Vietnam verges on a retail revolution
HO CHI MINH CITY - Retailing in Vietnam is starting to change, with malls emerging to meet the tastes of those with rising wealth and aspirations. Vietnamese developers are leading the charge, but international trade deals will open up the market to foreign retailers, possibly spurring the greatest interest from foreign developers.
Vacant shop space, despite almost overwhelmingly being of the narrow, deep and often dingy shophouse type, does not stay empty for more than a few days before new tenants move in. "It's very rare that you see an empty shop in Ho Chi Minh. Most shops are still shophouse retail, about five meters wide," says Marc Townsend, CB Richard Ellis' (CBRE's) Vietnam managing director. "Rents are creeping up." Awareness is growing that shophouses do not necessarily offer the best environment for displaying products, nor encourage customers to linger. "Now more and more developers and retailers are looking for wider space, square layout and better lighting," says Townsend.
Overwhelmingly, Vietnamese family businesses still dominate the retail sector, with few owning more than a few shops. But bigger players are starting to emerge, building chains such as Khai Silk, an upmarket silk weaving concern, and Citimart, a grocer whose branches are getting larger, becoming supermarkets. Others remain behind the scenes, winning concessions for foreign chains, especially in cosmetics, thus needing smaller units.
If clothing retailers like Benetton and Mango are en route, Hong Kong brands Esprit and Giordano cannot be far behind. There are a handful of department stores, though perhaps only one or two are well-managed. Generally, the layout and lighting are poor, the space plagued by columns and other signs of bad or unsuitable design.
"Proper, international-standard retail has been very successful, but there aren't that many of them. They are concentrated along Dong Khoi," says Brett Ashton, property consultant Chesterton Petty's Ho Chi Minh director. Dong Khoi is a thoroughfare in Ho Chi Minh City's Saigon district lined with boutiques, tourist emporia, hotels and restaurants. Its architecture is largely French colonial. Rents, around US$120 per square meter, are equivalent to those in Chicago.
In Hanoi, a few streets in the bustling old Vietnamese mercantile quarter bear comparison, though it seems something similar to Dong Khoi will emerge in the former French Indochina administrative quarter, whose streets, lined with elegant and handsome buildings, radiate out from the restored Opera House to recreate a slice of Paris on the Red River. Diamond Plaza, Saigon's first modern mall and office complex opened a few years ago, is just catching the economic boom. Now competition, of sorts, is emerging. An Dong Plaza in Cholon (District 5), a 60,000 square meter development with four floors of retail plus 18 five-star hotel floors above, soft-opened in November. Most tenants are locals. "Local retailers are predominantly distributors, they want to expand off Dong Khoi to reach a wider audience," says Ashton.
However, despite strong demand and almost zero supply, not all malls will rack up profits. "A lot of builders think that if you build it, they will come. Obviously that is not the case. You have to build at the right time in the right place," Ashton maintains.
An Dong's Hong Kong developer, Eric Chu, leads the Larkhall joint venture preparing to start work on an even larger project on a prime Dong Khoi site next year that will bring together retail plus apartments and a hotel above covering 90,000 square meters. That twin-tower development will soar 43 stories, making it the tallest building in Vietnam. Another Vietnamese consortium is working on Saigon Five, on the edge of Districts 5 and 10, within a 10-minute motorcycle ride of 2 million people. It will be the city's largest mall by far, four times bigger than Saigon's Diamond Plaza. Its target tenants are international brands that will spread over four floors. Above them will be a novelty in Vietnam, the Cineplex, plus a food court, 400 apartments and perhaps most importantly, a 2,000-seat wedding hall.
"That will be full most evenings," says Ashton, who counts Saigon Five as a client. "Wedding centers do phenomenal business here. So in addition to shoppers, diners, and movie-goers, you're going to have an additional 2,000 people funneling up and down the retail." Rising wealth and a desire to demonstrate have seen a return of lavish weddings commonplace before the communist era. A similar trend is apparent in China, too. It seems almost certain that a large wedding hall will be a feature of future malls across that country.
Though foreign retailers currently have to operate through distributors, they are looking for sites themselves in preparation for 2008, when trade deals with the United States, the Asia-Pacific Economic Cooperation group and the World Trade Organization kick in, opening up the market. "They will be able to get licenses to operate here. Then I think you will see a significant boom," says Ashton. "The fast-food companies are already looking."
Northeast Asian brands and department stores are as likely to set up shop as their Western competitors, given that they already dominate manufacturing investment. "The biggest investors are Korean, Taiwanese and Japanese groups," says Townsend. Foreign fast-food chains are also savoring the opportunities. "There's only KFC here now, but we've been contacted by quite a lot of groups." Success of Vietnam's home-grown café chains, Trung Nguyen and Highlands Coffee, suggests the right formula could strike gold in Vietnam. In some ways, Hanoi and Ho Chi Minh are reminiscent of Bangkok in the early 1990s, when McDonald's and 7-Eleven had but a few branches. A decade later, they, and local imitations, dominate malls and shopping areas.
By David Fullbrook - Asia Times - November 24, 2004
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