VF Franchise Consulting

Foreign retailers ready to spend

Jul 30, 2018

Foreign retailers ready to spend

Photo: Viet Tuan

Investment from new and existing foreign retailers continues to pour into Vietnam.

The Vietnamese subsidiary of lifestyle and household item retailer Miniso opened a new store on Bui Vien Street in Ho Chi Minh City’s CBD last month. The grand opening of Miniso Bui Vien is a sign of the brand’s development in Vietnam and continues its mission of bringing to Vietnamese consumers affordable quality products with a perfect shopping experience.

Miniso has been developing rapidly since it entered Vietnam two years ago and now has more than 30 stores, primarily in Hanoi and Ho Chi Minh City. “We are happy that Vietnamese consumers trust in us and we are also honored that we provide both convenience and a great shopping experience,” Mr. Ted Lan, General Director of Miniso Vietnam, told VET. “We are confident about our strategic development plan for the future.”

Booming market

Over the last few years Vietnam’s retail market has seen an explosion of lifestyle and household item retailers that sell affordable products. According to Mr. Sean T. Ngo, CEO of VF Franchise Consulting, their strategies appear to be working well but will need to be balanced with securing the right retail locations, as rental costs in Vietnam are notoriously high and only second to Singapore. Popular foreign retailers such as Miniso, Daiso, Mumuso, Uncle Bills, and many others from Asia and Europe continue to flourish in the country.

Ilahui, invested by V.I.C Retail, saw huge potential in Vietnam’s retail market when it opened its first store in Vietnam, in 2016. Its target customers are from 20-40 years with a good sense of fashion and a high income. “This group are important strategic customers for many retail brands in Vietnam,” a representative from Ilahui told VET. Prices at Ilahui stores are affordable, from VND22,000 to VND400,000($0.9 to $17.5).

Miniso has always advocated a philosophy of quality of life and respecting the needs of its customers. It dedicates itself to providing them with quality, creative, and competitively-priced products, most of which cost from VND43,000 to 500,000 ($1.9 to $21.8) and are popular among customers from 15-35 years. “This is our target customer segment in Vietnam,” Mr. Lan said.

Japan’s Daiso arrived in Vietnam in 2006 and sells lifestyle and household items but has a different approach, selling everything at the one price of VND40,000 ($1.7). After 12 years in the country it has just six stores, with the latest opening in Hanoi last May.

The Central Group-backed Komonoya one-price brand, meanwhile, has eight stores, mostly in Hanoi and Ho Chi Minh City, five years after arriving in the country.

According to the report “The Attractiveness of the Retail Sector in Vietnam” released by JLL Vietnam last year, higher disposable incomes, accelerated urbanization, and rising living standards have seen Vietnam become one of the most dynamic emerging economies in Southeast Asia. Boston Consulting Group, a strategic consulting firm in the US, reported that consumers earning over VND15 million ($715) per month are customers that provide the potential for retailers like Miniso and Ilahui to really take off.

Retail sector in Hanoi

Source: CBRE Vietnam, Mar 2018

Retail sector in HCMC

Source: CBRE Vietnam, Mar 2018

Location key

Despite differences in strategy, location is a key factor in the success of all retailers. The more stores a brand has, the better the level of awareness among consumers. “Location is always one of the major challenges for Miniso in Vietnam,” Mr. Lan confirmed. One challenge comes from other retailers in the market. In the Retail Development Index prepared by A.T. Kearney, Vietnam’s retail market rose to a ranking of sixth, higher than developed markets such as Singapore, Hong Kong, and Indonesia and further evidence of the potential the market holds.

Vietnam is highly regarded thanks to its low market saturation and its ability to grow well. Saturation in both Hanoi and Ho Chi Minh City is lower than elsewhere in the region, such as Jakarta, Kuala Lumpur, and Bangkok. This has prompted many foreign retailers to enter the country and a “war” over good locations was inevitable. Rents in Vietnam, meanwhile, especially in big cities, continue to reach record highs. Miniso therefore focuses on optimization and developing operations at existing shops, improving and enhancing performance and making the brand competitive.

While the representative from Ilahui agreed location is an issue, the key factor remains products, which need to be innovative and meet needs. No brand can survive without the right products, he said.

“The overall market environment in Vietnam is full of opportunities,” Mr. Lan added. “Customers enthusiastic about shopping and are willing to try new products and brands. As for how much revenue can be generated, it depends on whether the brand can adapt to this environment and win the hearts of consumers. Miniso is very aware of what type of environment we are in and we spare no effort in meeting the various demands of customers. Over the past two years we have also made clear plans for the next brand layout.”

CAGR – Convenience Stores

More to come

The number of fashion brands in the “convenience store” segment is still less than ten, according to local analysts, presenting space for new entrants to emerge. Convenience stores are continuing to rise in number from continued expansion by existing players, according to a report on the first quarter of 2018 from CBRE Vietnam. The outlook for the category remains bright, with consumer trends shifting further towards convenience as Vietnam’s retail market transforms from traditional to modern.

The Central Group has announced plans to open dozens of Komonoya stores in Vietnam by 2020. Mumuso Vietnam targets 80 stores this year and 200 by the end of 2019, while Miniso expects to 80 this year and 200 by 2020. Ilahui, meanwhile, will focus this year on investing in the quality of its products and services and will move from small stores to flagship stores with areas of 250-300 sq m this year.

Other foreign lifestyle retailers are planning to enter Vietnam if they can find the right franchisees or partners, including Latt Liv and Flying Tiger Copenhagen from Europe and Dollar Tree Stores and 99 Cents Only Stores from the US. The European retailers are likely to arrive before their US competition.

Fashion retail will continue to grow and develop as the supply of good real estate increases and alleviates the already high rental costs, Mr. Ngo said. “Until there is a better balance between rental supply and costs and consumer demand, many fashion brands will fail while existing entrants seek to expand further. Vietnam remains a very attractive market for many international retailers.”

Source by Nghi Do – Vietnam Economic Times.

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