Retailers yet to break down door

According to the Ministry of Industry and Trade (MoIT), there have been no outlet opened by new foreign retailers in Vietnam since January 2009. The ministry’s news release is in stark contrast to the country’s previous predictions of a massive arrival of foreign retailers to force many domestic firms to the brink of ruin.

Big foreign retailers such as Walmart and Carrefour were thought to enter Vietnam right after the country opened up its retail market, as part of World Trade Organization (WTO) commitments. However, they have not yet arrived.

Slow local consumption growth was said to be a major reason, besides space shortages and the global economic crisis, that have deterred new foreign retailers from entering or expanding businesses in Vietnam.

“Many surveys of Vietnam’s purchasing power have been conducted, which prove the great potential of the local retail market. However, released statistics of the country’s gross domestic product or retail sales have sometimes reflected unreal growth of the market,” said Phan The Rue, chairman of the Association of Vietnam’s Retailers.

Vietnam has more than 86 million people with more than a half aged less than 30 years. People at working age of between 22-55 spend 70 per cent of their income a month.

However, there are only 25 million people, or 30 per cent of the population, living in urban areas and they earned an average of VND2.6 million ($133) per month last year. The remaining 70 per cent live in rural areas, who earned an average of VND700,000 ($35.8) per month last year.

The income gap has been widening in Vietnam in the meantime. Ministry of Labour, Invalids and Social Affairs (Molisa) figures show that the highest income earners in Hanoi last year, for example, received VND75 million ($3,846) per month, while the lowest income earners got VND1.8 million ($92) per month. The gap was reported to be much higher in Ho Chi Minh City.

Vietnamese consumers’ shopping habits are also a growing concern.

A study carried out by the Vietnam Trade University (VTU) recently found that local consumers went shopping in traditional or open-air markets 28 times a month, which meant almost 14 times more than going to supermarkets a month.

“The combined reasons explain why foreign retailers have not made a massive mark on the Vietnamese retail market,” said Pham Thi Tue, from the VTU’s International Trade Department.

“During late 2008 and 2009 many delegations of foreign retailers arrived in Vietnam to explore the local market. Their visits were mostly aimed for conducting surveys and seeking opportunities to collaborate with Vietnamese partners,” Tue said.

Both the MoIT and local economists agreed that the last 20 months were not the right time for new foreign retailers to jump into the Vietnamese market. In contrast, existing foreign retailers in Vietnam are trying to expand their footprint across the country.

According to Hoang Thi Tuyet Hoa, deputy general director of the MoIT’s Planning Department, an additional nine stores run by existing foreign distributors have been opened in Vietnam since early 2007. Of those, Metro Cash&Carry opened additionally four stores, Big C (three), Lotte (one) and PCSC (one).

Currently, there are totally 25 retail outlets having opened by foreign retailers in Vietnam, except for 10 others permitted to open their first specialised retail stores for specific commodities such as cosmetics, household appliances, utensils and blankets.

“Despite having expanded, modern retail sales remain modest with no significant changes in local people’s consumption habits.

“The past three years [since Vietnam joined the WTO] is only a starting point. We believe that existing foreign retailers will continue to make further investment to expand operation in Vietnam,” Hoa said.- VIR

Tags: vietnam retail industry, Vietnam retail market