Vietnam’s retail pie sweet but hard to get: JLL

The real estate consulting firm said that with its population of more than 90 million, 70% of whom are between the ages of 15 and 64, potentially a key driver of strong market growth, Vietnam is attracting more retailers.

Meanwhile, other factors, such as the growth of tourism, help create more demand for retail. Infrastructure development also provides investors with more opportunities to develop retail projects outside central areas.

The potential of the Vietnamese retail market has attracted the attention of many regional mall and retail investors. The market has witnessed a surge in mergers and acquisitions (M&As) since 2014.

One example is the Bangkok-based Berli Jucker’s acquisition of Metro Cash & Carry Vietnam, the country’s largest M&A deal, in 2016.

Another Thai giant, Central Group, acquired Nguyen Kim Trading JSC, Vietnam’s leading electronics retailer, and Big C Vietnam, the second-largest supermarket chain based on the number of stores in the country.

South Korea’s leading retailer E-mart also joined the playground in 2015 with a US$60 million shopping mall in northern HCMC. Lotte Mart, which is also from the Northeast Asian nation, has been quite successful, with a series of supermarkets and shopping centers across the country.

AEON, one of the world’s leading retail groups from Japan, is gradually expanding its network, with a fifth center in Ha Dong District of Hanoi going into operation last November. Its Japanese compatriot Takashimaya has been in Vietnam since 2016 in a prime location in the heart of HCMC.

Strong rental demand has made prospects brighter for shopping centers, especially for projects in the central business districts (CBD). In the third quarter of 2019, occupied space remained stable at about 90% of compound annual growth rates in both the CBD and non-CBD areas.

The market is currently seeing tenants looking for properties larger than 1,000 square meters, making it difficult to find a suitable location at the existing retail centers.

Therefore, most tenants are waiting for future supplies or retail centers that are currently undergoing renovations and upgrades. Rents at these centers remain stable. A prime location in the CBD is still the preferred choice of retailers, recording the highest prices and strong growth.

“However, retail is still no walk in the park and players are being knocked out left and right by the fierce competition,” stated JLL Vietnam.

This is evident in the withdrawal of major brands, such as Auchan; the shrinking domestic network of Parkson; and the series of foreign convenience store brands struggling to gain market share or having to transfer ownership to domestic rivals, with Shop&Go being a prime example.

“The ups and downs of popular brands in the market speak to the potential of the local retail market but also show that the apples are not for just anyone to pick,” according to the firm.

In addition to the prerequisite of choosing a location that boasts a high population density with strong purchasing power, changes in consumer habits and competition from ecommerce has led to the development of new retail models. Retailing aligned with the target market is the decisive factor in a brand’s success.

AEON’s success with its “slow and steady” market entry strategy shows that it is crucial to understand consumer behaviors and select the right retail model. Working from a representative office in Vietnam since 2008, it was not until 2014 that AEON officially opened its first center, Aeon Mall Tan Phu Celadon, in HCMC.

“Choosing the right model that offers a prime spot for families to shop and play in based on market trends has brought this brand a great deal of success in its five years of operation,” said the market consultant.

However, for every success, there are multiple instances of failure, such as Parkson’s less persified tenant structure, which focuses too much on fashion and cosmetics, while paying little attention to dining and entertainment.

The market has a significant supply of retail space from commercial podiums in apartment buildings. This type of retail real estate is struggling to find a suitable direction and model due to its limitations in scope and concept, inexperienced developers and fierce competition.

According to JLL, these investors should focus on providing utilities for residents first. Other models, such as shared office space, education systems or even smart lockers, should also be considered.

For the sake of success, retail operators need to conduct careful studies to better understand the trends that will shape the retail market.