Despite lockdowns in Ha Noi and Ho Chi Minh City (HCMC) softening performance in Q3.2021, the long-term outlook for the retail sector looks promising as there are positive economic indicators and international retailers continue to open stores across the country. E-commerce will continue to grow, influencing the physical expansion plans of many brands.
There is no denying that Covid-19 has changed the face of retail. From enormous spikes in e-commerce activity to the mass closure of retail spaces during the lockdown, the way we shop was profoundly altered. Research suggests that the rise in e-commerce platforms will result in brands scaling back their physical expansions in the long term. Ms Hoang Nguyet Minh, Director of Commercial Leasing, Savills Hanoi, said: “Globally, the demands for physical retail spaces have been influenced by the rise in e-commerce and online shopping. There has also been a rise in online retail in Viet Nam, with brands like Shopee, Lazada, and Tiki seeing an enormous increase in the number of new users during the lockdown. Although physical stores often provide a better customer experience and have more impressive displays, brands are likely to reduce their physical expansion plans; while online retail will not replace physical retail, retailers will be able to reduce the number of stores by 50% and still maintain sales.”
Demand for retail space from Q4.2021 to Q2.2022 will focus on middle and high-end segments. Cosmetics brands, such as Sociolla, Beauty Box, and Nars, still need physical stores to showcase their products and to provide in-store sampling; these brands use e-commerce platforms to supplement consumption and will continue to focus on their physical expansion. Similarly, some mid- to high-end retailers such as international fashion brands, entertainment providers, and F&B businesses still favour physical stores to cater to customer demands for in-person service.
The lockdown has been particularly taxing for F&B businesses and they continue to face operational restrictions, such as operating at a reduced capacity or having to have a fully vaccinated team. Many F&B businesses have had to close or drastically scale back their operations, a hard knock for businesses that have such enormous overheads and starting costs. As retail emerges into the ‘new normal,’ forecasts expect that it will take longer to fill vacancies lefts by F&B tenants compared to other types of retailers. This being said, consumers still prefer in-person dining and there is an opportunity for F&B businesses (with comprehensive support from their landlords) to take advantage of the pent-up demand as HCMC and Ha Noi reduce their lockdown restrictions.
Not only have retailers had to adapt to the evolving retail world, but so have landlords. Given how unpredictable the market has been, landlords need to be flexible and open to negotiating their rental agreements and lease terms. For example, many of them now accept rent monthly, a change from the pre-pandemic arrangement of every six months for shophouse tenants and every three months for shopping mall tenants. Some landlords have also reduced the first year rent by as much as 30% to support tenants; others provide incentives such as free parking or advertising.
Looking to the future, this sector is likely to have a good performance in Q4.2021 thanks to the pent-up savings driving reward spending; the outlook for 2022 looks promising. Many international brands, such as Bath & Body Works, Sports Direct, and Prima Donna, are set to open in 2022, which shows that they are confident in Viet Nam’s long-term retail prospects. With GDP growth expected to reach 6.5% in 2022, Viet Nam’s economic performance is likely to support the sector in its recovery.