Specialized retail model and development prospects in Vietnam - 9

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76

63

100%

80%

60%

40%

20%

0%

2005 2006 2007 2010

Traditional retail Modern retail

Table 3.3. Market share between traditional retail and modern retail in Hanoi and Ho Chi Minh City

3.1.2.2 Modern retail model is growing strongly

(Source: Nielson)

Along with the development of socio-economy and the integration process, modern retail models such as supermarkets/hypermarkets, shopping malls, etc. have appeared in Vietnam. Currently, many Vietnamese enterprises are investing in modern trade (supermarket chains, convenience stores, etc.). According to a trade expert, in 1995, Vietnam had only 10 supermarkets and two shopping malls, but in 2007, there were at least 140 supermarkets/hypermarkets, 20 shopping malls and nearly 1 million square meters of retail space under development. Despite such rapid development, most types of retail in Vietnam are still small-scale, fragmented and not operating as effectively as expected. According to business analysis, with a market of nearly 85 million people, an annual GDP growth rate of over 8% and total consumption of up to tens of billions of USD in recent years, Vietnam is an ideal destination for multinational distribution corporations. Representatives of many international real estate consulting corporations said that the attractiveness is also due to the fact that the rental prices of commercial centers in Vietnam are quite cheap and flexible. In addition, Vietnam is also a gateway to

to some markets such as India, China, Cambodia and Laos. The recent increase in investment by retail and supermarket corporations shows a huge potential in this field in Vietnam. In fact, before Vietnam became a member of the WTO, many large distribution corporations were present in Vietnam such as Metro Cash & Carry (Germany), Bourbon (France), Parkson of Lion Group (Malaysia), Zen Plaza (Japan), Diamond Plaza (Korea)... According to the Ministry of Industry and Trade, these foreign retailers currently account for about 10% of the domestic market share. In addition, according to the Ministry of Planning and Investment, many other multinational corporations have expressed their intention to enter the Vietnamese market, such as Wal-Mart (USA), Carefour (France) and Tesco (UK), along with many Asian corporations such as Dairy Farm (Hong Kong) and South Asia Investment (Singapore). Among these, Wal-Mart is the most formidable competitor because its annual revenue is 3 times larger than Vietnam's GDP. It is believed that wherever Wal-Mart locates, within a 3 km radius, no retail store will be able to survive. Along with the change in consumer habits is the change in the development trend of the Vietnamese retail market. The trend and positive move in recent times of domestic retail enterprises is to join together and build long-term strategies, increase professionalism, with special attention paid to training human resources and modern management, while overcoming inherent weaknesses in finance and logistics. Typical examples are a series of supermarket chains and convenience stores of Coop Mart, Hapro Mart, Phu Thai Group, Vinatex Mart, Fivimart, Thuan Thanh Cooperative - Thua Thien-Hue... In addition, there are also links and cooperation between Vietnamese retailers and foreign retailers, and with manufacturers and suppliers of goods. Along with the increase of foreign retailers is the increase in new, modern and convenient business types. The trend of buying and selling, merging businesses in the retail market is also very vibrant.

3.1.3 Vietnam's WTO accession commitments on opening the retail and distribution market

Vietnam officially joined the WTO in November 2006 and signed a commitment to join the WTO on opening the retail distribution market, according to which Vietnam has committed to about 110/115 sub-sectors of 11 service sectors according to the WTO classification. Previously, Vietnam also implemented its commitment to open the market within the framework of ASEAN and the Vietnam - US Trade Agreement (BTA). In the coming time, the scope and level of opening the retail distribution market of our country will be greater because Vietnam will participate in a series of other FTAs ​​and fully implement its commitments to join the WTO.

According to the commitment, the opening roadmap in the retail - distribution market is as follows:

• Regarding the level of market openness : Vietnam commits to all 4 types of distribution according to WTO classification: retail, wholesale, commission agency and franchising.

