Amid a flood of mall space, retail hits the skids

The retail market in Ho Chi Minh City is believed to have great potential – but that potential doesn’t always translate to success.

When it was opened last December, the Kumho Asiana Plaza in District 1 had some 30 stores selling luxury products. But after months of slow sales, many tenants decided to quit because they could no longer afford the rent.

Now there are only a few stores left in the mall – one of the biggest shopping centers in the city. The tenants continue to pay rent and management fees in the face of flagging sales.

The Kumho Asiana Plaza, operated by Colliers International Vietnam, is located in downtown Ho Chi Minh City. But store owners said even this location doesn’t translate to more customers.

Another shopping mall, Saigon Paragon in District 7, was temporarily shut down early this month.

Le Hoai Anh, general director of Kim Cuong Company, the operator of the shopping mall, admitted that the closure was caused by a failure to effectively run the mall. “We never managed a shopping mall before and that’s why there were mistakes leading to an unexpected business situation,” she told Thanh Nien.

Anh said her company has hired a management firm to run the mall, which is expected to re-open at the end of this year. Saigon Paragon cost US$30 million to build. It was opened April last year.

Analysts said while Ho Chi Minh City is considered a great potential retail market, not all of its shopping centers are successful, especially those far from the city center.

Meanwhile, high rents (from $70 to $180 per square meter) make it hard to ensure profits.

More to come

More retail centers will continue to come online in the city.

According to the Industry and Trade Department, there are 102 supermarkets and 28 shopping malls in the city. The department expected the retail area in the city to reach 740,000 square meters in 2013 - double the current figure.

UK real estate services firm Savills issued a report last week that indicated three more centers would appear before the end of the year: the Crescent Retail, Bitexco Financial Tower and Thien Son Plaza. The trio will add a total of 50,000 square meters of retail space to the market.

The firm said the city’s retail market has “strong potential” in the mid-term.

But right now, some industry insiders aren’t happy.

Tham Tuck Choy, general director of Parkson Vietnam was quoted by Tuoi Tre as saying his company posted an average growth rate of 30 percent a year, but this is lower than expected.

He said, of the customers shopping at Parkson’s outlets, 15 percent are tourists and foreigners working in Vietnam while the rest are local consumers. The purchasing power of this local customer group is rising, but not steadily, Choy said.

A toy retailer who wished to remain anonymous said the retail market depends on the growth of the middle and upper class and their demand for expensive products.

But right now there are more window-shoppers than real buyers.

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Welcome, don’t restrict foreign retailers: experts

Economic Needs Test could be a counter-productive entry barrier

A Lotte Mart outlet in Ho Chi Minh City’s District 11. Experts said it is better for Vietnam to encourage foreign retailers to come to the local market rather than restrict them.

Vietnam should encourage foreign retailers to come into the country and develop the immature market rather than restrict their entry, local and international experts have said.

They said at a conference in Ho Chi Minh City last week that the Economic Needs Test (ENT) the Vietnamese government is preparing would disadvantage the retailers in developing outlets and also make it more difficult for local officials to monitor the sector.

Any foreign firm wishing to open more than two retail outlets in Vietnam must apply for a license and pass the ENT criteria that the World Trade Organization allows each member state to establish in order to prevent market overkill in the retail sector.

However, ENT was a very difficult provision to create, said Robert Rogowsky, adjunct professor of International Trade at George Mason University’s School of Public Policy in the US. Instead, “it (the government) should try to create something healthy for the market.”

Rogowsky told Thanh Nien Weekly that it would be a problem for the government to devise and apply ENT for a market that is dynamic and fast-changing in different regions like HCMC, Hanoi and other areas.

The professor said it was better to spend time on encouraging foreign retailers to come and work with local producers and farmers rather than to create a formula for the ENT, which was not being used by governments, including that of China, to monitor their retail markets.

