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VIETNAM RIPE FOR RETAIL, RIFE WITH CHALLENGES

By Edmund Mander

Vietnam beckons, retail developers say, describing a country ripe for development, though rife with hurdles.

“Come to Vietnam,” said Rik Mekkelholt, manager of retailer services at the CB Richard Ellis Vietnam office, speaking at July’s ICSC Asia Expo, and describing a country with a young, increasingly affluent population that is eager to spend money on nonessential goods. What people are hankering for are places to spend that money, he said.

The country ranks fourth this year on the global retail development index published by management consulting firm A.T. Kearney, behind India, Russia and China, in that order. Vietnam boasts the region’s second-fastest rate of gross domestic product growth (8.2 percent last year), behind China. About 65 percent of Vietnam’s 85 million people are younger than 35, and their appetite for trendy goods is fueling the country’s growing spending rate. Vietnam saw $37.5 billion in sales last year, and spending is rising by 20 percent yearly, with expectations being that it will reach $53 billion by 2010, Mekkelholt said. Per capita income, meanwhile, which now stands at $726, is rising 23 percent annually. And more young spenders are on the way. The Vietnamese are having about a million babies a year, a 1.2 percent annual population increase.

Little wonder, then, that the economy is growing, a fact not lost on developers or retailers, domestic or foreign. Vietnam now has 250 supermarkets, and this is growing by 25 percent a year, Mekkelholt said. Some foreign luxury retailers have set up shop in the country, including Louis Vuitton and Gucci. Foreign direct investment reached $9.2 billion last year, with Singapore accounting for the largest share.

Some malls are up and several others are in the works, with room for plenty more. But for all its potential, Vietnam lacks transparency. Sometimes it is hard to determine who holds the lease on a property — all land is owned by the government — so there is little security of tenure, he said. “The approval process is not clear,” said Richard Leech, a director at the CBRE Vietnam office. A good local partner might be able to speed the process, though, he said. Foreign retailers and developers are required to have a local partner, though this will ease up in January 2009, when foreign firms will have the option of buying out their Vietnamese partners. Other headaches include a shortage of skilled labor and the lack of consistently good local materials.

Despite all the challenges, there are about a dozen malls in Ho Chi Minh City now, providing a total of just 110,000 square meters (about 1.2 million square feet). They enjoy a 92 percent occupancy rate, according to CBRE. Retail rents in Ho Chi Minh City range between $45 and $72 per square meter.