Retail sector prime for grand opening

Many foreign companies have been eagerly awaiting the opening of Vietnam’s retail market, but a series of challenges await them.

One month from today, wholly-owned foreign firms will be allowed to join the local distribution and retail market under Vietnam’s commitment to the World Trade Organization.

Lotte Mart, one of the leading retail chains in South Korea, is about to complete the construction of its first shopping center in Ho Chi Minh City’s District 7. Once opened on December 18, the mall will be among the largest of its kind in Vietnam, offering a wide range of services from banking to entertainment.

Also this month, Best Carings, the franchise of Japanese electronics supermarket chain Best Denki, will open a shop in HCMC, its third outlet in the country this year.

Recently a group of 10 UK retailers, including Marks and Spencer and Debenhams, visited Hanoi and HCMC on a fact-finding mission to evaluate Vietnam’s promising retail market. Meanwhile, companies that have entered Vietnam earlier are trying to strengthen their market positions.

Germany’s retail giant Metro Cash and Carry came to Vietnam in 2002 and has since launched a chain of wholesale outlets in HCMC, Hanoi, Can Tho, Hai Phong and Da Nang. It additionally has been licensed to set up a new wholesale hub in southern Dong Nai Province.

Other foreign retailers such as Big C of France and Malaysia’s Parkson have captured a large market share in big cities.

Prior to the official opening of the domestic retail market next month, foreign chains have entered Vietnam under various forms of joint ventures with local counterparts, Phan The Rue, chairman of the Vietnam Retail Association, said in a report on the government’s website.

According to Rue, competition among foreign retailers has quietly simmered and some firms have successfully built up a large customer base, but the opening of the local distribution and retail market on January 1 would not affect Vietnamese retailers much until two or three years later.

At this juncture, foreign retailers are faced with several obstacles. First, the ongoing financial crisis has made retailers worldwide more cautious about setting up new units in another country. As consumers cut back on spending, many retailers have already found it hard to keep existing branches open.

Furthermore, under WTO commitments, Vietnam will only allow a foreign retailer to open one shop. The expansion plan of retail chains after the launch of their first branch will be subject to whether there is demand for new shops at a certain location.

One of the key success factors in the retail sector is to have a good site to build shops. But nearly all convenient locations have been occupied by local firms, who are aware that they can’t afford losing prime spaces to foreign retailers. Hence, foreign retailers are often situated in suburban areas which are less convenient for urban residents.

For example, a representative of Dong Hung Company, the owner of the Citimart supermarket chain, has said it is likely the company will reclaim the space it owns in District 1 after the lease contract with Hong Kong’s Dairy Farm Group ends to expand its operations.

Although it will be a difficult process for foreign retailers to establish a firm foundation in Vietnam in the next few years, it does not mean local businesses can rest easy facing the competition ahead.

Vietnamese retailers need to cooperate with local producers to enhance the quality of domestic products, Rue said in the report.

Many experts have said increased competition among retailers will create higher quality products at lower prices. Customer service will also become a crucial component to distinguish retailers in the eyes of consumers.

At a conference discussing opportunities and challenges in the retail sector held in Hanoi in October, Dinh Thi My Loan, general secretary of the Vietnam Retail Association, said local retailers currently suffer many weak points.

However, Loan expected Vietnamese companies to fully leverage their strengths, including knowledge of local consumption culture and existing distribution networks, to survive the onslaught from foreign retail giants.

Deputy Minister of Industry and Trade Nguyen Thanh Bien said at the conference that the appearance of foreign distributors and retailers in Vietnam after its admission into the WTO has served as a motivation for local retailers to grow.

According to the Ministry of Industry and Trade, the local retail sector last year drew revenues of US$44 billion, a 25 percent increase over 2006.

There are presently around 400 supermarkets, 60 shopping centers and nearly 2,000 convenient stores nationwide, with the number of supermarkets expected to increase by 62.5 percent by 2010.

Reported by Tran Hung