On February 20, 7-Eleven officially announced its first round of recruitment activities in Vietnam. It expects to open its first store in the country within a couple of months and its recruitment efforts are the first step in those plans coming to fruition. 

Mr. Tran Khanh Du, a 25-year-old from Hai Ba Trung district in Hanoi, said he was impressed after visiting a 7-Eleven store when he was in Thailand four years ago, due to its impressive design and the fact he could find everything he needed at 2am. 

“It would be great to see 7-Eleven in Vietnam,” he said. 

The chain is owned by the Seven & I Holdings Group and there are 60,000 stores in 18 countries and regions around the world. 

The first store in Vietnam will be in Ho Chi Minh City, making Vietnam the 19th country where 7-Eleven has a presence. Seven & I Holdings plans to have 100 stores in the first three years and 1,000 after a decade. 

Not only 7-Eleven, mini-marts and convenience stores such as Miniso, Circle K, Ilahui, Vinmart+, and Bizmart are becoming increasingly common in Vietnam’s retail market. 

This has created a competitive market for investors developing shopping malls.

Hot competition

Vingroup’s Vincom had developed 31 shopping malls around country as at the end of 2016, with four models: Vincom Center, Vincom Mega Mall, Vincom Plaza, and Vincom+, according to Mr. Le Khac Hiep, Deputy Chairman of Vingroup. 

Vincom Centre Landmark 81 is expected to open in 2018 with a total leasable area of 46,345 sq m. 

Aeon, meanwhile, now has four centers in Vietnam and plans to expand its network to 20 by 2020. 

Mr. Eom Sun Woong, Director of Business Management at Lotte, said it has been investing in and focusing on two department stores - Lotte Department Store Hanoi and Diamond Department Store in Ho Chi Minh City. 

Lotte has recently announced the launch of the Ciputra Hanoi Mall project, which is expected to see construction begin in the second quarter.

Mr. Humphrey Morgan, National Head of Commercial Leasing at Savills Vietnam, told VET that Vincom has the largest number of developments but their malls are populated predominantly by subsidiaries, as opposed to Aeon’s and Lotte’s offerings. 

“In terms of number of locations, Vincom is clearly the runaway leader, but Aeon has now successfully launched three malls in both the north and the south of Vietnam,” he said. 

“We also see Lotte’s deepening penetration into the market, with the opening of locations such as Go Vap in Ho Chi Minh City.” 

Vietnam retail market has also seen the development of other models. 

The second South Korean retailer to enter Vietnam, after hypermarket chain Lotte Mart, E-mart opened its first supermarket last December. 

It plans to open ten around the country by 2020, according to Mr. Choi Kwang Ho, CEO of E-mart Vietnam. 

Lotte Mart, meanwhile, targets to have some 60 supermarkets throughout the country by the early 2020s. 

Vietnam’s retail market has recently seen some major merger and acquisition (M&A) deals in supermarkets. 

In April last year, the Casino Group officially announced it had completed the sale of Big C Vietnam to Thailand’s Central Group for an enterprise value of $1.14 billion. 

Metro Cash & Carry Vietnam, meanwhile, has been sold to TCC Land International Pte.

With a population quickly approaching 100 million people, of which 70 per cent are of working age and with average annual incomes increasing and expected to reach $3,500 in 2020, Vietnam’s retail market has major potential, according to Mr. Hiep. 

Similarly, Mr. Woong said that Vietnam remains a key market for Lotte. 

CBRE Vietnam, in its latest report, said that, looking forward, in addition to Thai retailers, who have dominated the M&A market recently, Japanese, South Korean, Chinese and Western retailers are eyeing Vietnam due to its young population with modern lifestyles and increasing spending habits.

Under-construction shopping centers in Hanoi & Under-construction shopping centers in HCMC

Source: JLL Research

Lesson and challenges

Vietnam’s retail market may have recorded strong growth but retailers have had mixed fortunes in recent times. 

The announcement of Parkson Viet Tower’s closure last November marked an end to Parkson’s presence in Hanoi. 

