Photo: VET Magazine
A vibrant e-commerce market is well and truly taking shape in Vietnam.
by Mr. Pham Thai Binh / Head of Retail Leasing, Savills Ho Chi Minh City
- HCMC tops Vietnam E-commerce Index 2018
- E-commerce growth among world's highest
- Mobile e-commerce growing rapidly
Whispers began to circulate in March that Amazon will enter Vietnam. While we wait for the possible confirmation of rumors, let’s look at the development of everything e-commerce within Vietnam: where it has been, where it is now, and where it is going.
Quantity & quality
Many experts and consumers believe that traditional shopping is now dominated by the e-commerce industry largely due to the rise in popularity of online shopping platforms. Most consumers are no stranger to electronic devices and the advantages that these online platforms provide.
In addition to the more well-known shopping sites such as Lazada, Thegioididong, Sendo, Shopee, and Tiki, Vietnamese consumers also undertake retail therapy via social networks such as Facebook and Zalo. This form of shopping allows everyone to be the seller, and even though the sales segment is extremely small, the size of the market is quite large and has low overheads.
The low cost of the “sales via social network” method leads to low product prices and is popular among those who regularly use online shopping platforms. On the flipside, well-known websites that have invested heavily in human resources and operating systems are facing numerous difficulties from ongoing cost burdens.
A marketing budget plays a key role in any e-commerce set-up. The budget for marketing plans during the first two years of e-commerce fluctuates around $2 million, and a company’s “survival” will be determined after this period of time. Brands such as Beyeu, Deca and Foodpanda all failed within two years of launching, while other companies quietly withdrew from the market. Although it is considered to be fertile ground, the e-commerce market doesn’t always offer ease of business, with many brands in the field still attempting to find their footing within the sector.
Attractive but also thorny
“Attractive but also thorny” is how Savills’ retail department views e-commerce in Vietnam. According to the E-commerce and Information Technology Department, Vietnam’s e-commerce sector will grow by 25 per cent from 2018 to 2020. Over the next four years, the domestic e-commerce market is expected to be worth $10 billion. In addition to businesses, foreign investment funds and global corporations are also actively buying shares and investing in e-commerce sites in Vietnam, making the market increasingly vibrant.
Although the potential for development is real, obstacles the e-commerce sector in Vietnam may encounter include unsustainable development, monotonous information, lack of detail, lack of attractiveness, and an absence of the necessary tools to support customers.
According to a Savills study, more than 50 per cent of Vietnamese shoppers prefer to shop abroad because of product quality, service, payment, delivery, and promotions, etc. Shopping habits are still about “seeing, touching and trying”, with many customers browsing e-commerce sites beforehand in order to compare prices. As lives get busier, the time for “physical” shopping will be very limited, and e-commerce will become a more realistic form of consumerism.
In terms of market, online shopping in Vietnam still has many opportunities to develop but e-commerce retailers need to study consumption behavior further. Assimilation thinking makes it easy to access both consumers and merchants, especially for long-term, sustainable development. The entrance of large e-commerce companies such as Amazon will certainly create more incentives for this segment, as well as restart the race for market share. According to experts, by 2025, the e-commerce sector in Vietnam will be larger than that of other regional countries.
The remaining difficulties for e-commerce in Vietnam stem from a variety of causes. Many well-known brand names do not have e-commerce sales policies, leading to a lack of variety, with only domestic brands on offer. Normally, the profit margin of the domestic brand is about 40-45 per cent, while the cost for the e-commerce segment is quite high, at an average of 30 per cent. In order to limit the risk of returned goods, inventories, and seasonal goods, retailers must sell at higher prices. E-commerce is also a strong channel for retailers to raise branding awareness.
It can be said that e-commerce has endless potential but also contains a great amount of risk. Investors should place emphasis on the consumer culture of the Vietnamese and be cautious before planning to enter the market.
- online shopping platforms