Vietnam’s retail market was becoming less attractive, with its global ranking falling nine spots to the 23rd place in the 2011 Global Retail Development Index (GRDI) whose results were released on Wednesday by A.T. Kearney.

Illustration photo

The fall is the third consecutive year Vietnam’s retail market has lost its attractiveness in the ranking, down from the top position in the 2008 GRDI to the 6th place in 2009 and the 14th position last year. This year’s survey gives rankings for the top 30 developing countries for retail expansion worldwide.

Although consumer confidence is high in Vietnam, poor distribution infrastructure and expensive retail space remain barriers to entry into the ASEAN country by foreign retailers, A.T. Kearney says in the report.

Since the country opened its market to 100% foreign retailers in early 2009, with the entry of some retailers, such as Metro Cash & Carry and Lotte Mart, modern retail formats are growing more prominent in the country. Besides, some foreign retailers are expanding their distribution networks to Vietnam’s rural regions. However, up to now, traditional retail channels still dominate the market.

The report says the consolidation is expected among foreign retailers trying to deepen their market penetration.

“The U.K.-based Tesco and Singapore-based FairPrice plan to enter the market in this year,” says the report.

Besides the annual report, the consulting firm also gave a 10-year retrospective with lessons learned from a decade of retail expansion in developing economies. After ten years, what it saw in Vietnam’s market was that the slowness in infrastructure development and distribution networks hindered the retail expansion.

In many seminars in Vietnam, foreign retailers have complained about Vietnam’s application of Economic Needs Test (ENT) requirement before allowing them to open the second retail outlets.

Despite the downgrade of the index, Vietnam’s retail market is still attractive, with an expected market size of USD113 billion by 2012, according to the report. In addition, positive forecast in growth of the economy as well as increasing income make the country an attractive destination for global retailers.

According to a recent report of TNS Vietnam presented in a seminar held in Ho Chi Minh City on Tuesday, Vietnam consumers’ shopping habits are changing, with more spending on modern retail outlets due to convenience, indulgence, and health-related issues. Many local consumers say modern retail outlets gave them good access to new products, more confidence in food safety, and clean facilities.

The survey by TNS on spending of Vietnamese consumers this year showed that consumer confidence in 2011 increased one point to 79.

Retail revenue in Vietnam reached USD80 billion in 2010, and nearly USD40 billion in the first five months of this year, up 22.5% compared with the same period of the year 2010 if price increase is excluded, says the General Statistics Office.