Francois Bobrie, economics professor at France-based Unversite de Poitier, said governments considered the ENT a measure to protect their local

retailers but generally did not use it, opting instead to set other requirements like outlet size that retailers had to meet if they wanted to develop their chain. For example, one of the requirements would be that an additional outlet must have a space of over 1,000 square meters to open in a specific area, he said.

It was not clear, however, as to how such stipulations would act as entry barriers to huge foreign firms that typically muscle in on domestic territory and send local firms out of business. It has been seen elsewhere that the entry of the foreign firms itself creates an unlevel playing ground because they have enormous capital and other resources that are impossible for domestic firms to match, local experts said.

Meanwhile, Vietnam has no law on the retail sector and the market has developed based on the Commercial Law and other related regulations, noted Fred Burke, director of law firm Baker & McKenzie Vietnam.

Former minister of Industry and Trade Truong Dinh Tuyen agreed that Vietnam needed a retail law but asserted that in the current situation, the Vietnamese government should apply the ENT.

Tuyen said the absence of ENT criteria was creating pressure on household-run retail establishments and reducing market transparency for foreign investors.

However, it was not easy to formulate the ENT in such a way that it would meet the twin goals of facilitating FDI in the retail sector through clear and transparent regulations, while at the same time preventing a market glut, the former minister said.

An official from the HCMC Industry and Trade Department said local officials lacked regulations as well as guidance to deal with applications from foreign retailers seeking licenses to open more outlets in the country’s most dynamic market.

“This is strange considering several international firms have already established their presence in the city,” said the official, who did not want to be named.

Foreign retailers including Korean Lotte Mart, Malaysian Parkson and German Metro Cash & Carry have open more than two outlets in Vietnam.

In a meeting with the municipal administration last month, members of the Japanese Business Association of HCMC asked for ENT guidelines so they would know what conditions they had to meet to develop their business here.

Representatives of Japanese firms said they were interested in the Vietnamese retail market, which was fully opened to foreign investors early last year, but they were hesitant to implement projects because they were not sure what they needed to do to pass the ENT test.

The Ministry of Industry and Trade said it was preparing ENT provisions that would apply to both local and foreign traders.

The ENT would be based on three criteria: the number of retail establishments, market stability and resident density, the ministry said.

Under one proposal being considered, local governments would establish a council to conduct the test and its outcome would need to be approved by the ministry.

Vietnam posted retail sales of US$65 billion in 2009, according to Tuyen. The nation’s gross domestic product last year was estimated at $80-90 billion.

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Welcome, don’t restrict foreign retailers: experts

Economic Needs Test could be a counter-productive entry barrier

A Lotte Mart outlet in Ho Chi Minh City’s District 11. Experts said it is better for Vietnam to encourage foreign retailers to come to the local market rather than restrict them.

Vietnam should encourage foreign retailers to come into the country and develop the immature market rather than restrict their entry, local and international experts have said.

They said at a conference in Ho Chi Minh City last week that the Economic Needs Test (ENT) the Vietnamese government is preparing would disadvantage the retailers in developing outlets and also make it more difficult for local officials to monitor the sector.

Any foreign firm wishing to open more than two retail outlets in Vietnam must apply for a license and pass the ENT criteria that the World Trade Organization allows each member state to establish in order to prevent market overkill in the retail sector.

However, ENT was a very difficult provision to create, said Robert Rogowsky, adjunct professor of International Trade at George Mason University’s School of Public Policy in the US. Instead, “it (the government) should try to create something healthy for the market.”

Rogowsky told Thanh Nien Weekly that it would be a problem for the government to devise and apply ENT for a market that is dynamic and fast-changing in different regions like HCMC, Hanoi and other areas.

The professor said it was better to spend time on encouraging foreign retailers to come and work with local producers and farmers rather than to create a formula for the ENT, which was not being used by governments, including that of China, to monitor their retail markets.

