It’s been a long time since the intersection of Thai Ha and Tay Son in Hanoi, where Parkson Viet Tower is located, has been so quiet. 

On December 15 all business activities at the high-end retailer Parkson ended and the department store officially withdrew from Vietnam’s capital. 

This is the third closure by the Malaysian retailer in the last two years, following Parkson Keangnam Landmark Tower in Hanoi and Parkson Paragon in the Phu My Hung new urban area in Ho Chi Minh City. 

Goodbye to Hanoi

The announcement of Parkson Viet Tower’s closure in November puts an end to Parkson’s presence in Hanoi and marks a failure in an important market in the country. No clear reason was given but many shop owners said they knew it was coming. “Vietnam’s retail market is currently witnessing tough competition among both domestic and foreign retailers with many attractive promotions for customers,” Parkson Viet Tower noted in its announcement. “Parkson Viet Tower, therefore, cannot continue its business activities at the same location.”

In 2005, Parkson Holding Berhad, a subsidiary of Malaysia’s Lion Group, launched the first Parkson department store in Vietnam, in Ho Chi Minh City, specializing in luxury products. As one of the first retailers setting foot in the country, it had little in the way of competition and quickly became the leading foreign retailer in Vietnam.

Eight years later, the number of Parkson department stores had increased to 12. Five were owned by Parkson Holding, including Hung Vuong, Flemington, Long Bien, Viet Tower, and Landmark, and five were sub-leased: Saigon Tourist, Paragon, C.T, Cantavil and Leman. The Malaysian retailer also owns two other trade centers: TA Plaza in northern Hai Phong city and Vinh Trung Plaza in central Da Nang city.

Development, however, ended after ten years in the business. It was marked by the closure of Parkson Keangnam Landmark Tower in January 2015. 

The management company, Parkson Hanoi Co. Ltd., said in a notice posted on the door of the store that it would only be closed until January 7, “for stocktaking purposes”, but it never opened again. 

Parkson Keangam Landmark Tower opened in December 2011 on an area of 35,600 sq m. Products from many famous brands were showcased on four floors and occupancy stood at 90 per cent. Two years on, however, occupancy had fallen to 60 per cent and the remaining area was used for other purposes.

Parkson Paragon in the Phu My Hung new urban area in Ho Chi Minh City officially closed its doors last May after five years of operations. The management unit, the Thuy Duong Company, announced the closure two months prior and received agreement from tenants. 

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 and that the benefits for Parkson membership card holders remain unchanged.

No reason was given for any of the three closures. CEO of Parkson Vietnam, Mr. Toh Peng Koon, once commented that Vietnam is the most difficult market for the group. 

If Parkson Viet Tower does not relocate, as has been mooted, this means the retailer has completely withdrawn from Vietnam’s capital, where it once expected to be a star performer. It also puts an end to the dream of becoming the leading retailer in Vietnam, which has among the greatest retail potential in Asia.

Parkson also withdrew from an agreement to lease area at a project in Ho Chi Minh City’s District 3. 

In September 2012, the CT Group and Parkson Vietnam signed a contract to implement the high-end apartment complex Léman, with luxury outlets in fashion, furniture, and dining areas, in June 2013. The plan is yet to come into being and perhaps never will. 

Ending foretold 

Parkson’s business performance was initially quite sound, with the high-end department store meeting the needs of Vietnamese people regarding luxury fashion and cosmetic brands. Its problems, however, didn’t only relate to fiercer competition with other new retailers but from its development strategy in Vietnam, making “closure unavoidable,” said Mr. Vu Vinh Phu, Chairman of the Hanoi Supermarket Association.

While Vietnam’s retail market saw strong growth, Parkson’s business performance headed in the other direction. 

According to Mr. Alex Crane, General Manager of Cushman & Wakefield Vietnam, the retail market saw good performance in the first three quarters of 2016, with revenue up 10 per cent year-on-year. 

Growth is the second-highest in the region, after Indonesia, and is expected to be sustained until 2030. 

Vietnam’s macro-economic situation is very positive. Consumer confidence continues to grow steadily as well, which in turn makes retailers and developers more confident. Household disposable income is also slowly increasing, which is very important for high street retailers. 

