When it comes to emerging markets, the BRIC countries tend to hog the headlines, but Vietnam is a market worth considering, particularly for retailers.

There are a number of positive macroeconomic factors which make it an enticing market, both from a retailer’s and investor’s point of view. Vietnam’s GDP per capita growth rate has been one of the fastest in the world, averaging around 6.4%, and its revised Law on Investment, and recent free trade agreement with the EU, has made it more attractive to foreign investors.

Vietnam’s retail sector has recently been drawing a lot of attention due to its rapid urbanisation, growing middle class and youthful population (65% of its population of 93 million are 35 or younger). The country was also ranked No. 6 on the Global Retail Development Index, with retail sales leaping to $118 billion in 2016. Like many developing countries, F&B and grocery are experiencing a particular boom. Many foreign retailers such as Aeon, a Japanese supermarket chain, and Central Group, a Thai conglomerate, have gained a presence in Vietnam through acquisitions. Private equity firms have also shown interest with Warburg Pincus investing in Vincom Retail, the Vietnamese mall operator, and KKR backing Masan Group, a local F&B business.

However, there are challenges entering and operating in this country:

The last mile
The final leg of delivery is a challenge that is faced by many ecommerce sites when delivering to emerging markets, and Vietnam is no exception. Many rural areas in the country have poor infrastructure and are hard to reach because some people do not live in areas that are clearly named and signed, making delivery either impossible or unprofitable.

Distribution
In contrast to developed countries where products are distributed through channels such as supermarkets and specialist stores, Vietnam’s landscape is largely dominated by traditional wet markets and small, independent stores. Approximately a fifth of sales are made through “modern channels” and these retail concepts are still growing throughout Vietnam, but mainly in cities. Although it is forecast that 30% of the population will be online shopping by 2020, in 2016, consumers spent about $4.bn online, which is relatively small compared to other Asian countries.

Counterfeits
There is an abundance of counterfeit products in the country that mostly come from China. Biti’s, a Vietnamese footwear retailer, said that fake products costs its company “hundreds of thousands of dollars each year in lost revenue”. Although actions have been taken to tackle this issue, it is especially hard when many of the products enter the country through informal channels.

Vietnam is definitely one to watch. While the infrastructure and retail landscape may be challenging to penetrate without local knowledge, a few big retail brands such as Topshop, Zara and Starbucks have already entered the market, and there are plans for more to open in the coming year.

Melissa Yeunh