Vietnamese retail market

VIETNAM’S THRIVING RETAIL MARKET VIETNAM’S THRIVING RETAIL MARKET ＮＮＮＮＮＮＮＮＮＮ, 18E124021 Economics, Economics 2018/01/09 TEIKYO UNIVERSITY 1 VIETNAM’S THRIVING RETAIL MARKET Vietnam’s Thriving Retail Market Thanks to improving economic circumstance and more trade partnership engaged over the recent years, Vietnam retail sector has been followed the sustainable growth in 2017 Many giant multinational companies such as Lotte, Central, Aeon, Auchan, etc have poured investment into Vietnam and raced to win the market share in the retailing market, making the industry more and more attractive and competitive The report aims to discuss market forces of Vietnam retail market using PESTEL analysis which help to assess the impact of the external environmental factors on retail market Besides, the transition of consumer preferences owing to global trends toward conveniences fostering the growth of online retailing market is another main focus of this report The report will apply the Porter Forces framework to identify the competitive landscape of the industry as well as the attractiveness of the market for prospective new entrants Market Forces of Retail Industry in Vietnam Retailing can be conceptualized as all activities involving in selling goods/services to final consumer for individual use or non-business purpose The principle functions of a retail company throughout its distribution process could include the following activities (Kotler & Armstrong, 2012) (i) (ii) (iii) (iv) (v) Collecting and classifying products from various suppliers and producers; Providing end-users with information about the products via advertising, promotion and display; Conducting market research, providing feedbacks to distribution channel; Product inventory and care; Accommodating sale facilities for distributing products to end-users by establishing strategic sale policy, product display, credit policy, logistics and after-sale services to consumers Current situation of Vietnamese retail market Vietnam retail market grew 10.9% in 2017 as compared to the year 2016, reaching the value of USD129.6 billion (Atsushi, 2018) Main factors of the industry growth can be robust economic growth, increasing population, rising middle class, transition in consumer’s consumption patter, improving purchasing power and the influx of overseas retailers The Vietnam retail sector has continued to maintain its momentum of growth, which is driven by the economic and social development, as well as the increase in population, rising consumer confidence and net worth Hence, retail sector in Vietnam is forecasted to expand at a compounded annual growth rate at 12.4% over the period from 2013 to 2018 Thanks to positive political, social and economic factors in Vietnam, the increasing number of international 2 VIETNAM’S THRIVING RETAIL MARKET company pouring investment in Vietnamese retail market has encouraged market players to expand their business by investing into product portfolio and operational process to maintain the market position in such a keen competitive landscape In return, end-users are beneficial from promotional and advertising campaign, which aims to stimulate the demand of customers as well as from broadening product portfolio Besides, many retailers with the objective of profit maximization have expanded their distribution networks in rural areas and target to more customers Such factors contribute to the stable growth in Vietnam retailing market in 2017 In addition, increasing disposable incomes and the expansion of middle-income people, along with the fact that Vietnamese consumers have increasingly interested in foreign brands and been willing to pay a premium price for branded products and services have appealed the entrance of many foreign players into Vietnam market Over the period 2015 to 2017, Vietnam retail market has witnessed considerable mergers and acquisitions between local and international firms In specific, VinGroup Joint Stock company acquired Maximark supermarket chain and commercial centres from An Phong Investment Joint Stock Company (Quynh, 2015), while Aeon – a giant Japanese retail corporate group acquired 30 percent of Fivimart and 49 percent of Citimart (Aeon, n.d) This is also due to the tax incentives and favorable investment policy adopted by Vietnamese government which allows foreign owned companies to own 100 percent share of business in Vietnam and multiple trade partnership agreements engaged to reduce the tariffs Macro-Environmental Analysis The-following-framework outlines an environment analysis using-PEST-for-Vietnam-retail market Table 1: PEST Analysis for Vietnam retail market Forces and Its Impacts on Trends in the Market Economic Forces Economic systems 3 Level of impact company/products on Important ＮDirect affect to operation of business Vietnam ＮSocialist-oriented market economy ＮA multi-sector market economy with critical role of government The majority of industries are regulated by the governments VIETNAM’S THRIVING RETAIL MARKET Forces and Its Impacts on Trends in the Market Economic growth rate/ Per capita income Level of impact on company/products Very important ＮPositive correlation between per capita income of customers and spending Vietnam Inflation rate Important ＮInflation rate is one of the most important indicator of GDP growth ＮRising inflation may cause decrease in buying power of consumers Important ＮInflation rate is 3.5% (Trading Economics, 2017) and expected to fluctuate and reduce to 3% in 2020 Growth of retail sector Unemployment rate Labor costs Legal and Political Forces FDI