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Big guys combat for advantageous retail premises (Part 1)

The fight for the retail premises on Dong Khoi key route has been well known to Saigonese. Two years ago, local residents could see the Australian styled Gloria Jeans Coffee brand in front of Broadway restaurant. However, the premises has belonged to Sony, while the coffee brand had to relocate to the Ho Con Rua area.

The place, which was once the place for N&M fashion brand, now belongs to Trung Nguyen cafés. Not only one, but two Trung Nguyen cafes located on the expensive road.

The powerful financial capability of foreign retailers have pushed the premises rents in HCM City up to the highest level in South East Asia.

Vietnamese Trung Nguyen coffee brand is an “exclusive case” on Dong Khoi street, where most of the present brands are foreign. Analysts believe that the appearance of Legendee coffee for businessmen and middle class people is believed to be the reason for Trung Nguyen to join the Dong Khoi’s community. In other words, Trung Nguyen has been trying to heighten its brand.

In fact, a coffee expert said Trung Nguyen has been earning its living not only by selling every cup of coffee.

Richard Leech, Managing Director of CB Richard Ellis CBRE Vietnam, has noted a lot of F&B, entertainment and essential goods brands have been expanding their business in Vietnam, which has led to the increase in the demand for retail premises.

Burger King, Domino Pizza, Baskin Robbins in F&B, and Banana Republic, Mango, Ermenegildo Zegna in fashion sector were the names cited by the managing director.

Thirty percent of foreign investments in Vietnam have been found as targeting the retail sector. Meanwhile, when entering Vietnam, they only have two choices, either Hanoi or HCM City.

This might be a reason that has made the retail premises rent in HCM City become the highest in South East Asia, with the average rents of 100-200 per square meter a month on advantageous positions.

According to Nguyen Thi Hong Trang, Managing Director of Quadrille & Vera, foreign brands, when entering Vietnam, plans to set up one or two shops on average, and they would accept high rents to obtain the premises in the central area which helps them develop the brands.

However, Trang does not think that domestic brands are financially capable enough to get in the advantageous area like Dong Khoi.

She said that enterprises still need to consider the brand positioning and the possible business effects before deciding where to set up shops. In the current difficult conditions, if the premises costs are higher than 30 percent of revenue, this would be put high risks for enterprises.

Some months ago, when the business performance turned gloomy, the premises rents at some shopping malls in district 1 saw the sharp decrease of 20 percent. Meanwhile, Savills Vietnam said the retail premises located along the roads were just equal to 30-40 percent of the rents offered at shopping malls in the central area.

However, these were not the advantageous positions, while they were only applied to long term contracts.

Meanwhile, experts all have noted the sharp increase in the demand for premises in the next years. Subway has announced the plan to open 10 shops in 2013, nydc 7, Burger King has had five by the end of 2012, while Lotteria and KFC both strive to have 200 shops in the next years.

“The heat can be clearly felt in the premises market now,” said Truong Vo Ham Lien, Lotteria’s Marketing Director.

DNSG