Francois Bobrie, economics professor at France-based Unversite de Poitier, said governments considered the ENT a measure to protect their local

retailers but generally did not use it, opting instead to set other requirements like outlet size that retailers had to meet if they wanted to develop their chain. For example, one of the requirements would be that an additional outlet must have a space of over 1,000 square meters to open in a specific area, he said.

It was not clear, however, as to how such stipulations would act as entry barriers to huge foreign firms that typically muscle in on domestic territory and send local firms out of business. It has been seen elsewhere that the entry of the foreign firms itself creates an unlevel playing ground because they have enormous capital and other resources that are impossible for domestic firms to match, local experts said.

Meanwhile, Vietnam has no law on the retail sector and the market has developed based on the Commercial Law and other related regulations, noted Fred Burke, director of law firm Baker & McKenzie Vietnam.

Former minister of Industry and Trade Truong Dinh Tuyen agreed that Vietnam needed a retail law but asserted that in the current situation, the Vietnamese government should apply the ENT.

Tuyen said the absence of ENT criteria was creating pressure on household-run retail establishments and reducing market transparency for foreign investors.

However, it was not easy to formulate the ENT in such a way that it would meet the twin goals of facilitating FDI in the retail sector through clear and transparent regulations, while at the same time preventing a market glut, the former minister said.

An official from the HCMC Industry and Trade Department said local officials lacked regulations as well as guidance to deal with applications from foreign retailers seeking licenses to open more outlets in the country’s most dynamic market.

“This is strange considering several international firms have already established their presence in the city,” said the official, who did not want to be named.

Foreign retailers including Korean Lotte Mart, Malaysian Parkson and German Metro Cash & Carry have open more than two outlets in Vietnam.

In a meeting with the municipal administration last month, members of the Japanese Business Association of HCMC asked for ENT guidelines so they would know what conditions they had to meet to develop their business here.

Representatives of Japanese firms said they were interested in the Vietnamese retail market, which was fully opened to foreign investors early last year, but they were hesitant to implement projects because they were not sure what they needed to do to pass the ENT test.

The Ministry of Industry and Trade said it was preparing ENT provisions that would apply to both local and foreign traders.

The ENT would be based on three criteria: the number of retail establishments, market stability and resident density, the ministry said.

Under one proposal being considered, local governments would establish a council to conduct the test and its outcome would need to be approved by the ministry.

Vietnam posted retail sales of US$65 billion in 2009, according to Tuyen. The nation’s gross domestic product last year was estimated at $80-90 billion.

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Draft decree seen cheering retailers

HCMC – The Ministry of Industry and Trade is putting forth a draft Government decree for public consultation, which is expected to create a legal foundation facilitating the setting up of distribution or retail business in Vietnam, an official said.

Pham Dinh Thuong, an expert in the Legislation Department under the ministry, told a workshop held here early this week that “the draft decree is expected to make management over distribution service more transparent and to encourage modern retail and local retailers.”

The forthcoming decree to replace the current regulations is aimed at setting up a legal framework for developing modern retail systems, meaning modern retail will be preferred to traditional markets, he told the workshop held by EU-Vietnam Multilateral Trade Assistance Project III. 

“It’s now just a draft decree and still in the process of collecting public feedback. However, it is expected to limit unfair competition,” said Thuong.

Many changes will be introduced in the new decree compared to the currently prevalent Decree 23 on distribution service management. Legal terms will be clarified to avoid confusion for investors, local and foreign alike, he said.

For example, the term ‘retail’ will be defined as the activity of selling goods directly to end-users being individuals and households.

In the current Decree 23, retail refers to an activity of selling goods directly to end-users, without clarifying whether end-users are individuals and households. Therefore, it causes confusion that a business buying materials for its production or construction might be considered an end-user.  

The controversial term economic needs test (ENT) will also be highlighted in the new decree to make criteria clearer for those foreign-invested enterprises who want to establish retail outlets in the country, according to Thuong.

