Retailers in Vietnam struggle, but remain hopeful

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The dairy shelf in a Fivimart supermarket in Hanoi. The supermarket chain said sales are down due to the economic slowdown. Photo: Reuters

A 50-percent discount offered on all items is apparently not attractive enough to bring customers into a fashion shop in Hanoi's Minh Khai Street. With no customers around, the owner, Nguyen Thi Hanh, is glued to the TV, watching a Korean soap.

Around her, garments are heaped on shelves or hang messily on hangers.

Hanh said the shop did not earn enough to cover rent and salaries, so she had to dismiss two assistants to cut costs.

"Goods in stock since last year have not been sold," she said.

"But since there is no demand for garments, the longer you remain open, the bigger losses you face. The only option now is to close down."

She is just waiting to sell out the remaining stock before shutting down for good

Poor sales have been plaguing small shops like hers, traditional markets as well as shopping malls, and the closure rate has become very high.

In traditional markets, some shops only open during weekends.

At Vincom Tower in Hanoi, where Italian shoes and French perfumes are sold to the urban middle class, virtually every shop has put up notices offering discounts of up to 50 percent. But they still attract few customers, leaving the salespeople chatting with each other or playing games on their phones.

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According to the Ministry of Planning and Investment, 17,735 businesses shut down or suspended operations in the first four months, a 9.5 percent rise from the same period last year. More than 5,000 of them were wholesalers or retailers, it added.

Vu Thi Hau, deputy general director of Nhat Nam Company, owner of the Fivimart supermarket chain, said sales are down and blamed it on the economic slowdown. "Our revenues rose only 10 percent in the first half of this year, compared to 20-25 percent in past years."

With many firms struggling to even survive and people's incomes thus taking a hit, discretionary spending is down. Hau said sales of home appliances and luxury items are particularly low.

Vu Vinh Phu, chairman of the Hanoi Supermarket Association, said 70 percent of consumer spending is on food.

Members' revenues were down 10-12 percent in the first half of this year despite promotions including discounts of 20-50 percent, he said.

High prices are also a deterrent factor for consumers, he said, explaining that despite inflation easing in recent months, a new price level, much higher than two or three years ago, has been established.

The consumer price index fell by 0.26 percent in June, the first fall in the last 38 months. Last year inflation had soared to 18.58 percent.

The high prices of consumer goods are also attributed to the big commissions offered to distributors. There are items that their producers have to pay commissions of up to 47 percent to supermarkets, Phu said. "This causes losses to both producers and consumers."

Nominal retail sales were nearly VND1.14 trillion ($54.3 million), up 19.5 percent year-on-year in the first half, but only 6.5 percent with inflation factored in, figures from the General Statistics Office show. This is a record low for growth, beating the previous 7.6 percent recorded in 2010.

 

Vietnam has fallen out of the list of top 30 most attractive retail markets compiled annually by management consulting firm A.T. Kearney. It had topped the list as recently as in 2008.

Phu described this as a warning, saying the country has lost its shine as an attractive retail destination.

Besides the continuing economic woes, he said, red tape, high rents, haphazard retail planning, high interest rates, smuggling, and the rampant circulation of copycat and fake products are also to blame for this.

To help the market recover, the government should have transparent and stable policies, and make it easier for firms to get capital and land, he said.

Optimism yet

But the retail industry remains optimistic about a rebound since the government is taking measures to bring about an economic recovery, Phu said.

Firms now are making preparations to make sure they are in a good place when the economy recovers and opportunities arise again.

Electronics and appliances retailer Nguyen Kim has opened six outlets since late April, while supermarket chain Vinatexmart opened seven. The latter in fact plans to open 35 outlets this year.

Its deputy general director, Tran Thanh Nhan, said now is a good time to expand since rents, though still high, are down 30 percent from a few years ago, and localities are offering incentives to investors.

When the market is down, it is always easier to find good locations for outlets, he said.

His firm plans to improve its distribution system and quality of service to attract customers, he added.

Phu said the potential for retail development is undeniable given the large population of around 90 million with increasing affluence.

The country currently has around 600 supermarket outlets, over 100 shopping malls, 2,000 convenience stores, and 8,590 traditional markets. Only 15-20 percent of goods are sold through modern distribution systems, with the rest being distributed through traditional markets.

Two more major international retailers, Japan's Aeon and Malaysia's Giant, entered the market in 2011, and global giants like Tesco from the UK and US-based Walmart are expected to follow suit.

"Foreign investors will be more interested in the market after the global economic recession ends," Dinh Thi My Loan, general secretary of the Vietnam Retailers Association, said.

An industry insider said: "To grasp the opportunities, retailers need to improve their financial capacity, distribution system, and management and ensure stable supply of goods."

Loan of the Vietnam Retailers Association said the government has announced a relief package including tax cuts and deferments, but the retail industry needs more support.

Production costs should be cut to encourage consumption, she said.

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