What is Central Group's plan for Vietnam after its Zalora Vietnam acquisition?

April 28, 2016 | 08:30

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Thai company Central Group is completing the last steps to buy up Rocket internet-backed fashion retail site Zalora in Thailand and Vietnam, according to news site TechCrunch.

TechCrunch cited a source saying that Central Group spent $10 million for each operation, but neither Zalora nor Central Group has made a comment. With the sale of operations in Vietnam and Thailand, two of its 11 markets in Asia-Pacific, Rocket aims to cut costs and focus on markets where it is “on the verge of profitability,” according to the source.

Central Group has a strong presence in Thailand and has been expanding in Vietnam, Malaysia, Indonesia, and other countries. The group’s assets, which include multiple shopping malls and department stores, are worth almost $10 billion and it employs some 70,000 people globally.

In Vietnam, Central Group is among the possible buyers of the Big C supermarket chain that the current owner Groupe Casino is putting on sale. Upon a successful bidding, Big C will be a sizeable addition to Central Group’s Vietnamese portfolio that currently includes electronics retail chain Nguyen Kim in the south, where its electronics retail arm Powerbuy is holding 49 per cent, two Robins department stores, one in Hanoi and the other in Ho Chi Minh City, and now online retail website Zalora.

Southeast Asia has a population of over 550 million people but does not have the presence of online retail giants Amazon or eBay. According to a survey conducted by Bain & Company and Google of more than 6,000 consumers in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, Southeast Asia’s online retail penetration level is 3 per cent, representing only about $6 billion in sales.

Commenting on the sale of Lazada stakes to Alibaba earlier this month, Lazada Group CEO Max Bittner said the market was highly fragmented and diverse with significant barriers to entry and a nascent modern retail sector that has large headroom for growth.

Launching Lazada and Zalora in 2012, Rocket Internet aimed for the two sites to make profit by 2015, but they continued to incur big losses while quaffing on the big investment capital.

Lazada sold a controlling stake to Alibaba for $500 million after running out of cash, while Zalora remains unprofitable.

Rocket Internet’s 2015 annual report shows that Zalora’s revenue rose by 78 per cent, to €208 million ($234 million) in 2015, but its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) widened by 36 per cent to negative €93.5 million ($105 million).