policies/ Foreign Affairs 4 Important ＮHigher unemployment rate links to lower purchasing power, then diminish sales Important ＮKey to cost-advantages for business Important ＮGDP is 6.8% (Trading Economics, 2017) ＮPer capita GDP is nearly USD 2,343.1 (Trading Economics, 2017) and forecasted to rise steadily along with economic growth rate ＮIn 2017, the market size in terms of sales of retailing industry is 2.265.420 billion (Marketline, 2018) ＮUnemployment rate was recorded 2.1% (World Bank Group, 2017) and forecasted to rise up to 2.7% in 2020 Very low and competitive ＮThe country aims to become the world retailers selling laborintensive products (P., 2016) Minimum wages has become higher in main cities and lower in rural regions ＮSince Vietnam joined into WTO (11 Jan 2007), it has oriented policies that encourage FDI enterprises and foster the development industries (e.g Decree No.103/NQ-CP) VIETNAM’S THRIVING RETAIL MARKET Forces and Its Impacts on Trends in the Market on Vietnam ＮAs of now, the country has formed economic and trading relation with 165 nations worldwide Relatively stable ＮThe country does not experience dramatic change in regulatory and administrative systems Political situation Important ＮUnstable political environment will influence business strategies and domestics consumption Level of corruption Important ＮHigh level of corruption demands bribes and incurs high costs of operating business through bureaucracy procedures Investment guarantees Very important ＮUnfair treatment for foreign investors will lead to obstacles for franchising retail chains or appealing investment to remit abroad their capital and legal proceeds Tax issues Very important ＮFor business which import branded products, high imported tax rate incurs high cost of the business ＮVietnam government adopts many favorable tax incentives for foreign owned companies Very important ＮAffect the consumption of consumers ＮThe country has a relatively young population with 40.53% number of population under the age of 24 (Trading Economics, 2016) ＮRise in nuclear family and youth spending ＮPeople tend to follow the convenient trends and consume branded goods and expel counterfeit products Socio-cultural Forces Characteristics of population 5 Level of impact company/products People’s preferences Very important Customer’s concerns Important ＮDespite the fact that corruption remained exists in different level of authorities, the Vietnamese government has put effort to enhance the anti-corruption legislation and national law enforcement ＮThe government assures fair treatment to different types of investors to attract foreign companies ＮCapital and legal assets will not be expropriated or nationalized Legal proceeds and assets are allowed to remit abroad ＮHigh quality of the products VIETNAM’S THRIVING RETAIL MARKET Forces and Its Impacts on Trends in the Market Technological Forces Mobile online ordering system Level of impact on company/products ＮUnderstanding customers concerns help the company improve their products and services to grasp customer needs Vietnam Important ＮReduce the number employees at the counter ＮAvoid long queues ＮPopularity of smart phone use among Vietnamese, especially youngsters of ＮDiversifying of the products ＮNegative publicity (e.g scandals) From-Table-1, stable-politics-and-favorable-policies-for FDI can stimulate-foreign-retail players to enter in Vietnam market, increase the intensity of both internal-and-external-competition Besides, characteristic of young population, rise in real disposable income and busier lifestyle of Vietnamese can boost revenue of retail industry However, forecasted-increase-in-unemployment-rate-is one factor that the companies can consider for their pricing strategy due to high price-elasticity of demand The companies can take advantages of low labor cost to follow the cost-leadership strategy Thriving of Online Retailing in Vietnam Owing to the fact that Vietnamese consumers put more focus on the convenient factor in their purchasing and consumption pattern, two emerging distributing channels in Vietnam in recent years including convenience store and internet retail have recorded the fastest growth (Marketline, 2018) In 2017, non-store based retailing, primarily internet retailing played a significant role in the stable growth of Vietnam retail market This is thanks to the internet penetration in Vietnam and rising number of smart phone users, which facilitates consumers to access the online shopping Adapting to this emerging trend, many giant retailers in Vietnam have pursed the omnichannel strategy to optimize the approach to endusers and maximize their sale volumes by adopting flexible payment, delivery, return and pre-order methods Such factor has led to the booming in e-commerce in retail in Vietnam market Vietnam online retail industry grew up to 20.7% in 2017 to reach a value of more than USD 32 million (Marketline, 2018) The sector recorded revenue of USD1.4 billion in 2017 Online retailing has enhanced the competitiveness of a company by utilizing virtual trading platform established by communication 6 VIETNAM’S THRIVING RETAIL MARKET technology It creates multiple differences between traditional retailing and internet retailing, which are summarized in the below table Dimension Nature Traditional form of retailing Traditional form rely on direct interaction between seller and buyer Party involved Direct involvement by purchaser and seller Market scope Normally limited in physical facility The commercial transaction is directly conducted by the parties involved Direct information exchange