A lack of a master retail plan has caused insecurity and confusion in the local retail sector, leaving many of them losing market share to their foreign rivals, independent market analysts have said.
Vietnam has become more attractive to foreign retailers, particularly those from the region, as the country ranked second this year among the 10 top locations for retailers in Asia.
According to the "The Liveliness of Retail Markets in Asia –Pacific 2014" report that CBRE recently released, Vietnam has great potential thanks to its young population and ever-improving purchasing power from its growing middle class.
In CBRE's report, Hanoi and Ho Chi Minh City, Vietnam's two biggest cities, are included as two of the top 10 Asian cities for retail expansion in 2014.
Foreign retailers had flocked to the country in recent years to take advantage of the opportunities and enter the market at the right time.
Firms such as AEON, Dunkin' Donuts, Auntie Anne's, Starbucks and McDonald's have all opened outlets in the country.
The latest retail group is Thailand's Berli Jucker Public Company Limited (BJC), which bought the formerly German-owned Metro Cash & Carry Vietnam.
Although it is easier for Vietnamese companies to find locations, they are having a difficult time competing with their foreign rivals.
For instance, Ho Chi Minh City currently has 475 convenience stores, 350 of which are foreign-owned.
Singaporean Shop&Go, which arrived in 2005, became the leading convenience store chain in Vietnam after opening its 103rd outlet in April this year.
The US chain Circle K has opened 73 outlets since 2008, including 10 in Ho Chi Minh City since the beginning of the year.
Nguyen Tien Vuong, Deputy General Director of the Hanoi Trade Corporation (Hapro), said localities in the country had not developed retail plans suited to specific areas and based on local people's demand.
Thus, domestic retail firms were often unsure about where to locate shops and how to expand their distribution networks.
"Retailers like Hapro need specific policies from the Government that include planning of retail activities for such locations as resettlement areas, new residential areas and suburban areas, as well as information on consumer demand of the residents who actually live there," Vuong was quoted as saying in the Business Times newspaper.
"Also, because of a lack of planning, some foreign retail giants have been allowed to put up buildings next to domestic ones, which makes it difficult for locals to compete," he added.
Pham Xuan Tiem, former Director of the Hanoi Socio-Economic Research Institute (HSERI), said that, due to a lack of master planning, most supermarkets and trade centres were located in major cities, with 70 percent of them in Hanoi and Ho Chi Minh City.
Moreover, most of these modern retail establishments are in urban areas with high density, while only a few are in rural areas, which have great potential, Tiem said.
"At present, the number of first- and second-tier domestic supermarkets accounts for only 22 percent, and those that are third-tier account for up to 46 percent of the total.
"Meanwhile, small retail establishments often have a weak array of commodities, poor and inconvenient displays, and mediocre services," he said.
Phan The Rue, former deputy minister of the Trade and Industry, said the domestic retail market still had great potential for exploitation, but authorised agencies had not surveyed consumer demand to discover the most appropriate development plans.
"The imbalance among modern retail points between urban and rural areas has had a great impact on socio-economic development. Many retail points in the same locations not only waste human resources and land, but also create unhealthy competition," Rue said.
Nguyen Van Nam of the Vietnam Economics Science Association said it was necessary to have long-term coordinated development plans for all sectors, including the retail sector, so that investors could be confident about their competitive ability.
"Foreign retailers should be allowed to invest in the country based on master planning, particularly when they want to open a second location for their retail stores. This would ensure that that modern retail centres would be more spread out and less dense," said Vu Vinh Phu, Chairman of the Hanoi Supermarket Association.
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