s - in a stage of market development with a great deal of potential," General Director of AEON Mall, Mr. Yukio Konishi, said. "We are very excited about this market."
The two first months of 2015 saw positive growth in the retail industry, of 10.6 per cent compared to 2014. According to the General Statistics Office, revenue in the retail industry in February reached VND210.9 trillion ($9.8 billion), up 4.2 per cent against January and 12.6 per cent against February last year. A report from GfK, Germany's largest market researcher, stated that Vietnamese consumers spent over VND31 trillion ($1.4 billion) on technical consumer goods in Q4 2014, a 17.7 per cent increase against Q4 2013.
Last year Hanoi saw 27 new developments arrive on its retail scene, such as the refurbished Trang Tien Plaza and the Royal City Megamall in Thanh Xuan district. New names in Ho Chi Minh City's retail scene in 2014 included Robins Department Store, Lalique, and Marks and Spencer.
Supply of retail space has grown in both Hanoi and Ho Chi Minh City and will continue to grow during 2015. According to research from Savills, from 2015, 62 projects in Ho Chi Minh City with 1.3 million square meters are expected to join the retail market. In the next two years, 362,000 square meters of retail floor space will join. Of this, District 7 will account for 65 per cent. Hanoi's retail market will have 19 new projects with a total area of 397,000 square meters. Two projects have been completed but not opened yet and nine projects are in the process of completion. In 2016, approximately 356,000 square meters of retail floor space from five new projects will enter the Hanoi market.
Executive Director of CBRE Vietnam, Mr. Richard Leech, said that Ho Chi Minh City's Metro Line No. 1, which is currently under construction, will link together several shopping centers in the CBD and District 2. "With completion of The One, Saigon Centre Phase 2, and the Tax Plaza in District 1, city shoppers can anticipate a shopping district on par with Sukhumvit Road in Bangkok or the famous Orchard Road in Singapore," he said.
Project numbers show the potential of Vietnam's retail industry. Local businesses have made efforts to develop their retail chains. 2014 saw a significant development by Saigon Corporation, cooperating with NTUC FairPrice Singapore to open a large supermarket, called Coop Xtrain, in Thu Duc district. Saigon Co.op and Mapletree Investments, a fully owned subsidiary of Singapore's Temasek Holdings, have developed SC VivoCity, a $100 million one-stop mall in Ho Chi Minh City's District 7 as a joint venture. The Sense City department store, which covers 22,000 square meters in the heart of the Mekong Delta's economic hub of Can Tho, opened at the beginning of last year. The Vingroup, meanwhile, has officially announced the acquisition of a 70 per cent share in Ocean Retail, which it renamed Vinmart Supermarket last October. Electronic supermarkets have increased remarkably, such as Nguyen Kim with 22 stores, Cholon with 21 stores, and Tran Anh with ten stores.
Foreign investment wave
Competition in the domestic retail sector is increasing fiercely and in an unpredictable manner. All foreign retailers have ambitions when coming to Vietnam and clear strategies. 2014 saw a number of mergers and acquisitions (M&As) and cooperation among domestic and giant foreign investors, such as the acquisition of Metro Group by BJC Thailand and AEON Japan securing a stake in Fivimart and Citimart in October. In addition, a number of foreign investors such as WalMart from the US and AUCHAN from France are conducting research and seeking investment opportunities.
Mr. Vu Vinh Phu, Chairman of the Hanoi Supermarket Association, said that M&A strategies present them with huge advantages. By purchasing shares in local retailers, foreign investors gain the benefit of logistics and distribution networks that took a long time for the domestic enterprises to establish. "Foreign enterprises not only control the distribution network but also invest in production to create an effective process," he said. Also, ideal locations are rare in major cities but location plays an important role in this business. For such reasons, foreign investors are choosing to pursue M&A strategies.
Vietnamese enterprises can also benefit from M&A strategies. Brand Strategy Director at Richard Moore Associates, Mr. Nguyen Duc Son, said that M&A with foreign partners is an effective solution for local retailers whose financial resources, human resources, and brand are not strong enough to cope in a competitive market like retail. An arrangement with foreign investors can bring in much-needed capital for local enterprises to invest in other, less competitive sectors.
Mr. Phu suggests that local retailers unite against their foreign counterparts, because in 2015, under Vietnam's commitments at the WTO and in upcoming free trade agreements (FTAs), Vietnam must remove barriers and limitation on goods, services and labor imports. With tax reductions or exemptions, foreign goods can enter the domestic market more easily and more foreign retailers will be attracted to Vietnam in the future.
Many local retailers continue to operate separately, with few links between producers, retailers, and consumers. Such links are loose and can be easily broken. "For sustainable development, Vietnamese enterprises need to create links between producers, retailers and consumers in order to cut unnecessary intermediaries," Mr. Phu said. This would also stabilize prices for consumers and ensure profitability for farmers and producers. "Wholesalers should be concerned because investment in this segment is still low while the wholesale segment can bring more profits to businesses," he added. The State also needs to have public and transparent policies on supporting the business development of farmers, producers and retailers, trading links, and cost reductions.