Transaction forms Information platform Distribution channel to end-users Placement Sale method Information gathering Producer -> wholesaler -> retailer -> end-users Time and location can be limited within the working hours Product display at physical stores Market survey gathered by sale staff Internet retail E-retail is performed by the global computer network supported by Internet to facilitate purchasing and service Beside purchaser and seller, the service provider is also involved in the transaction Unlimited scope Indirectly transaction via the platform Possibly exchange via virtual market Business -> internet -> end-users 24/7/365 worldwide Delivering information and images through the webpage or mobile application By gathering customer’s feedback and comments via the Internet By deploying such benefits of internet retailing, more and more retailers have followed the omnichannel retailing thanks to the internet penetration and growth of retail technology According to Rigby (2011), an omni channel retailing can be understood as an integrated sales experience that combine the advantages of physical stores with the benefit of information exchange of e-commerce Omni-channel originates from the need and potential need of customers who appreciate branding and their experiences in purchasing behavior By adopting the Omni-channel, retailers can expand the business in terms of geography without the requirement of a physical establishment, and easily diversifying in terms of product line to capture the market share by customer base segmentation The market analysis using Porter five forces to identify the competitive landscape of the industry is summarized in the figure next page 7 VIETNAM’S THRIVING RETAIL MARKET Market Analysis for Online Retailing Market Supplier power – Low to moderate ＮReliable and secure ICT system is a need for online retailer ＮRetailers can procure products from different suppliers Ｎ Power of online retailers enables them to directly sell to consumers Threat of Entry – High Threat of Substitutes – Moderate ＮBrick and mortar retailers have increasingly sought to online sale channel Industry competitiveness – High ＮLow cost of entry An entrant does not need to spend substantial money on fixed assets, except for good ICT system and logistic facility ＮCritical success factors are cost advantage, location, diversification, enhance customer experiences ＮReduce price by high sale volume and gaining economies of scales ＮAdvantages of online retailing: low-price advantage of products and convenience of online shopping and fast delivery Buyer power can be evaluated as Moderate ＮThe number of purchasers using online retail channels has been increasing, with the rising of many online shopping channels ＮThe accessibility of internet and smart devices enable consumer gather information and easily conduct research for their purchasing decision Switching cost is virtually non-existent in this industry 8 VIETNAM’S THRIVING RETAIL MARKET Conclusion In conclusion, modern retail types such as online retail, supermarket and hypermarket have played a significant role in the development of Vietnam’s retail industry, owing to the fact that the industry scale are fostered to grow enough to support a market of over 90 million Vietnamese consumers Moreover, the rising number of smartphone users and popularity, accessibility of Internet throughout the country has continued the strong growth of online retailing in Vietnam Hence, internet retailing has brought various benefits for retailers It enables the business to expand geographically and working time and actively widens the business locally and internationally Moreover, internet retailing can help the retailers to reduce overhead costs such as rental and salary expenses, as well as reduces supply chain management related issues normally incurred in traditional retailing business such as inventory or late delivery 9 VIETNAM’S THRIVING RETAIL MARKET References World Bank Group (2017) Retrieved Dec 2017 from https://data.worldbank.org/vietnam/ Trading Economics (2017) Retrieved Dec 2017 from http://www.tradingeconomics.com/vietnam/ Rigby, D (2011) The future of shopping Harvard business review, 89(12), 65-76 P (2016) Labor cost in Vietnam Retrieved Dec 2017 from http://www.jwglobalconsultants.com/laborcost-vietnam/ Quynh, N (2015) Vingroup acquires Maximark Retrieved Dec 2018 from http://vneconomictimes.com/article/business/vingroup-acquires-maximark th Kotler, P & Armstrong G (2012) Principles of Marketing Pearson Prentice Hall 14 Edition Aeon (n.d.) About Aeon – history Retrieved 08 Dec 2018 from https://www.aeon.info/en/aboutaeon/history.html Atsushi (2018) Vietnam retail sales hit record $130bn in 2017 Retrieved Dec 2018 from https://asia.nikkei.com/Business/Business-Trends/Vietnam-retail-sales-hit-record-130bn-in-2017 Euromonitor Country Report (2018) Internet retailing in Vietnam Euromonitor Country Report (2018) Retailing in Vietnam Marketline (2018) Online retail in Vietnam 10 10 ... THRIVING RETAIL MARKET Conclusion In conclusion, modern retail types such as online retail, supermarket and hypermarket have played a significant role in the development of Vietnam’s retail industry,... increasing number of international 2 VIETNAM’S THRIVING RETAIL MARKET company pouring investment in Vietnamese retail market has encouraged market players to expand their business by investing into... internet retail have recorded the fastest growth (Marketline, 2018) In 2017, non-store based retailing, primarily internet retailing played a significant role in the stable growth of Vietnam retail market