Consumers tighten their wallets, retail industry faces difficulties

December 26, 2022 - 09:00
The pent-up consumption trend during the pandemic is gradually decreasing in the context of rising interest rates and a weakening Vietnamese đồng making consumers' to tighten their purse strings.
Consumers shop at a Co.opXtra supermarket in HCM City. — VNA/VNS Photo

Compiled by Yến Vy

HÀ NỘI — The consumer outlook report from VNDirect Securities Corporation shows that the pent-up consumption trend during the pandemic is gradually decreasing in the context of rising interest rates and a weakening Vietnamese đồng making consumers tighten their purse strings.

Besides, the report said that the fading of the “wealth effect” - the psychological phenomenon that refers to a change in consumer spending patterns following a rise in the value of unrealised assets.

All investment channels including the stock market, property market, bond market, and digital asset market enjoyed a robust rise last year.

As all these markets have entered a sharp correction this year which scaled down the unrealised asset value, thus will dent consumer spending power. Most labour-intensive industries are facing headwinds.

The country’s export growth is expected to decelerate amid weakening global demand, thus textile, footwear, aquaculture, and wood processing have to scale down their production.

With signals from the market, large retailers are slowing down or postponing their business expansion amid growing concerns over a downturn.

MWG’s An Khang pharmacy chain expansion has been delayed since the third quarter of this year.

The number of Bách Hóa Xanh and Circle K stores also saw a reduction to prove the caution of retail chains to the current market status.

Thus, listed consumer companies tend to maintain better financial health shape with low leverage and net cash position.

Recovery in the second half of next year

VNDirect expects Vietnamese consumption will be hit hard in the first half of next year and gradually recover to growth momentum from the third quarter as rising interest rates slow down as the Fed rate gradually eases; a gradually stabilising macroeconomy in Việt Nam, helping to increase people's confidence in consumption; and the recovery of consumption in the EU and the US regions to bring back orders to Vietnamese industrial zones.

In addition, the National Assembly passed a Resolution in November on the state budget estimate for next year with the base salary to be increased by 20.8 per cent compared to the current VNĐ1.8 million (US$75) per month from July 23, which can increase the income of the cadres and civil servants in Việt Nam.

VNDirect said that the current Vietnamese retail market in general still had a positive trend.

According to General Statistics Office, total retail sales of goods and services grew a healthy 25.3 per cent year-on-year in 10 months, largely thanks to the low base last year.

If excluding the price factor, retail sales rose 16.8 per cent year-on-year, even higher than the pre-pandemic level.

Việt Nam resumed international flights from the first quarter, and revenue from tourism doubled last year, recovering to 78 per cent of the pre-pandemic level.

Google data showed that the country’s mobility to retail and recreation has exceeded the pre-pandemic level by 4.6 per cent, and mobility to grocery and pharmacy has increased by 27.5 per cent compared to pre-pandemic.

According to Statista, Việt Nam’s personal luxury goods market reached US$976 million last year and is expected to grow 6.7 per cent per annum to US$1 billion by 2025.

Another report by Knight Frank said that there were about 72,135 individuals in Việt Nam who had liquid assets of more than US$1 million last year.

Retail in the race

Analysts said that the retail market was entering a period of "symbiosis" of mutual benefits.

Foreign enterprises when entering the Vietnamese market often look for a local partner.

Domestic partners are enterprises that understand the market, culture and business environment to choose a site, devise a development strategy in accordance with consumer tastes, and contribute to the success of investors.

Experts said that in the long term, the Vietnamese retail market was also driven by other factors, in which the strength of the domestic market with 100 million people and a developing middle class were factors that attract many foreign investors.

When foreign enterprises see the potential retail market, domestic enterprises are also trying to take advantage of their home-field strengths to make a breakthrough.

The Việt Nam Retailers Association said that although the retail market in the country has had the participation of many foreign investors, the enterprises holding market share were still mainly domestic brands such as Masan and MWG.

It can be seen that the picture of the retail industry is bright with competition between domestic and foreign enterprises.

And in this fierce competition, Bùi Tá Hoàng Vũ, Director of HCM City Department of Industry and Trade, said that domestic retailers should have a very methodical development strategy to keep market share, and maintain the existing advantage.

In addition, Vũ said that in order to compete effectively in the new situation, domestic retailers needed to be more proactive in the digitalisation process.

If not applying information technology through e-commerce, they would lose a huge advantage, he added. — VNS