Vietnam has jumped to sixth place in the 2017 Global Retail Development Index (GRDI), released by management consulting firm AT Kearney.
Vietnam’s five-spot leap is attributed partly to liberalized investment laws that have helped boost the nation’s attractiveness to foreign retailers. The government has allowed 100 percent ownership by foreign retailers since 2015.
Foreign investment grew by 12.5 per cent last year, and the new free-trade agreement with the European Union is expected to further boost investments in Vietnam.
“Vietnam’s moment seems to have finally arrived,” says AT Kearney partner and head for Southeast Asia, Soon Ghee Chua. “The economy is shifting toward more privately owned businesses and higher-value exports, which are expected to boost incomes and consumption in the long term.
“With favourable government policies, a growing and young urban population and middle class, and strong GDP growth estimated at 6.6 percent for this year, foreign retailers have reasons to be positive about Vietnam.”
E-commerce also contributes, with sales expected to grow 22 percent to account for 1.2 percent of total retail by the end of this year. Steep online discounts and promotions are driving sales for now, says the report.
“However, businesses will have to be careful and devise a long-term strategy to sustain this growth without having to offer big discounts,” says Chua. “Nonetheless, new entrants and investors are making bets on the fast-growing market.”
Fastest growth
With pioneers as Circle K and FamilyMart, the convenience stores and mini-marts segment has achieved the fastest growth. Entering the market in 2009, FamilyMart plans to have more than 800 franchised stores in Vietnam by 2020. Meanwhile, 7-Eleven opens its first Vietnam store this month under a franchise agreement with Seven System Vietnam. The target is to open 1000 stores within the next 10 years.
Foreign supermarkets are also getting in on the action. Emart from South Korea has launched a $60 million shopping centre in Ho Chi Minh City, where Japanese retailer Takashimaya has opened a 15,000 sqm store at Saigon Centre, its first store in Vietnam. Lotte Mart plans to open 60 stores by 2020.
In its 16th edition, the GRDI ranks the top 30 developing countries for retail investment. It analyses 25 macroeconomic and retail-specific variables.
Asia Pacific emerges as the most dynamic region, accounting for half of the top 10 countries. India leads the way with a rapidly expanding economy and a consumption boom. Long the index leader, China drops to second place as the market matures, but the country still leads the pack in other areas, most notably e-commerce.
Elsewhere in the region there has been steady growth in modern retail, despite economic headwinds like Malaysia’s depreciating currency and Indonesia’s rising inflation.