The legal expert said specific criteria would be introduced when calculating ENT, including the population in a given area, the traffic situation therein, and the retail revenue among others. These criteria will constitute the formula for ENT.

However, beside the ENT criteria, authorities when considering an application for a second retail business by a foreign-invested enterprise will also prioritize those modern shopping facilities, Thuong said, explaining that the ENT formula would be applied flexibly. He added ENT would be the last resort taken by authorities to protect local retailers.

He, however, stressed that the new decree once issued would primarily seek to open the Vietnamese market wider to international participation.

Despite Thuong’s reassurance on the more liberal provisions in the draft decree, some participants in the workshop doubted the transparency and clarity in Vietnam’s management over retail business.

Robert Rogowsky from the U.S.-based George Mason University told the Daily that ENT poses a signal that investing in Vietnam would be uncertain and complicated. If used, it must be clear and transparent because vague, qualitative decision criteria lead to subjective and discretionary decisions.

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Retail sales up 26% in first eight months

HA NOI — Retail sales reached an estimated VND1 trillion (US$51.3 million) during the first eight months of the year, an increase of more than 26 per cent compared to the same period last year, according to the General Statistics Office (GSO).

A GSO report showed that tourism services saw the highest increase during the first eight months, climbing 35.4 per cent to VND90.4 billion ($4.6 million), while sales in goods and services rose 27.3 per cent to VND797.8 billion ($40.9 million).

Increasing foreign tourists arrivals during the period contributed strongly to these growth figures, said officials at the GSO's trade department.

The Viet Nam Retail Analysis for the 2008-12 period, carried out by global market research and information analysis company RNCOS, said the country was fast emerging as a preferred tourism destination, with an estimated compound annual growth rate of about 8 per cent during the 2008-12 period.

And tourist arrivals would help keep the country's retail sector busy, the report said.

In the first eight months, foreign retailers achieved a turnover of VND29.7 billion by selling goods and services in domestic markets, representing a year-on-year increase of 49.2 per cent.

The State-run sector, meanwhile, posted a revenue of VND103.9 billion ($5.3 million) from retail sales in the same period, while the private sector gained a turnover of VND345.9 billion ($17.7 million).

Analysts from the US-based Research and Market Company said the rapid growth in Viet Nam's retail market meant it remained an attractive destination for retail investment due to its strong GDP growth, changes in the country's regulatory structure favouring foreign investors, and increasing consumer demand for modern retail concepts.

"We expect that despite the 2008 financial turmoil, the retail industry turnover in Viet Nam will continue growing. Government support and favourable consumer confidence will result in positive outlook for retailers in Viet Nam," said the firm.

"Traditional retail channels will continue to dominate the market, but a Government decision to allow 100 per cent entry to foreign retailers under WTO commitments will mean that continued high growth is unrealistic," they said, forecasting that the country's retail industry would surpass $85 billion in revenues by 2012.

"We also expect a short wave of consolidation during the next four years as foreign retailers will try to consolidate their position and deepen their market penetration."

The GSO officials added that the upcoming holidays and growing consumption power would continue to fuel stronger retail sales towards the end of the year. — VNS

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Retail sector continues to post good profits

In contrast to the drop in exports, retail sales and service revenues posted a year-on-year increase of 26 percent to pass VND1,009 trillion in the first eight months of the year.

The General Statistics Office has also reported that tourist services recorded the highest growth, reaching 35.4 percent, followed by trade at 27.3 percent.

The retail market has maintained its high level of growth for several months now thanks to the Government’s stimulus packages, competitive prices and the “Vietnamese people use Vietnamese goods” programme.

Large businesses and supermarkets have promoted sales campaigns and reduced the prices of their goods to make them comparable or even lower than prices at the markets.

The Big C supermarket said that it will cut the prices of 500 items from September 1-29 to mark the Children’s Autumn Festival, which falls on September 22 this year, while Maximark will reduce the prices of around 300 items, mainly milk, cooking oil and beverages by 5-30 percent.