• Regarding ownership ratio : as soon as Vietnam joined the WTO, foreign enterprises were allowed to operate in the form of joint ventures, in which foreign investors accounted for no more than 49% of the charter capital; from January 1, 2008, Vietnam opened its doors to 100% foreign-owned enterprises, with no limit on the capital contribution ratio of foreign investors (but the company must be established in the form of a joint venture capital contribution); from January 1, 2009, enterprises were allowed to be established in the form of economic organizations with 100% capital of foreign investors.

In fact, Vietnam opened its market earlier than its WTO commitment by allowing large distribution corporations to establish 100% foreign-owned supermarkets and open a series of supermarkets in Vietnam's provinces and cities.

• Regarding the establishment of retail establishments: according to the provisions of Appendix No. 01 of Decision No. 10/2007/QD-BTM: "The distribution rights of foreign investors are associated with the right to establish the first retail establishment". However, this does not mean that when a foreign investor has been licensed to exercise the distribution rights, he or she will automatically be allowed to open a retail establishment anywhere in the locality. When

Establishing a second retail facility is considered based on the economic needs test - ENT (number of retail facilities with the same operating model and product types within the locality; stability of the local market; population density in the area where the retail facility is expected to be located; suitability of the investment project with the planning of the province or city)

• Regarding the presence of goods: The list of permanently excluded goods includes items that foreign investors will never be allowed to participate in distribution in Vietnam such as: rice, sugar, cigarettes and cigars, crude oil and processed oil, pharmaceuticals, explosives, books - newspapers - magazines, precious metals and precious stones, recorded items on all materials (tapes, discs...).

List of goods with a limited time limit (foreign investors are entitled to distribute according to the roadmap that Vietnam has committed to such as: from January 1, 2009 tractors - motor vehicles - cars and motorbikes; from January 1, 2010 alcohol, cement and clinker, fertilizer, iron and steel, paper, tires (except airplane tires), audio-visual equipment).

Vietnam's official membership in the WTO creates both opportunities and challenges for Vietnamese retail distribution enterprises. Enterprises must accept the risk of the collapse of the entire system or accept new competition. However, Vietnam did not open its retail distribution market until January 1, 2009, so domestic enterprises have had time to adapt and compete. And reality also shows that Vietnamese retail enterprises are not passive but are gradually adapting to the new situation and linking up to build long-term strategies, enhancing professionalism. To do this, Vietnamese enterprises must constantly strive by promoting their advantages, creating prestige in the market, establishing a network of branches to obtain competitive goods sources, and establishing a widespread distribution network. In addition, enterprises need to focus on accumulating capital and resources to build and develop many distribution corporations that are strong enough to compete with foreign countries.

The Vietnam Retail Association needs to promote its role as a bridge to connect businesses, focus on improving the competitiveness of retail businesses and be a useful information channel to exchange information to help businesses in the same Association take advantage of opportunities and overcome all challenges.

On the other hand, there are some items such as rice, sugar, medicine... that foreign enterprises are not allowed to distribute, so Vietnamese enterprises need to seize the opportunity to develop their own systems to bring benefits to consumers.

3.2 Prospects for developing specialized retail models in Vietnam

Specialized retail stores have a very bright future in the Vietnamese market, especially in large cities such as Hanoi and Ho Chi Minh City, where consumers in these cities have the highest spending levels, especially young consumers. The development of the specialized retail model in the rural market is not really promising in the near future due to obstacles related to shopping habits at traditional markets and low income.

It can be said that young consumers are the factor to promote the development of this new retail model because they have modern shopping needs and specialized products. The development prospects of this model in Vietnam can be divided into several product groups as follows:

3.2.1. Cosmetics group

The strongest growth prospects in the specialized retail model are stores specializing in cosmetics and products and services related to beauty and health. Records from the retail market of 14 economies in the Asia - Pacific region by the organizers of the award "Top 500 retail Asia - Pacific 2006" show that the chain of stores specializing in beauty - health care products (health & beauty stores) and sports are developing with a growth rate of 32% in sales area. Such a significant increase is due to young consumers, who are now very interested in

to your figure and health. In Vietnam, the trend of buying cosmetics and pharmaceuticals at specialized stores continues to account for a high proportion, so this type of store has an average annual sales growth rate of about 12%. Specialized retail stores can develop in many directions: a retail store of only one cosmetic brand, a large store that sells a collection of products from many brands, or a larger store specializing in beauty care that includes all services from selling products to beauty and health care. However, no matter which direction it takes, this is a promising land for businesses to participate in because the demand of consumers, especially young consumers, for beauty care products and services is constantly increasing.

