Vietnam’s traditional retail segment needs restructuring for growth: experts

As e-commerce faces tightening regulations and taxes, traditional retail businesses in Vietnam have a unique opportunity to restructure and capitalize on the changing landscape to spur growth.

Retail sector poised for recovery

A recent report by KB Securities Vietnam JSC highlighted that the government has rolled out several measures to stimulate consumption, most notably the reduction of VAT from 10% to 8% for the first half of this year.

The firm believed this policy will help boost consumer demand, especially as 3.8 million people are expected to join the consumer class, which is a positive sign for segments like essential and fast-moving consumer goods.

Experts predicted that in 2025, the retail market will see greater activity as Vietnam’s economy gains more traction for stronger growth. The Ministry of Industry and Trade has affirmed that it will continue to implement measures to stimulate consumption and foster domestic market development in line with the Prime Minister's directions.

Furthermore, the upcoming Law on E-commerce is expected to reshape the legal framework, offering crucial support to small and medium enterprises (SMEs) in tapping into the digital market.

In the pharmaceutical retail sector, KB Securities said that the growing use of the internet will accelerate the expansion of online drug sales. Modern retail chains are gaining a competitive edge over traditional pharmacies, thanks to technological advancements, delivery services, and increased transparency.

Restructuring for growth

As demand shifts towards essential products, spending on fresh food and household goods saw notable increases of 21.3% and 12.2%, respectively, while spending on luxury goods dropped by 21%. This trend reflects a broader shift as consumers prioritize savings and financial security.

Vo Hoang Hai, deputy CEO of Nam A Bank, pointed out that while GDP is growing, the pace of growth remains sluggish, primarily due to a decline in personal consumption.

“Personal consumption accounts for 63% of GDP. However, it has steadily decreased since 2020, narrowing its contribution to GDP despite a boom in 2022. Retail goods growth is now far below pre-pandemic levels, hovering around 16%,” he said.

Echoing Hai’s analysis, Nguyen Anh Duc, chairman of the Vietnam Retailers Association (VRA), stressed the need for strong interventions to revitalize the retail market, with consumer confidence as a key driver.

He cited VRA statistics as showing that the growth of the commerce, services, and retail sectors is closely tied to GDP, typically with a multiplier effect of about 1.5 times. To achieve an 8% growth rate for the economy, this sector would need to grow by at least 12%, Duc explained.

Consumer confidence is critical to driving market demand, and Duc identified two key factors that impact it. First, for individual consumers, confidence is largely dependent on income. A stable income that covers daily expenses ensures consumers feel secure enough to spend, which ultimately fuels overall economic growth.

Second, from a business perspective, confidence is closely tied to the financial health of the enterprise. This requires direct and effective government policies to support businesses, particularly during uncertain times.

He emphasized that in order to maintain stable growth and surpass current levels, the retail market must undergo comprehensive restructuring, including upgrading traditional retail systems, modernizing business methods, and overhauling supply chains to optimize efficiency and enhance the value chain.

“First, traditional retail must be restructured. Traditional trade is currently facing significant stagnation and requires reform to adapt to the changing market dynamics. Second, modern trade must also undergo restructuring to create breakthroughs, particularly in e-commerce, non-store retailing, and personalized/ customized products and services for distinct consumer groups. This is essential for staying ahead and meeting the evolving needs of modern consumers,” Duc said.

Third, he emphasized the need to restructure the supply and value chains, saying they must be adjusted to optimize efficiency and increase overall value.