Omnichanel increasingly the solution for sky-high rents

Le Loi, the most central street of District 1 in Ho Chi Minh City, is deserted with rows of closed houses and rental signs dotting the street.

A Khoi, a salesman at a souvenir shop, has just said goodbye to a foreign customer and is complaining that only a few people have stopped by, mostly for window shopping.

“After the pandemic, customers have saved money and the number of foreign tourists coming remains low,” he said.

Except for the peak pandemic, in nearly 20 years of selling souvenirs on Le Loi, Khoi has never seen a time with so few customers and so many empty lots.

A house with two fronts facing Truong Dinh and Ly Tu Trong streets in District 1 was rented as a Japanese restaurant two years ago but remains vacant without new tenants. Currently, the outside of this house is plastered with broker’s phone numbers, many of which have faded and can no longer be read.

According to a real estate website, the house spans five-storeys with a total floor area of up to 1,800 square metres, suitable for corporations showrooms, big food and beverage (F&B) brands, or beauty centres, with an asking price of VND1.2 billion ($50,000) per month.

Not far away, a three-storey apartment is being rented for $30,000 per month.

Although business is sluggish with many vacant spaces, a report by CBRE Vietnam recently said the rent in Ho Chi Minh City heart was still increasing by 1.5 per cent per year.

Empty space in the central area is not only expensive but also faces many obstacles with obtaining business permits, fire prevention certificates and high taxes. Therefore, retailers are looking for suitable space outside the central business districts (CBD) to launch temporary retail stores for a short period.

Creating new experiences

Nguyen Huong, an owner of a house at Tran Binh Trong street, said that the vacant space was due to the rental price being too high, with many branding owners reducing their space and moving to sell online. Large premises on famed streets are no longer needed.

“Meanwhile, most landlords think it is better not to reduce rent because the space is limited. So, they wait for the storm to pass and for tenants to return,” Huong said.

Nguyen Lan, a private consultant in District 1, said that a lease term usually lasts 3-5 years. “If the landlord reduces the rent for any reason, it is very difficult to make it return to higher levels again, so they basically choose not to do it,” Lan explained.

Instead of offering rental discounts at the request of tenants, some landlords offer incentives to woo tenants, such as installing more equipment or utilising a flexible lease term.

Tran Pham Phuong Quyen, manager of retail leasing department at Savills Ho Chi Minh City, said, “For certain brands, when their business model has not achieved what they expected, or due to the rapid wave of changes to adapt the stores due to the changing tastes of Vietnamese consumers, the closure of prime premises is clearly visible. Particularly in the food and beverages industry, the life cycle of a brand is usually not long. Brands owners must be proactive in improving and creating new experiences for customers to be able to develop sustainably.”

Quyen said that for some brands, after achieving their brand promotion goals in prime locations, they move on to cutting rental costs. At the same time, they expand their stores in semi-central areas to reduce rental costs while maintaining business efficiency once customers have become familiar with their brand names.

According to Savills, retail space rent in shopping centres in Ho Chi Minh City is maintaining momentum compared to the same time last year, reaching about $133 per sq.m per month for the central area. Meanwhile, the rent in the central selling area is less than half this.

Omnichannel approach

Shopping centres are also actively charging for large tenants. According to Savills, new brands tend to choose to set up their first stores in existing shopping centres to avoid common risks for new businesses, related to opening times or technical, legal and licensing issues. Some malls have plans to renovate or relocate tenants to expand space for larger tenants.

“Brands are now looking for spaces with a larger area to increase the experience for customers with a flagship or concept store model in the large shopping centres,” said Quyen.

Beautiful premises in the CBD are still considered a favourite destination for high-end and luxury brands. In recent years, Ho Chi Minh City has welcomed renowned names such as Tiffany & Co at Union Square, and Christian Louboutin at Rex Hotel or the Rimowa at Saigon Center. Brands like Diptique, Jo Malone, Tory Burch, and Lush have all opened their first stores in the CBD.

Meanwhile, projects in semi-central locations such as Thiso Mall in Thu Thiem, or Crescent Mall in District 7 are also selected by luxury brands such as Tudor and Tag Heuer.

Due to the price being too high, brands have reduced the area of offline rental space to switch to other sales channels, and omnichannel is one of the most efficient ways of trading for retailers.

According to research by IDC Retail Insights, as of the end of last year, customers using omnichannel for shopping and payment accounts for about 15-30 per cent, more than the group of customers who only shop through a single channel.

Now, instead of investing a large amount of money to rent space and display products on the shelves, they can display an unlimited number of products on their website and on other online channels at the same time.

James Christopher, president of the based in Singapore TMX Asia, said that his recent survey indicated that right after the pandemic, the omnichannel strategy was being adopted by Vietnamese businesses to build a solid foundation for future development.

“Our figures indicate that up to 76 per cent in businesses in Vietnam are considering investment in omnichannel sales a top priority in the next three to five years,” said Christopher. “It is about 46 per cent in the whole of the Asia region.”

This trend is consistent with what is happening on the ground, with consumers increasingly getting used to buying goods through e-commerce channels. The omnichannel approach is a suitable strategy to help businesses ensure a constant presence and provide a seamless shopping experience for customers.

The retail e-commerce market in Vietnam has now reached $16.4 billion, accounting for 7.5 per cent of sales of goods and services of the whole country, according to a Repota 2023 market report released in June. More than 60 per cent of Vietnamese users are shopping online, ranking 13th globally.

In China, this figure is 61.9 per cent, ranking ninth globally, and in South Korea it 65.6 per cent, ranking second globally after Thailand.

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