Landscape turns off foreign retailers

According to the global retail development index, conducted by AT Kearney, Vietnam’s retail sector was one the most attractive emerging ones worldwide from 2004 to 2009. However, its position dropped from first in 2008 to sixth in 2009 and 14th in 2010. Since 2008, Vietnam’s retail sector has not welcomed any new foreign retail giants.

“Is it true that Vietnam’s retail sector is less attractive to international retailers?” asked vice chairwoman of  Association of Vietnam Retailers Dinh Thi My Loan.

Loan said Vietnamese people spent on average 70 per cent of their income on consumer products, as surveyed by TNS, offering rich rewards to global retailers.

“But 70 per cent of the income for Vietnamese people, who have an average income of around $1,200 per capita annually, is still too low to lure foreign giants such as US’ Wal-Mart and Japan’s Takashimaya,” said Loan.

Therefore, despite average growth of 25 per cent per year, the size of Vietnam’s retail market is still said to be very small. To make the matter worse, existing foreign retailers complained that their expansion plans in Vietnam were not easy.

“It is important for retailers to open more stores to maintain or establish firm market positioning. Vietnam’s state agencies should publish detailed and transparent conditions on economic needs tests for foreign retailers to expand,” Big C’s operations director Rik Mekkelholt said.

Under the existing rules, opening a second shop by a foreign retailer must comply with the number of existing retail establishments, market stability and population density. A foreign retailer can choose to join in a joint venture with a local partner, which is easier for expansion procedures than setting up a wholly foreign-owned company. Moreover, weak infrastructure and expensive retail space rentals remain obstacles.

“Weak transportation infrastructure is taking away 1.5 per cent of our total revenues for Big C each year,” said Mekkelholt, adding that Big C would have two more outlets in northern Vinh Phuc and Nam Dinh provinces, adding a total of 14 hypermarkets in nine cities and provinces in Vietnam with 5,300 employees.

Over the above issues, expensive retail space rentals is the biggest concern for both old and new retailers.

“We see that new brands are still keen to join the market, but are looking for prime locations with attractive rents,” said executive director of CB Richard Ellis Vietnam Richard Leech.

“Vietnam’s retail sector is ranked low, but it still has strength,” added Leech.

The country’s retail sales are expected to rise to $77.8 billion in 2010 and to $85 billion by 2012, according to AT Kearney.