Significant year for foreign retailers

Hoa Le, national head of retail services at Cushman and Wakefield Vietnam analyses Vietnam’s retail market from the perspective of international retailers as the country prepares for a significant year of policy changes.

Hanoi and Ho Chi Minh are the two biggest cities in terms of significant retail markets. At the moment, Hanoi’s retail supply is a little bit higher, thanks to the additional regional retail centre developed by Vingroup. There is a growing trend for retail centres with areas over 40,000 square metres which provide all-under-one-roof retail definitions where shoppers can spend their day enjoying a range of shopping, leisure and dining experiences.

Danang is also becoming an attractive location for retailers to explore, especially in terms of food and beverage (F&B) and entertainment. With good quality infrastructure and tourism resources, Danang looks set to enjoy a prosperous future making it attractive to investors.

Retail sales have grown at an average rate of 21.2 per cent over the last five years to $124 billion in 2013. Vietnam is roughly the size of the Beijing or the Shanghai retail market, but is growing much more rapidly. It cannot be denied that the rent and occupancy rate of the retail market is decreasing but in the long term, significant growth could be cultivated due to demographic and economic elements. The professional development of the market is also illustrated through acquisitions with the presence of international players like Lotte, Aeon, Vivo City among others.

The modern retail market consists of just around 22 per cent of the overall market which partly shows a relatively low supply and lack of quality shopping centres. When participating in retail summits in Shanghai, Singapore or Hong Kong, Cushman and Wakefield has noticed an increasing interest in Vietnam’s retail market from international retailers. The hot topics include the young population and rising middle class, discussion over the legal framework, retail platforms and local competition.

How can more international retailers be coaxed in to the Vietnamese retail market? Obviously one of the most important factors is location. Retailers in different industry segments will have different preferences for store location. For example, one of the biggest fashion brands that is soon set to open its first flagship store in Ho Chi Minh demanded a prime location and more than 2,000sqm of the total floor space. They have a strong bargaining position because the brand can attract large numbers of shoppers increasing sales for the whole centre in general. This led to more flexible rent and commercial terms. Another important factor is whether the fashion brands of that shopping centre are in the same or higher segments. A shopping centre that has brands in the same segment will create an exciting and more memorable experience for customers when shopping.

While fast fashion brands are likely to take the advantage of the central location, department store retailers consider the accessibility, exposure to the main traffic infrastructure as well as the typical technical facilities. As a result, projects that are more carefully constructed in accordance with market demand and category mix in advance will have the advantage as both developers and retailers do not need to change property facilities, which save refurbishment costs. These projects will likely attract more retailers.

It would be a mistake not to mention the luxury segment. In the coming months, Prada - one of the most powerful luxury brands in the world - will open a 300sqm store in Hanoi’s central business district. This is something of a trend among the luxury segment, when more and more brands have opened flagship stores instead of multiple brands store like Brooks Brothers, Versace’s store at Union Square and other luxury brands in the future. However, the luxury market brands are also aware of the tendency for the rich to travel to Hong Kong and Singapore for a better range of cheaper luxury goods, so each of their strategies to expand to new markets are always carefully planned.

Moreover, while providing services for clients, Cushman and Wakefield have noticed a tendency of new-to market retailers to not only bring products and professional international standards of service but also a fresh retail format, which is the “bricks and clicks” concept. Online shopping in Vietnam is growing in popularity with the presence of Zalora, Lazada, Meta and others, which target the young and middle class, bringing convenience to the shoppers. Significantly, this concept is increasingly preferred by the F&B industry, with the co-operation between restaurant franchisers and group-shopping websites like hotdeal, nhommua and muachung.

It can be said that the market is challenging but in the long term, foreign retailers highly estimate the potential of the market. They show this commitment through intensive market research activities, which are being done with the co-operation of experienced real estate agents. 2015 with its more supportive legal procedure and WTO commitments will no doubt enhance the retail market.

VIR