Foreign retail invasion yet to happen

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Shoppers at an outlet of South Korean retailer Lotte Mart in Ho Chi Minh City's District 11

The local retail industry is still in the hands of local companies as large multinational retailers have yet to make their mark since the market opened in 2009, according to experts.

Hoang Tho Xuan, former director of the Ministry of Industry and Trade's domestic market department, said competition from foreign invested retail companies in Vietnam has not yet been felt as major players including Carrefour and Wal-Mart have not entered the market.

"Vietnam is obviously not a playground for FDI companies to rule as previously thought. In fact, they face tough competition from local businesses," Xuan said.

As part of its member commitments to the World Trade Organization, Vietnam opened up its retail sector last year, allowing foreign investors to hold a 100 percent stake in a local retail venture. The decision was expected to see a number of foreign retailers come into Vietnam, consolidating their position in the market and threatening local companies.

But experts have said that after one and a half years, Vietnamese retailers are still dominating the supermarket segment, where there is no strong foreign presence. They said large foreign retailers often concentrate on building hypermarkets of at least 10,000 square meters that can store more than 25,000 products, but it's not easy to find locations for these superstores.

Dinh Thi My Loan, general secretary of Vietnam Retailers Association, said the economic downturn has caused foreign investors to be more cautious.

"Though Vietnam is one of the ten most attractive emerging retail markets in the world, it is still considered a "˜potential' market and many factors such as purchasing power and infrastructure lead foreign investors to think about when it is best to enter the local retail market," Loan said in an interview published by the Vietnam Economic Times on Monday.

She said local retailers, however, have tried to expand their business. "Members of the Retailers Association have made great efforts to add more outlets to their chains, for example Saigon Co.op is expanding northwards and Hapro is opening outlets in the south."

Nguyen Thi Hanh, general director of Vietnam's largest retailer Saigon Co.op said the company now owns a chain of 45 supermarkets in the country, with 21 in Ho Chi Minh City and the remaining ones in urban areas like Hanoi, Da Nang and Can Tho.

Hanh said Saigon Co.op, which reportedly holds a market share of over 50 percent in the modern retail sector, will open ten supermarkets a year over the next five years.

Two other local retailers, Vinatex Mark and Citimart, have also raised their number of total outlets to 21 and 18 respectively.

Nguyen Anh Hong, owner of Maximark, said the retail chain had just opened a new 20,000- square-meter shopping center in HCMC which offers a wider range of services than other supermarkets, including entertainment, food and beauty products.

Hong said she is ready to compete against foreign retailers. "But to be honest, what intimidates me the most about multinational companies is their capital and resources," she said.

Retail space

"The most difficult problem for businesses in Vietnam's retail industry is finding locations," said Loan of the Retailers Association. "Premises are an important factor when retailers consider entering the market or expanding their business here."

Foreign retailers said limited retail space supplies in Vietnam prevented them from opening more outlets.

Nguyen Xuan Hai, managing director of the French-invested Big C Vietnam, said it's not easy to find a location large enough to build a supermarket in the country. Retail space is also expensive, accounting for up to 60 percent of the total costs of a new outlet, he said.

"In the region, retail rental rates in Vietnam are higher than those in Thailand, a country with a more developed retail market," Hai said, without giving comparative figures.

According to statistics released by real estate consultancy firm CBRE, retail rents at shopping centers in Bangkok were recorded at 279 Thailand baht per square foot per month, or around US$93 per square meter per month in the first quarter this year. Rates within the central business district in HCMC were $100.5 in the first quarter, and just hit an all time high of $120.9 in the second quarter.

Tham Tuck Choy, general director of Parkson Vietnam, said his company had planned to open ten shopping malls in Vietnam over the past five years. The Malaysian retailer, however, could only open eight.

The main reason is the shortage of retail space in the country, Choy said.

But that doesn't mean the local retail market is not attractive, he said, noting that Vietnam is one of the target markets for Parkson in the coming years and the company would take a number of measures to expand its presence.

In a statement published earlier this month, the Embassy of Denmark in Hanoi said the Vietnamese retail sector provides good opportunities for Danish companies as it is growing fast. "Annual growth rates of 20 percent driven by a growing middle class changing their consumption habits indicate that the sector will continue expanding," the statement said. It is estimated that the retail and service sector will reach a revenue of $75.8 billion in 2010 and grow to $85 billion in 2012.

With such potential it's not hard to see why many retailers want to tap the market.

Jeffrey Bahar, managing director for Southeast Asia for Singapore-based Spire Research & Consulting, told Thoi Bao Kinh Te Saigon that Carrefour and Wal-Mart have already confirmed plans to open outlets in Vietnam. But Bahar said he doesn't know exactly when this will happen.

Meanwhile, Metro Cash & Carry said it would open four wholesale stores in Vietnam and is not expecting to face difficulties with this expansion plan.

The South Korean giant retailer, Lotte Mart, said it is working towards a goal to open 30 supermarkets in Vietnam. The company launched its second outlet in Vietnam in Ho Chi Minh City's District 11 this month, which analysts have described as a successful move based on the large numbers of customers over the past couple of weekends.

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