Why foreign retailers withdraw from Vietnam?
Capital withdrawals of foreign retailers in Vietnam have fielded a number of queries on whether the firms had sustained losses or if the local business climate lacked enough incentives.
|French retailer Auchan makes headlines in mid-May when confirming its withdrawal from the Vietnamese market. (Photo: Auchan)|
Former chairman of the Hanoi Supermarket Association Vu Vinh Phu claimed there are many factors causing the withdrawal of foreign retailers from the Vietnamese market. Many failed to seek a proper consumer segment and suffered losses due to high costs and poor administration.
Phu said that Auchan is a multinational corporation with a business network of 4,000 locations across 17 countries and territories worldwide.
Since its inception in 2015, the French retailer has spread its arms to 18 locations, primarily in Hanoi, Ho Chi Minh city, and the southern province of Tay Ninh.
Local media reported that Edgar Bonte, CEO of the supermarket group Auchan Retail has decided to sell 18 loss-making stores in Vietnam. These outlets reaped some EUR45 million (US$50.4 million) in revenue in 2018 and are still suffering losses.
It comes as no surprise that retailers suffer losses during their operations and eventually choose to close down. Phu, however, urged the publication of relevant information on the retailers from state management agencies such as the State Audit Office, and tax and customs authorities.
In fact, the country has been offering a string of incentives to foreign direct investment retail firms, he said.
They are entitled to pay 50 percent of the current corporate income tax rate within their first two years of operation while they are leveraged to select good locations for business.
Additionally, foreign retailers operating in the country have decisive advantages in terms of brand and scale when it comes to negotiations with local suppliers.
He exemplified his stance by the fact that many local suppliers and producers reportedly have to provide foreign retailers with a 30 - 40 percent discount per product which they want to put on shelves at foreign-invested distribution chains. This puts domestic firms at a considerable disadvantage, he claimed.
Despite this, several foreign retailers such as METRO Cash & Carry, BigC, and others have still reported losses and even METRO Cash & Carry and BigC have been acquired by Thailand’s retail giants.
This is an unusual development as foreign retailers have been provided with such incentives and discounts, Phu stressed, noting that Germany’s METRO Cash & Carry had been asked by local competent agencies to pay VND500 billion (US$21.5 billion) in tax arrears.
This case serves as a good lesson for state agencies that are in charge of managing the retail and financial sectors, the expert said. State agencies must work on developing a more favorable business climate for retailers towards fairer treatment and transparency.
METRO Cash & Carry was acquired by Thailand’s TCC Group in 2014, after the former suffered consecutive years of losses.
Local media reported that during 12 years of operation in Vietnam, METRO Cash & Carry only enjoyed profits of VND116 billion (US$4.98 million) in 2010 while reporting losses in the remaining years, ranging from VND89 billion (US$3.82 million) to VND160 billion (US$6.88 million).
Moreover, amid thriving development of the Vietnamese retail market, Parkson retail chain in Vietnam, a subsidiary of the Parkson Holdings Berhad, has reportedly made poor performance in the country in comparison with regional peers.
In early 2018, Parkson shut down its final shopping mall in the country, thus putting an end to its business in the Vietnamese market after 13 years of operation. The retail chain had previously planned to open additional shopping centers in major cities nationwide, but it halted the scheme in 2014.
French supermarket group Auchan Retail’s plans to sell its loss-making business in Vietnam are already drawing interest from potential buyers, Reuters reported.
With certain advantages, convenience stores have been an increasingly popular shopping destination for customers, and they have also become a choice for domestic retailers to compete with foreign rivals.
Some retail chains are seeking hundreds of workers as they plan to open more shops to scale up their business.