Why is Vietnam’s retail market attractive?

September 26, 2016 / By  

Vietnam’s growing retail market has attracted the attention of foreign retailers. A series of famous retailers from Japan, Thailand, Korea and France have flocked to Vietnam, hoping to penetrate the market.

In 2014, the Berli Jucker acquisition of Metro Cash & Carry Vietnam for an enterprise value of EUR 655 million – the largest-ever Merger & Acquisition deal in Vietnam at that point – signalled the entry of the Thailand retailer into Vietnam. Later, another Thailand giant, Central Group, acquired Nguyen Kim Trading – Vietnam’s top electronics retailer – and BigC Vietnam – the second largest supermarket chain in term of store numbers in Vietnam.

In October 2015, Emart – the leading South Korean retailer – officially marked its entrance with a USD 60-million shopping centre in north HCMC. Also from South Korea, Lotte Mart has been quite successful with 11 supermarkets, a number expected to increase to 60 stores by 2020.

Most Japanese investors consider the success of Aeon in Vietnam a praiseworthy case in overseas investment. Aeon has four shopping malls in Vietnam and expects to reach 20 malls before 2020. Also from Japan, Takashimaya arrived in July 2016 as anchor tenant of downtown HCMC’s Saigon Centre retail mall.

Adding to three Simply Mart stores in HCMC, AuchanSuper, a major retail brand from France, is planning to open another 17 supermarkets by end-2017 in HCMC and 20 stores by 2020 in north Vietnam.

Thanks to increasing disposal incomes, big fashion brands such as Gap, Mango and Topshop have become the top choice of many young Vietnamese. In September 2015, Zara opened its first flagship store in HCMC. H&M will reportedly enter Vietnam early next year.

Young demographic with high potential growth

With 90 million people, Vietnam has attracted retailers with its relatively young population – 70% are aged between 15 and 64 years – who promise to be a key driver of robust market growth. Vietnam’s urban population is expected to grow 2.6% annually from 2015 to 2020, the highest rate among regional peers.

Chart 1: Urban population growth
Source: United Nations

Increasing middle and affluent class (MAC)

Increasing disposable incomes, rapid urbanisation and rising living standards make Vietnam one of the most dynamic emerging economies in South East Asia. According to the Boston Consulting Group[1], Vietnam has the fastest growing MAC in the region, which is predicted to double in size between 2012 and 2020, from 12 million to 33 million. MAC consumers, whose income is VND 15 million (USD 714) or more a month, will be a key group of potential customers for retailers.

Additionally, increasing international tourist arrivals and continuously improving infrastructure are also factors that make Vietnam an alluring market for retailers.

Overall, as the penetration of foreign retailers into Vietnam has increased, fierce competition in the retail playground has become more intense. This will put the retail market to the test and only retailers having the right positioning to meet market demand will gain market share.

[1] The Boston Consulting Group, Vietnam and Myanmar Southeast Asia’s New Growth Frontiers, Dec 2013, p.4         

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