Digital forays headline 2024 retail sector

February 01, 2024 | 16:40
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Vietnam’s retail sector is poised for a diverse recovery in 2024, driven by shifts towards essential goods, health products, and digital transformation.
Digital forays headline 2024 retail sector
Chains have been expanding to offer more essential goods Photo: Le Toan

Samsung’s Galaxy S24 smartphone was launched in mid-January, a month earlier than planned. The release from the tech giant is seen as an early test for domestic consumer demand, particularly significant given the struggles faced by the retail sector in 2023, especially in non-essential consumer goods.

Last year witnessed fierce price wars and inventory clearances among electronics and appliance retailers. The delay in iPhone 14 deliveries by a full quarter led to widespread order cancellations, while Apple launched a new product only in late Q3.

According to the latest SSI report, inventory reduction efforts were a key factor behind the shrinking profit margins for numerous retail businesses last year.

“Beyond competitive pressures, consumer demand for these products in 2023 was significantly affected by stringent debt recovery operations by financial companies, coupled with high default rates due to rising unemployment. Debt recovery investigations were most intense in the first half of 2023 and decreased towards the end of the year,” the report noted.

SSI Securities also forecast a slow recovery in non-essential consumer spending, despite macroeconomic factors like lower interest rates and recovering exports. Consumer finance companies may remain cautious in extending new credit, given the slow recovery in labour-intensive sectors. However, the easing of the price war offers a silver lining.

“Though profit margins may not return to 2022 levels, there is an opportunity for recovery as businesses continue to maintain competitive pricing strategies,” the brokerage said.

Meanwhile, essential product chains like MWG’s Bach Hoa Xanh and FPT Retail’s Long Chau pharmacy chain are expected to see more an optimistic recovery.

According to MB Securities (MBS), the Vietnam’s retail pharmaceutical sector is poised for substantial growth, largely due to an absence of a dominant market leader.

“This gap presents a significant opportunity for new entrants and existing players to increase their market share,” MBS said. “The demographic shift towards an ageing population, coupled with a heightened focus on health, is driving demand in the sector.”

Furthermore, Vietnam’s ranking among the top 30 nations for high average PM2.5 levels has intensified public concern over environmental health issues, fuelling the need for health supplements and functional foods, MBS added.

Highlighting the sector’s appeal to foreign investors, the recent acquisition of Trung Son Pharma by South Korea’s Dongwha Pharma Group for around $30 million, accounting for a 51 per cent stake, underscores the trend.

“This deal not only illustrates the ongoing interest from international investors but also signals the untapped potential of the Vietnamese market,” MBS said. “Competition is fierce, particularly between top chains Pharmacity and Long Chau, suggesting a robust and evolving marketplace.”

On the flip side, 2023 was a challenging year for the retail sector. Leading retailers like FPT Retail and MWG faced significant profit slumps, with FPT recording a historic net loss of $9.07 million in the second quarter of 2023, and MWG’s net profit plummeting by nearly 98 per cent to $3.29 million.

For 2024, MBS predicts retail profits on the Vietnamese stock exchange to potentially double compared to 2023, outperforming the broader market’s average profit growth forecast of 16.8 per cent. Echoing the sentiment, SSI Securities anticipates a 118 per cent profit increase for retail businesses this year.

However, the growth is expected to be uneven across the sector, as digital transformation continues to redefine the retail landscape. MWG plans to leverage customer data from its loyalty app to enhance sales strategies, indicating a shift towards more data-driven retail approaches.

The retail sector’s foray into telecommunications is also noteworthy. FPT Retail’s recent launch of a competitive telecommunications package and Masan Group’s acquisition of Mobicast, operating mobile virtual network operator Wintel, signal a strategic expansion beyond traditional retail boundaries.

In essential goods, Masan’s WinMart and FPT Retail’s Long Chau chains expanded significantly in 2023, positioning themselves well for the expected upswing in consumer spending on necessities.

MWG, on the other hand, faced a year of restructuring with no new store openings in its grocery segment. However, the firm is now raising capital through a private equity offering to potential investors, aiming to fund new stores and logistics upgrades.

“The goal is to break even in the first half of 2024 and then drive expansion,” a MWG spokesperson said.

Vietnam’s retail market is projected to grow from $276.4 billion in 2024 to $488 billion by 2029 at a 12.05 per cent compound annual growth rate.

Recent recovery, although slower than the previous year’s 12.7 per cent growth, was boosted by promotional strategies to stimulate domestic consumption. The market is driven by urbanisation and changing consumer trends, especially among young city dwellers, leading to a surge in modern retail formats like department stores and e-commerce.

The private consumption rate is also high, more than 67 per cent of the GDP. This is the second highest in the region, behind the Philippines at 73.8 per cent and ahead of Malaysia and Indonesia at 57 per cent and 57.3 per cent, respectively.

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By Celine Luu

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