How Will COVID-19 Lockdowns Affect Vietnam Retail’s Transition Online?

With Vietnam last week ending a three-week national lockdown as part of a series of social distancing policies that have proven to be an effective strategy to curb the spread of COVID-19, brick-and-mortar retail brands are now navigating their way back into a post-lockdown world as consumers start heading back to stores.

While too soon to gauge how the lockdown affected traditional retail brands in the country of 95.5 million, it did place their expansion into eCommerce squarely in consumer crosshairs, offering a look at how traditional retailers can successfully emerge or falter on the other end of social distancing policies. And, even more significantly, how brick-and-mortar will fare in the online world moving forward.

Expanding Retail Sector

Much like the rest of Vietnam’s rapidly growing economy, retail across the country has seen an impressive expansion in recent years. According to numbers released by the government’s General Statistics Office at the end of 2019, retail sales of goods were estimated at USD$161.7 billion, which marked an increase of USD$18.9 billion over the previous year.

This in part due to what McKenzie last year described as Vietnam’s “political stability, recent economic transformation, and growing middle class.” That same report noted that Vietnam’s retail sector ranks as the fastest-growing in Southeast Asia while being poised for rapid modernization.

A driving force behind the economic growth is the increasing presence of digital consumers in Vietnam who, according to data from We Are Social and Hootsuite, spend approximately seven hours a day online.

And in this mobile-reliant environment, traditional retailers are going up against a growing number of online players vying for market share.

Vietnam’s Leading E-commerce Players as of Q4 2019 according to Price.

While the numbers demonstrate a growing reliance on eCommerce in Vietnam, where traditional retail competes with brands such as Shopee, Thegioididong, Sendo, Lazada, Tiki & others for market share, the social distancing closures put traditional operations, who are at various stages of their move to eCommerce offerings, in the spotlight as to how they will compete in Vietnam’s increasingly competitive marketplace.

Traditional Retailers Online Shift

Dr. Long Thang Van Nguyen, Lecturer at the School of Communication & Design at RMIT University in Vietnam, told Branding in Asia that while the country’s retail brands were already transforming to more online-focused models to meet consumer demand, government lockdowns during the COVID-19 pandemic unexpectedly pushed them to increase efforts to engage consumers more effectively online.

“The COVID-19 crisis sped up the process of e-commerce for all brands,” said Nguyen.

“The consumer journey has now transformed from an offline to an online context for most of the touchpoints of the purchase process. As such, brick-and-mortar brands can find the chance to develop strong digital marketing activities, collaborate with the e-commerce platforms, which go together with the development of their own online distribution channels.”

For the most part, Vietnam’s e-commerce sector, along with much of Southeast Asia, is still in its early stages, with the “e-Conomy SEA” report last year from Google and Temasek finding that many players in the region still operate at a loss. 

“This underscores the importance of developing omnichannel strategies, and the need for them to curate coherent and seamless consumer experiences that integrate both online and offline consumer journeys across all their touchpoints.”

While the report added that Southeast Asia’s mobile-first consumers are the most engaged in the world, the success of the region’s emerging eCommerce industry hinges on overcoming logistical challenges, including “last-mile delivery” outside of tier-one cities, and a large percentage of online platforms still operating via cash on delivery.

In terms of how traditional brick-and-mortar retailers are making the transition to a greater online presence and how COVID-19 policies affected that, Deloitte Vietnam’s Consumer Industry Leader, Nguyen Vu Duc, told us that situations vary for brands operating in Vietnam expanding their offerings online.

“Besides the universal trends of concern, such as accelerating multi-channel integration and strengthening their supply chain, retail companies differ in their priorities for future strategic adjustments,” said Nguyen.

He added that post-COVID-19, things will be different and retailers could face unprecedented levels of change. 

“Take consumer expectations for instance, there is no doubt that the crisis will change them – more consumers will be online,” said Nguyen. “Price sensitivity might increase. Brand appeal might erode. Businesses’ competitive landscape will also change as some competitors will emerge weak from this crisis, while others will have boosted their strength.”

One concern, as Vietnamese consumers look for more online offerings, is how it will affect smaller retailers in the market who could find it challenging to keep up with larger, well-financed players, says Deloitte’s Nguyen.

“The increase in online grocery orders creates operational difficulties and possibly puts small and medium-sized grocers under more pressure,” said Nguyen. “These smaller chains do not have enough capital to invest in building their delivery infrastructure.” 

An additional area of concern for smaller retailers, Nguyen adds, is that “Delivery brings less profit to the stores compared to traditional in-store purchases.”

This falls in line with the other studies showing retailers that shift more of their operation online often enjoy an initial period of growth until additional expenses start eating away at the bottom line. These include infrastructure costs, shipping, and return expenses, along with significant costs of new customer acquisition to their platforms.

The Wake-Up Call

For now, industry analysts must wait and see, not only as to how Vietnam’s traditional brick-and-mortar brands will fare in an increasingly online consumer landscape but also how significantly social distancing closures pushed traditional retailers to fine-tune their online offerings to meet the sudden demand.

One thing for certain is that the lockdown likely served as a wakeup call to retailers transitioning to more online offerings and the importance of doing it right. 

“This underscores the importance of developing omnichannel strategies, and the need for them to curate coherent and seamless consumer experiences that integrate both online and offline consumer journeys across all their touchpoints,” said in a recent report from Deloitte looking at Vietnam’s digital retail landscape.

This was published in collaboration with our content partner, Branding in Asia Magazine

Bobby McGill
Bobby is the founder and CEO of Think Content Asia.

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