The company did not provide any reason for the closure, saying simply that it would not affect other department stores under the management of Parkson in Vietnam or the benefits provided to Parkson membership card holders. 

Retail experts see that Parkson’s business model in Vietnam specializes in luxurious fashion products for wealthy and high-income customers while overlooking middle-income customers, who are in the majority. 

Parkson’s layouts are also viewed as monotonous, concentrating only on shopping and ignoring other demands, at a time when the market is becoming more competitive. 

The latest report from CBRE Vietnam notes that many struggling shopping centers have closed, moved or been restructured to improve performance. 

The recent closure of Parkson further emphasizes the importance of positioning, customer targeting, and tenant mix. 

A representative from Lotte said that the failure of Parkson is evidence that retailers must always make changes, stay abreast of the latest trends in the market, and understand the needs and unhidden wants of customers, to make shopping a more pleasant experience.

Not only are the problems linked to strategy, as developers and investors have also faced many other obstacles. 

Under a number of free trade agreements, Vietnam must open up its market and domestic retailers will face fierce competition from foreign investment. 

Following many acquisitions, local retailers have said that the domestic retail market is being redrawn towards the expansion of foreign retailers. 

Foreign retailers now account for over 50 per cent of Vietnam’s retail market share, according to figures for 2016 from the Ministry of Industry and Trade (MoIT). 

Ms. Dinh Thi My Loan, Chairwoman of the Vietnam Retailers Association, said that M&As have become a means by which foreign players enter the country. 

The greatest difficulty for local retailers, according to Dr. Le Huy Khoi from MoIT’s Vietnam Institute for Trade, is a shortage of capital. 

While foreign retailers can afford to incur losses for several years because of the strong financial position of their parent company, Vietnamese retailers will exhaust their available capital if they incur losses for just two or three years. 

“High inputs and operational costs at modern retail facilities have led to inefficient business operations, difficulties in accessing credit, and a low capacity to dominate the market,” he told a seminar on Vietnam’s retail market last October.

A recent Nielsen report showed that traditional retail channels are still favored in Vietnam, growing at a rate 5.4 per cent higher than modern channels and accounting for 85 per cent of all revenue in fast-moving consumer goods, or $10 billion. 

Another recent report, from Kantar WorldPanel, revealed that more than 96 per cent of households in Vietnam own at least one motorbike and can use it to go almost anywhere. 

Traditional markets are ubiquitous and shopping in them is easy. 

Consumers have shopped at traditional markets for a long time and are familiar with the shop owner, who often gives advice on what products to buy. 

In many cases, they can have informal credit, something modern retail does not allow. 

Looking ahead

Though Parkson is a department store and not a shopping mall, its problems provide a valuable lesson on strategy for developers and investors in the process of opening and operating shopping malls in Vietnam. 

Some developers and investors have introduced innovations in order to develop. 

In January, Aeon officially launched an e-commerce site, AeonEshop, to meet demand for convenient online shopping, according to a representative from Aeon Vietnam. 

Lotte, meanwhile, launched an e-commerce site last October, with the goal of staking out a 20 per cent market share in Vietnam’s e-commerce sector. 

“This decision is the result of careful research and consideration, including on the competition,” said Mr. Woong. E-commerce revenue in Vietnam is estimated to reach some $8 billion by 2025, according to Google and Temasek.

Among the 12 common retail models, businesses have the highest expectations in the modern retail model. 

General supermarkets and shopping centers are considered to hold the most promise and are a strength of foreign retailers. 

The UK’s The Economist Intelligence Unit (EIU) estimates that Vietnam’s retail market could be the fastest growing in Southeast Asia and is expected to reach $109 billion in revenue this year. 

A Vietnam E-Commerce and Information Technology Agency survey last year on 500 people in Hanoi and Ho Chi Minh City found that 88 per cent used mobile devices to research goods and services prior to purchase and 45 per cent used mobile devices to search for information on goods at least once a day.

VN Economic Times