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Vietnam’s retail market is slowing down

Vietnam’s retail market is slowing down

Monday 26, 12 2022
Some large retailers in Vietnam are currently halting or slowing down their business expansion amid concerns about an economic downturn.

Change in consumer spending patterns

Consumption trend in Vietnam is gradually declining in the context of rising interest rates and weakening value of the dong. In addition, the change in consumer spending patterns (asset effect) when the value of unrealized assets increases sharply in the context of investment channels such as bond market, stocks, real estate or digital assets all recording strong growth last year.

People's consumption power gradually decreased when all of these markets entered a strong adjustment period, forcing the value of unrealized assets to decrease. Most labor-intensive industries are facing great pressure.

Vietnamcredit Vietnam's export

It is forecasted that Vietnam's export growth will decelerate when weakening world demand forces the leather, footwear, textile, wood processing or aquaculture industries to narrow their production ranges. From the end of November, a Taiwanese footwear manufacturer, PouYuen Vietnam Co., Ltd. - the largest company in Ho Chi Minh City with more than 50,000 workers, has decided to give workers rotational leave in the next 3 months due to order cuts.

In Binh Duong - one of the largest industrial hubs of Vietnam, about 28,000 workers had to suspend their labor contracts and 240,000 people had their working hours reduced in October. This means about 20% of the workforce in Binh Duong were affected by the recession and this proportion may increase in the coming time.

Decreasing demand

Some retailers have been sending signals of consumer spending slumping since October. According to the business results in October released by Mobile World Investment Company (MWG), consumer demand was for mobile phone products and consumer electronics declined significantly, while groceries were still in the recovery period.

Vietnamcredit Mobile World Investment Company

MWG recorded a revenue increase of 3.3% in October compared to the previous month when its revenue reached VND 10,884 billion. However, it still decreased by 10.7% compared to the same period last year despite it was the peak consumption season.

Digital World Company (DGW) also released preliminary results for October. Accordingly, the company’s revenue fell 40% due to lower-than-expected sales of consumer electronics and smartphones.

Due to what is happening on the market, some large retailers are currently halting or slowing down their business expansion amid concerns about an economic downturn. Specifically, the expansion of the An Khang drugstore chain of MWG and Long Chau of FPT Retail has been delayed since the third quarter.

Compared to the beginning of the year, the number of Bach Hoa Xanh and Circle K stores also recorded a decrease. This shows the caution of retailers in the face of current market movements. As a result, listed consumer firms tend to continue to maintain a better financial position with low leverage and net cash positions.

Vietnamcredit VNDirect

VNDirect Securities Company forecasts that retail consumption in Vietnam will be strongly affected in the first half of next year and gradually recover its growth momentum in the third quarter of 2023.

Furthermore, the National Assembly approved the Resolution on State Budget Estimates for 2023 on November 11 2022, with the information that the base salary will increase by 20.8% as of July 1, 2023 compared to the previous year. Accordingly, consumption power may increase.

According to VNDirect's report, the current retail market of Vietnam still experiences a positive trend. Compared with the same period in October, total retail sales of goods as well as service revenue grew well at 25.3%, largely thanks to last year's low base rate, the General Statistics Office said.

Excluding the price factor, retail sales of goods grew 16.8% year-on-year, higher than pre-pandemic levels. Since the first quarter, Vietnam has resumed international flights, whereby revenue from the tourism segment has doubled compared to last year, recovering to 78% compared to the pre-pandemic period.

The luxury retail market will be less affected by the recession and tightening spending. Although it is still in its infancy, Vietnam's luxury market is expected to grow significantly thanks to the rise of a high-income population with increasing demand for luxurious items.

Source: theleader

Compiled by VietnamCredit

 

 

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