Edgar Bonte, the CEO of Auchan Retail, recently told French newspaper les Echos that his company has decided to sell all of its 18 stores in Viet Nam.
The supermarket chain, present in Viet Nam for four years, is expected to be bought by a domestic retail group this week.
Bonte said it generated revenues of 45 million euros (US$50.4 million) last year but made losses. He did not disclose the latter figure.
Auchan is the last remaining western retailer in Viet Nam after French multinational retail chain Groupe Casino withdrew in 2016.
Others to exit, due to various reasons but mainly because of losses, include Germany’s Metro Cash & Carry.
In 2014 it sold its business in Viet Nam to Thailand’s Berli Jucker Corporation for 655 million euros (approximately US$879 million).
The Thai company took over the entire business operations of Metro Vietnam, including 19 distribution centers and the related real estate portfolio.
Metro had entered Viet Nam in 2002 as a wholesale business, and was said to have accumulated losses of nearly VND600 billion (US$26.1 million).
The Parkson retail chain owned by Malaysian conglomerate Lion Group has also suffered huge losses after eight years in this country. It has already closed Parkson Keangnam, Parkson Paragon and Parkson Viet Tower in Ha Noi.
Most recently Parkson Flemington in HCM City closed down and many think Parkson Cantavil will be next.
In the first quarter of 2018 results were bleak with Parkson incurring pre-tax losses of VND24 billion. It was the seventh consecutive quarterly loss for the company in Viet Nam, and analysts think it is only a matter of time before Parkson bids goodbye to Viet Nam.
The question is why foreign retailers are beating a retreat from this enormous market.
One major reason is that the market is highly attractive and as a result competition is incredibly fierce.
People’s incomes in this country of almost 100 million have been surging in recent years. According to Euromonitor, 40 per cent of the Vietnamese population is expected to become middle class before 2021.
The total household expenditure is expected to grow at an average of 11.4 per cent a year in the period between 2017 and 2021.
There has been rapid urbanisation, with the urban population increasing from 20 per cent in 1998 to 37.5 per cent in 2017 and to an estimated 37.4 per cent in 2021. This has been a positive factor for the retail sector.
Underpinning these is the robust growth in consumer lending. As of June 2018 consumer credit accounted for 18 per cent of the banking sector’s total outstanding loans compared to 11.4 per cent in 2016.
In January 2015 the Government permitted 100 per cent foreign-owned retail businesses to set up shop in Viet Nam.
At the same time tariffs on goods imported from the other 10 ASEAN member countries were scrapped under the ASEAN Free Trade Area. Last year almost 100 per cent of tariff lines were removed.
These have been a magnet for foreign retailers who are flocking to Viet Nam.
Mini-supermarkets and convenience stores have also been becoming increasingly popular, not only competing directly with traditional markets but also with large supermarkets like Metro, Auchan and Japan’s Aeon.
The number of convenience stores has been growing at an astonishing rate of 48 per cent a year in 2012-17.
To return to the rise and fall of Parkson and other foreign retailers, analysts said when Parkson entered Viet Nam its only competition was the much smaller Diamond Plaza. But in the next 10 years shopping malls mushroomed, and Parkson was unable to cope with the fierce competition.
According to an analyst the new malls overtook Parkson in three aspects: retail space, eating areas and entertainment.
Their interiors were more modern and they had more brands, offered more entertainment for families and had large food courts.
Besides while they were nimble and change rapidly to attract visitors, Parkson seemed to have suffered from inertia.
Of course, it is not be easy to make over a shopping mall since it requires massive investment.
Similar reasons can be adduced to explain the exit of other foreign retailers like Auchan and Metro.
In the case of Auchan its parent company is also restructuring with a focus on withdrawing from unprofitable markets.
Price hike fails to electrify shares
In late March power tariffs went up by an average of 8.36 per cent from VND1,720 (7 US cents) per kWh to VND1,864 (8 cents).
The price hike was expected to have a big impact on the shares of power companies, but it has so far been modest.
Vinh Son-Song Hinh Hydropower Plant Company’s shares rose by 10 per cent to VND18,900. Thac Mo Hydropower Plant Company’s shares gained 8.2 per cent.
The effect was similar on the shares of many other companies including Southern Power Corporation, Pha Lai Thermal Power Joint Stock Company and Ninh Binh Thermal Power Joint Stock Company.
Some even saw a drop in their price: Thac Ba Hydropower Joint Stock Company lost 0.9 per cent from VND27,100 on March 20 to close at VND26,100 per share on May 31.
Share prices of Ba Ria Thermal Power Company was down 14.2 per cent from VND14,100 on March 20 to VND12,600 on May 31 each.
There was a simple reason for this: though retail electricity prices have risen, it does not mean the prices power producers get from Electricity of Viet Nam (EVN) have. VNS
In fact, most power companies have set moderate profit targets for this year.
Thac Mo expects to achieve only VND215 billion, down almost by half from last year, when it earned VND507 billion.
Thac Ba HydroPower Plant Company targets VND137 billion, 33 per cent less than last year’s profits.
Many power producers are seeing profits eroding because of their bank debts.
Last year Vinh Son – Song Hinh Hydropower Company borrowed VND4.65 trillion from banks, or 58.4 per cent of its capital.
Thermal power companies have also had to cope with strong fluctuations in costs due to increases in the prices of coal and petrol and a weakening currency. — VNS
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