Vietnam is among the world's most lucrative retail market. Vietnam is Asia's youngest growing market and hence investors cannot afford to overlook its retail sector. According to the Ministry of Industry and Trade (MIT) Vietnam's total retail revenue in 2011 reached nearly US$90 billion, an increase of 29.3% in comparison to 2010, and contributing 15-16% of the GDP. Despite a decrease in consumption demands retailers are continuing to open more outlets in the capital with an eye on the potential of the retail industry. While a recent report by AT Kearney stated that Vietnam's total retail revenue would increase by 23% per year between now and 2014, thereby offering many opportunities for both domestic and foreign retail businesses.
After being admitted to the WTO, Vietnam committed to open its retail market to foreign investors, Vietnamese laws also allow foreign retailers to set up 100% foreign owned retail enterprises. Experts believe that Vietnam has fallen from its position as one of the most 30 attractive markets in the world because of some trade barriers, including the ENT mechanism (economic needs test), the high real estate prices and high bank loan interest rates. But these barriers have not discouraged modern retailers to enter the country's retail sector as modern retail channels currently just hold 20% of the total distribution market, which means that the retail market would offer modern retail chains to play a crucial role in future growth and improve their position in the market. Many international retailers are still making huge investments in this sector.
For instance, Japan's Aeon announced plans to build two commercial centres, set to open in 2014. The first project is in Ho Chi Minh City with US$109 million investment, the second is in Binh Duong province's Thuan An district, with a total investment capital of US$95 million. Lotte Mart, the second biggest retailer in Korea, also hopes to expand its presence to 60 supermarkets in 2020. The average investment capital for each Lotte Mart's trade centre would be about US$20 to US$40 million. Lotte is already accelerating the Hanoi Lotte Centre project which will be opening in 2013, with a total investment of US$400 million.
Big C has also invested US$14 million in a new trade centre in the central province of Thanh Hoa late last year, raising its outlets in Vietnam to 17. It has plans to increase to 29 supermarkets by 2013. By 2020, E-Mart Vietnam, a joint venture between South Korea's retail giant E-mart and Vietnamese partner U&I Investment Corporation will establish a chain of 52 supermarkets and stores in big cities with total investment capital of up to US$1 billion.
Even Leading brands like Metro Cash & Carry had opened 10 new trade centres in 2011 while Parkson a well known Malaysian group added seven new shopping centres in big cities across Vietnam. TDB Parkson, a joint venture between Parkson and Thuy Duong-Duc Binh Trading Joint Stock Company has started construction of a new centre which will be developed on an area of 8,800 square meters at a cost of US$25 million.
Despite traditional channels dominating the market, it is certain that the Vietnamese market, being one of the most dynamic newly emerged economies in South East Asia, enjoys certain clear advantages to attract retailers. In the future one can expect more foreign retailers to enter the market and give tough competition to the domestic retailers in Vietnam. Thus, the country's retail sector is expected to flourish further as the experts believe that the robustness of Vietnam's domestic economy and the opportunities that will arise as this sector is liberalized further will make retail an attractive investment option.
(Source: Insight Alpha)