Despite its small scale, the domestic retail market remains attractive to foreign investors due to the lack of competitiveness, the publics increasing purchasing power and high ranking in the retail development index, say economists.

The country’s retail sector is predicted to earn around VND1,440 trillion this year.

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Retail sector continues to post good profits

In contrast to the drop in exports, retail sales and service revenues
posted a year-on-year increase of 26 percent to pass 1,009 trillion VND
in the first eight months of the year.

The General
Statistics Office has also reported that tourist services recorded the
highest growth, reaching 35.4 percent, followed by trade at 27.3
percent.

The retail market has maintained its high
level of growth for several months now thanks to the Government’s
stimulus packages, competitive prices and the “Vietnamese people use
Vietnamese goods” programme.

Large businesses and
supermarkets have promoted sales campaigns and reduced the prices of
their goods to make them comparable or even lower than prices at the
markets.

The Big C supermarket said that it will cut
the prices of 500 items from September 1-29 to mark the Children’s
Autumn Festival, which falls on September 22 this year, while Maximark
will reduce the prices of around 300 items, mainly milk, cooking oil and
beverages by 5-30 percent.

Despite its small scale,
the domestic retail market remains attractive to foreign investors due
to the lack of competitiveness, the publics increasing purchasing power
and high ranking in the retail development index, say economists.

The country’s retail sector is predicted to earn around 1,440 trillion VND this year./.

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Business boom sparks office market growth

The growing number of enterprises in Da Nang has "strongly affected" the city's office market, creating a strong demand for  more supply, according to UK real estate service provider Savills.

The number of enterprises in the city has been on the increase for over five years, with about 2,100 new companies receiving business licenses in 2009, Savills said in a quarterly report released last week.

Many overseas Vietnamese have opened businesses in Da Nang, which has led to more trading in the local office market, said the report.

Currently, there are 21 office buildings with a total area of around 66,344 square meters. “Savills anticipates that approximately 94,000 square meters of office space for lease from about 14 projects will enter the Da Nang market over the next five to seven years,” said the report.

As for the retail market, the company observed that the total retail area of approximately 72,000 square meters remained unchanged in the second quarter with no new retail centers. Occupancy rate reached 96 percent, also remaining stable quarter-on-quarter.

Savills said as the GDP per capita is on the rise in Da Nang, the city has great potential to develop its retail distribution network. “From now until 2012, the Da Nang retail sector is expected to accommodate about five projects, with a total area of about 48,000 square meters of retail space,” the company said.

The UK company also said more villa and apartment projects will enter the market over the next few years. In the second quarter this year, four projects were launched, including Vinpearl Da Nang with 39 seaside villas.

Wealthy Vietnamese are the major target purchasers for both villas and apartments in Da Nang, it said.

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Seminar helps boost retail market

The Ministry of Industry and Trade and the Multilateral Trade Assistance
Project III (EU-Vietnam MUTRAP III) co-organised a seminar on good
trading activities by foreign-invested businesses in Vietnam in
Hanoi on August 24.

According to experts,
Vietnam ’s distribution network is mainly through traditional retail
channels. Modern retail channels have been slowly developed and are yet
to change local consumers’ habits.

They stressed the need to encourage and create favourable conditions for businesses to develop modern retail channels.

Hoang Thi Tuyet Hoa, Deputy Head of the Planning Department under the
Ministry of Industry and Trade, said that to help the retail market
effectively operate, Vietnam has put distribution on the list of
conditional investments applied to foreign investors.

Since it joined the World Trade Organisation (WTO), Vietnam has
step by step allowed foreign investors to export, import and distribute
goods in order to ensure the adaptability and harmonious development of
the domestic market.

By the end of 2009, there
were 445 supermarkets operating in Vietnam , up 62 compared with
2008. Domestic enterprises opened 60 of these new supermarkets and
foreign businesses established two./.

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