Local retailing, which has often been considered as a lucrative business, becomes an uninspiring market with many retailers vying to maintain their existing operations and market share, experts have said.

Domestic purchasing power remains far short of expectations while most local supermarkets are suffering losses, says Pham Dinh Doan, Vice Chairman of Association of Vietnam Retailers.

Vietnam’s retail market has seen a number of multinational corporations such as Aeon, Lotte, and Auchan Retail, enlarge their market shares in recent years. In the latest major move for the market, Swedish giant furniture producer IKEA made headlines when it reportedly revealed a US$450 million plan to develop a retail network and depots in Hanoi.

Pham Dinh Doan, Vice Chairman of the Association of Vietnam Retailers (AVR), said there remains huge potential to expand the domestic retail market. However, it has yet to be fully exploited with much-improved living standards among locals and varying shopping demands.

Whilst only few traditional distributors can make profits, foreign retailers operating in Vietnam are not exempt from this trend, Doan said.

A gloomy picture persists for the domestic retail market as retailers are struggling to gain a decent market share with many even accepting losses.

The domestic purchasing power now remains far short of expectations while most local supermarkets are suffering losses. Of note, the domestic distribution system FiviMart had sustained annual losses of nearly VND100 billion (US$4.3 million), he said.

The vice chairman stressed that the retail market still remains a lucrative business, but players must be powerful enough to sustain losses for up to 10 years before they are able to capture a stable market share and profits. Most Vietnamese firms, however, are able to ensure financial resources within three years and normally fail to pursue a 10 year-scheme.

Overwhelmed by imported goods?

Tran Anh Tuan, acting director of the Ho Chi Minh City Institute for Development Studies, noted that local consumption demand is currently at a high level but domestic retailers have yet to take full use of this advantage.

In contrast, foreign retailers continued to make bold moves in search of deeper penetration in the domestic retail market, with a vast presence of goods imported from Japan, the Republic of Korea, and Thailand.

He showed his concern over the sustainability of local retail growth as domestic firms remain weak in trying to meet demand.

Regardless of the increasing presence of imported goods, Doan from the AVR, still denied a scenario in which the Vietnamese market could be fully flooded with imported goods.

Retailers, even foreign ones, will sell what locals need. For example, if they are in need of Japanese goods, these items will find themselves on the shelves of supermarkets, regardless of who the foreign investor is, he noted.

Alliance required for survival

Doan raised a question regarding whether giant US retail chain Walmart is ready to enter the Vietnamese market, with the conglomerate seeing potential in the country. He added that the American firm seems to be waiting for the right conditions before taking the plunge.

He unveiled that whilst negotiations with Vietnamese suppliers have taken place, Walmart normally does not mention discounts, instead they prefer to define production costs.

For example, there is no way the suppliers could sell a product priced at US$200 and then provide a 20 per cent discount for the US retailer. Instead, if the total production cost stands at US$100 per product, Walmart would pay US$110 for the item, the expert said.

He stressed that although Walmart likes to hold the power and play a decisive role in negotiations, the US retailer still ensures that producers gain profits.

Additionally, Walmart has been developing a dedicated and state-of-the-art software system for administration, marketing, shipping, and applications for customers.

If Vietnamese firms lack resources to pursue long-term retailing strategies, even extending to 10 years, they should learn to lean on the strength of giants and powerful retailers to make alliances and grow together, the AVR expert suggested.

VOV