Inflation puts the squeeze on electronics firms

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Several electronics stores could be forced to shut down in the near future as inflation forces consumers to tighten their belts, industry insiders say.

Vo Thi Hoang Quan, general director of mobile phone distributor FPT, said purchasing power is on a downward trend as consumers cut back heavily on spending.

She said her company posted a 20 percent growth in sales last year, a big drop compared to 2009's 40 percent.

This year, she expects sales growth to fall further to around 15 percent, but even this will not be easy, given the sluggish sales in the first three months.

She said falling sales are putting high pressure on electronics retailers as they find it hard to clear a large amount of their inventory and recoup their investment.

As most of the electronics items sold in the domestic market are imported, their prices have been affected by devaluations of the dong against the dollar. However, electronics goods distributors say inflation, not official currency devaluation, is the main reason for reduced spending by consumers.

Vietnam's consumer price index in the first quarter of this year is estimated to have grown 6 percent from the end of 2010, the government said. 

According to the retailers, home appliances and cell phones bring in high profits, but these products make up a low percentage of total revenues.

They say 40 percent of revenues come from consumer electronic products like television sets, DVD players and home theaters, 30-40 percent from air conditioners and refrigerators, 10 percent from home appliances and the remainder from mobile phones and computers.

Dinh Anh Huan, sales manager at Vietnam's leading mobile phone retailer, The Gioi Di Dong, said electronics stores were most concerned now about how to generate enough revenues to offset costs. He said retailers have large rental and operational overheads with bigger stores having an area of at least 5,000 square meters.

The representative of an electronic goods distributor, who wished to remain unnamed, said retailers have to gain a minimum profit of 5 percent to maintain operations.

"But in this difficult context, this is a dream for many retailers. We just hope capital rotates fast enough to retain our business and wait for a recovery in consuming power in the future."

In 2009 and 2010, despite the economic slowdown, some electronics retailers opened new outlets in the hope that they could snatch opportunities when the market rebounds. These expectations have been belied with the market continuing to face decreasing purchasing power.

Nguyen The Hung, deputy marketing manager of Wonderbuy Computer, Electronics and Furniture Center, said an increase in supply and a decline in demand has led to fierce competition among electronics outlets.

"After the Tet lunar new year festival, the market became quieter," Hung said. "We don't expect a significant rebound during the upcoming summer. With the prolonged decrease in buying power, some outlets may have to shut down [due to losses]."

Huan said the current difficult situation can reshape the electronics sector.

"Retailers which can retain operations and maintain finances to exist and develop during the next two years will assume leading roles in the market," he said.

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