Foreign retailers face uphill struggle

Jul 17th at 13:52
17-07-2020 13:52:13+07:00

Foreign retailers face uphill struggle

Foreign retailers set to make a debut in Vietnam may find themselves in a harsh competitive landscape after the global health crisis.

Foreign retailers face uphill struggle
Overseas brands should thoroughly study Vietnamese shopping habits before launching stores in the country, Photo: Le Toan

Japanese home-and lifestyle-goods retailer Muji is set to open its first store in Vietnam in the third quarter. The company announced the news on its Facebook fanpage, notifying that the first store will be located in the Parkson Saigon Tourist Plaza in District 1 of Ho Chi Minh City. The department store also houses Japanese casual clothing retail chain Uniqlo, which launched its flagship store in Vietnam last year.

Ryohin Keikaku Co., Ltd., Muji’s parent company, said that among all the fast-developing ASEAN countries, Vietnam has the third-largest population and is undergoing rapid economic development. From its business’ point of view, Vietnam is one of the ASEAN markets with the most potential for the company. Ryohin Keikaku has therefore decided to establish a 100 per cent foreign-owned company in Vietnam.

Similarly, K-pop merchandise retailer SM Entertainment is also opening a new store in Vietnam, making it the first overseas outlet for the group outside of South Korea. Slated to be open in this quarter, the store will be located at Crescent Mall in District 7 of Ho Chi Minh City. The SMTOWN store will comprise of both a shop and a café. SM Entertainment is known for its famous K-pop artists like Red Velvet, EXO, Super Junior, and Girls’ Generation.

The world’s third-largest manufacturer and retailer of private-label apparel Fast Retailing, the parent group of Uniqlo, is also expected to set up a retail chain in Vietnam. Leaders of Fast Retailing met with Prime Minister Nguyen Xuan Phuc last year to discuss the plan.

Despite the outbreak of the COVID-19 pandemic, Uniqlo still opened two new outlets in Ho Chi Minh City in May and June. Situated in the centre of District 7, Uniqlo SC VivoCity is Uniqlo’s third store in Vietnam, following the success of its first store openings in both Ho Chi Minh City and Hanoi.

Located at the highest building in Vietnam, Landmark 81, its latest store is part of Uniqlo’s ongoing plan to expand its business in Vietnam and to provide access to the very best of its LifeWear apparel for a growing number of Vietnamese fans and customers.

Ralf Matthaes, managing director of market research firm Infocus Mekong Research, said that as Vietnam’s GDP and household incomes have risen over the past few years, many foreign players have been eyeing Vietnam’s potential in the retail space. This had nothing to do with the pandemic, he added, as these moves were orchestrated well before the spread of COVID-19. The global health crisis however will have a positive impact on Vietnam, as the country is one of the very few nations to tame the virus, making is more appealing to retailers in terms of retail growth.

However, foreign retailers will find that the overall retail market in Vietnam with respect to consumer spending is shrinking, due to reduced shopping activities. Positively it is modern trade, specifically super- and hypermarkets, that have seen some growth during these turbulent times, according to Matthaes, as Vietnamese consumers shy away from wet markets and more traditional formats.

Inversely with so much of Europe still locked down, global retailers are looking for new growth opportunities to augment slumping sales, hence Vietnam looks inviting.

Despite a fertile market, many international retailers are still struggling or even withdrawing from the market such as French’s Casino and Auchan. Meanwhile, Lotte has not closed a year with profit in Vietnam. Convenience store operators like FamilyMart, 7-Eleven, Circle K, and MiniStop are still at the early stages of developing their chains, thus they still incur losses.

Matthaes pointed out that foreign retailers come here and believe that what works in their home markets will work in Vietnam, tending to over-value the size of the prize and under-value the difficulties. “There are three key factors that have led to failure: not understanding actual Vietnamese disposable incomes; a lack of category management understanding of the consumer basket; and underestimating the cost of property, rental fees, and human resources,” Matthaes said.

Commenting on the arrival of new foreign retailers like Muji and SM Entertainment, Richard Burrage, CEO of market researcher Cimigo Vietnam, said that there are many consumers who appreciate and aspire to shop at famous retail brands from overseas. “The ability to do so in their home city is exciting. One store per city is not a surprising approach for these retailers but maybe all they need for many years is to have an anchor in that city,” he said. “Further consumer demand can be met through online shopping channels.”

However, Burrage stated that there is far too much false hype about retail potential, with it far too often based on misunderstood data written by consultants that have never spent time with Vietnamese shoppers.

This has been proven time and time again for modern hypermarkets, supermarkets, and convenience stores where there are few success stories. These modern environments struggle in the grocery sector where 80 per cent of grocery sales are still made through wet markets and small grocery stores, and not modern retail environments.

“Imagine this – I am driving home from work on my motorbike and pull up at my local family-run shop. The owner knows me, and she knows what I buy. Today I have forgotten to go to the ATM but she tells me to pay her tomorrow. I have not left my motorbike and I am on my way home within moments – what is more convenient than this?”

Burrage then concluded that many foreign store operators do not put consumers first or develop a consumer-centric strategy. Thus, he said, they quickly become cheap junk food canteens with free Wi-Fi and air conditioning for students.

VIR





RELATED STOCK CODE (1)

NEWS SAME CATEGORY

Vietnam gov't urged to scale up support programs for businesses post Covid-19

While a number of supporting packages are in place, only a small proportion of enterprises have actually benefited from the policy.

Seminar talks up Malaysia as big export market for Viet Nam

Malaysia could become one of the biggest export markets in ASEAN for Viet Nam, especially in the post-pandemic period, a city official said at a meeting in HCM City...

VN, US firms join hands to curb pandemic toll and seek business opportunities

Vietnamese and US firms shared ways to cope with the coronavirus crisis and to overcome immense challenges inflicted by the COVID-19 pandemic during an online trade...

Foreign shareholder Mitsui asks Eximbank for extraordinary general meeting

Mitsui Banking Corporation – the foreign strategic partner holding 15 per cent stakes – has just requested Eximbank to convene the second extraordinary general...

Older shoppers are discovering convenience of digital payment: report

There is increased adoption of digital payments by older users, according to a new report released by online shopping platform, Shopee.

Mexico and Việt Nam: for an open and strong multilateral trade system

In forty-five years of diplomatic relations, economic ties between Mexico and Viet Nam have grown significantly. During this time, both countries have come to share...

Vietnam could resume pre-COVID-19 growth levels by next year: McKinsey & Company

Vietnam could resume pre-COVID-19 growth levels by next year although the pandemic threw a spanner in the works for the country’s thriving economic growth story...

Vietnam to see enhanced high-quality investment flows after successful VKFTA

Vietnam and South Korea are witnessing their heyday in multi-faceted and bilateral co-operation. Nguyen Van Xuong, former Vietnamese Ambassador to South Korea...

Intra-ASEAN trade flourishing following mutual commitments

Nearly five years have elapsed since the ASEAN Economic Community was established, and businesses in the region have gradually taken advantage of the bloc’s import...

Oxford Economics forecast Vietnam’s GDP to grow 2.3 percent in 2020

Vietnam’s effective containment of COVID-19 should allow it to make a quicker rebound than most other economies in the region and its GDP growth can be around 2.3...


MOST READ


Back To Top