3.2.2 Fashion product group

Along with the consumer trend of investing more in health care is the trend of investing more in time. Instead of the need to eat well and enough, consumers now pay more attention to clothes and accessories. This need has created the opening of a series of stores specializing in fashion. The trend of factories and fashion companies expanding their system of specialized stores and fashion shops to sell products designed and produced by themselves is growing, for example, two quite famous office fashion brands are Nem and Ivy. In the future, this will be a fertile land for specialized retailers to exploit, not only domestic fashion brands but also the appearance of a series of foreign fashion brands, focusing on young customers with high incomes and fashion trends updated with the world. Along with fashion, footwear and accessories retailers have also achieved very rapid growth. The number of stores increased by 13%, sales increased by 12% and sales area increased by 9%, in line with the trend of consumers increasingly paying attention to their appearance.

3.2.3 Sportswear group

A group of specialized stores that also have strong growth prospects thanks to young people are stores specializing in sports equipment. Vietnamese consumers are increasingly concerned about health, as shown by the increasing number of people participating in sports, so the demand for sports equipment also increases. Gradually, specialized stores selling sports equipment and stores selling branded goods such as Nike and Adidas will develop very strongly. The introduction of new sports due to the dynamism of young people also stimulates the development of specialized retail stores. For example, some new sports have become fashionable such as Yoga, opening up business opportunities for manufacturers and specialized stores. Or recently, baseball has just appeared in Vietnam, but immediately there have been stores specializing in selling necessary equipment and accessories for this new sport. Over time, as sports have grown stronger, sports stores have also become more specialized in their products, such as stores specializing in soccer, basketball, baseball, golf, badminton, swordplay, etc.

3.2.4. Furniture group

Furniture stores are listed in the Top 500 retailers this year thanks to a 14% increase in sales compared to last year. With rising incomes, Asian consumers are increasingly decorating their homes. In developed markets, small households, or young single-headed households who are working, tend to be more "open" in buying furniture. Bright prospects for furniture specialty stores are emerging. In our country, thanks to the application of modern technology and improved design standards, they have occupied an important market share. Moreover, thanks to rising incomes, the need to improve living conditions in each family is growing, creating favorable conditions for expanding the business scale of this product group. Accordingly, specialty stores continue to be a type of trade that

Consumers choose, in which, the type of specialized stores according to the system will have a growth rate of over 29%/year, higher than the type of independent specialized stores (over 11%/year).

3.2.5. Electrical appliances group

Regarding durable goods, the Ministry of Industry and Trade assessed that the demand for information technology and communication products is very high. Electronic products such as color television sets, VCD and DVD recorders are also becoming increasingly popular. Air conditioners, refrigerators, washing machines, microwave ovens, blenders, irons, rice cookers, etc. currently have a major market share in Hanoi and Ho Chi Minh City at about 45% and will increasingly expand to other urban areas and rural areas.

Currently, consumers buy these products mostly through two types of electronics supermarkets and specialized stores established by companies. In the near future, the shopping trend at electronics supermarkets will develop at the highest speed.

3.2.6. Food group

For food supermarkets, there will also be a gradual differentiation aimed at older consumers. Accordingly, separate fresh food supermarkets and separate dry food supermarkets will be formed.

With fresh products, the traditional market system in Vietnam is very competitive in terms of price, freshness and convenience for consumers. Meanwhile, supermarkets in Vietnam do not have a guaranteed cold storage and delivery system, so they do not attract consumers to use fresh products in supermarkets. However, in the future, when these conditions are guaranteed and people's awareness of food safety is high, supermarkets specializing in vegetables, fruits, fresh food and dried food will develop.

3.2.7. Automobile group

Cars are a commodity that promises to have a very strong increase in demand in the near future in Vietnam due to people's income. In the first 3 months of the year