None of these helped Parkson. According to its fiscal third quarter report (ending March 31, 2016), revenue stood at $71.5 million, down 15.6 per cent year-on-year. Revenue in the first nine months of the fiscal year stood at $294.6 million, a 14.4 per cent decline year-on-year.

As at the end of 2015, Parkson had a presence in four countries: Malaysia, Vietnam, Indonesia and Myanmar, with a total floor area of 693,000 sq m. However, while the stores in Indonesia saw good performance the three remaining countries had slumped, especially in Vietnam and Malaysia, with revenues falling 8.2 per cent and 17.4 per cent, respectively, in the third quarter.

So macro-economic factors certainly aren’t behind Parkson’s failures. 

According to one economic expert, the cost of maintaining and refreshing the business model and expanding its scale in order to remain competitive and dominate long term gradually became too high. 

The greatest challenges, therefore, were in surging costs, fierce competition and the market pie becoming ever smaller due to the arrival of new retailers, with Parkson fading into the background in Vietnam’s retail market.

Most retail experts have seen that Parkson’s business model in Vietnam duplicates its models in the region, specializing in luxurious fashion products and only focusing on wealthy and high income customers while not leading to middle-income customers, who make up the majority. 

Parkson’s layouts are also viewed as monotonous, concentrating only on shopping and ignoring other demands. 

“Vietnamese people’s shopping habits are very different from those in other countries in the region, as they want to shop for fashion, food and homeware together with relaxing and eating at the same location,” said Ms. Trang Bui, Director, Head of Markets, at JLL Vietnam. As a result, “a suitable commercial center in Vietnam market must be a ‘one-stop shopping’ model,” she said.

Bright picture

According to a report from Savills for the third quarter, the total supply of retail space is about 1.2 million sq m, an increase of 3 per cent over the previous quarter and up 23 per cent year-on-year. 

Average rentals on the ground floor fell in all types. Occupancy rose 1.9 percentage points quarter-on-quarter but was down 2.7 per cent year-on-year. “The fierce competition between local and foreign retailers continued to restructure retail space in the country,” Savills wrote.

Figures from the Ministry of Industry and Trade show that Vietnam has more than 700 supermarkets and 132 trade centers, excluding hundreds of branded convenience stores. Under the master plan, to 2020 Vietnam is to double the number of supermarkets and have about 180 trade centers and 157 shopping centers. 

A recent report from the Vietnam Retailers Association forecast that the country’s retail market will see rapid growth and may record revenue of nearly $180 billion by 2020. 

Despite the closure of some of Parkson’s stores, Vietnam’s retail market has seen a wave of large foreign retailers expanding in the local market, including Japan’s Aeon Group, South Korea’s Lotte Group, and most recently Japan’s Takashimaya. 

“The domestic retail market still holds potential due to the increasing number of new renowned brands coming to the country, not only in the fashion field but also in F&B,” Ms. Trang said.

It is notable that while Parkson was keen on maintaining its business model for a decade, other retailers like Vincom Center, Lotte Department Store, Aeon Mall and Takashimaya - Saigon Center appeared later with a model of “one-stop shopping”. This model features a shopping mall complex, often of large scale, with integrated services and diversified conveniences that stimulate purchasing power and expand the targeted customer segment.

Although business results haven’t been too positive due to the tough competition, Lotte Department Store still believes that the world’s leading retail enterprises have selected Vietnam as a future destination and key market. 

“From the failure of Parkson, we believe that all players must always make changes, stay abreast of the latest trends in the market, and understand the needs and unhidden wants of customers, to bring more pleasant experiences,” a representative from Lotte said. 

With more than 60 per cent of its population being young consumers, Vietnam is considered to be an appealing destination in the eyes of foreign investors.

According to a recent report from Nielsen Vietnam, the “one-stop shopping” model has become an investment trend in recent years and some 73 per cent of Vietnamese consumers are ready to pay more for better products and services. 

Commercial centers like Parkson, Diamond Plaza, and Trang Tien Plaza will gradually fall out of favor as the integrated shopping mall model takes hold. 

The unavoidable result of this wave is that conservative and slow-changing retail brands will disappear. “The Parkson closures do not mean an unattractive local market; they mean Vietnam’s retail market has been changing to a new level of development,” Ms. Trang believes. 

VN Economic Times