Customers shop at a BigC supermarket in HCM City. (Photo: VNA)Hanoi (VNS/VNA) -Experts have forecast a tough time ahead for the domestic retail, with manystore owners struggling to pay rent after being hit hard by the COVID-19pandemic.
Some stores have shut up shop,and despite a slump in business caused by social distancing, rental costs arepredicted to rise, especially in big cities like Hanoi and HCM City.
Nguyen Hoang Tuan, who hasowned a convenience store for many years in HCM City, said that landlords oftenincrease rent each year.
“The initial rent is 50 millionVND per month. After 4-5 years, this rent would increase to 100 million VND permonth,” he told the Thoi bao kinh doanh (BusinessTimes) newspaper.
“If the tenant is not able topay they must leave. The landlord would offer the rent at 100 million VND permonth for the next tenant. That means the rent never stops increasing.”
Economic expert Nguyen Hoang Dungsaid retailers need to develop a flexible and sustainable multi-channel retailmodel to avoid closure.
In addition, they shouldstrengthen co-operation with landlords to find solutions during this difficultperiod, he said.
Hoang Dieu Trang, Savills Vietnam'sSenior Manager on Commercial Leasing, said tenants of shophouses have reducedin Hanoi, especially in the busy business areas, after the social distancingbecause of “supply chain disruption and restructuring of businessactivities of the tenants.”
The busy business areas, suchas downtown Hanoi, Hoan Kiem Lake and the Old Quarter, were often known ashaving a lack of retail space, however, the pandemic has left almost half oftenants unable to pay their rent.
Control of goods at the bordergates with China due to the virus has severely affected the supply of goods forbusiness activities in those areas. Many are finding it almost impossible tocontinue their business, she said.
Space is an important factorfor retailers to compete with others so they try to pay high rent for theretail space until they could not afford it due to revenue reduction,especially retail chains of brands in the food and beverage industry.
A drop in retail sales andfootfall in shopping malls as a result of travel restrictions and tightenedsafe distancing measures have dampened retailer sentiment and leasing activity.
Trang Bui, head of markets atJLL Vietnam, said retailers must prepare to navigate a period of elevated risksto cash flow and increased operational costs arising from a slump in consumerdemand and disruption to supply chains.
Due to the COVID-19, somelandlords in shopping malls had reduced rental rates by 10-30 percent inFebruary and March, with top priority for general retail groups like food andbeverage and entertainment.
Other landlords have consideredreducing rent by 10-50 percent, depending on the performance of each tenant.Particularly, one landlord also offered a rent deferment of 30 percent fromMarch to May to the following months in the year when the situation expectedlyimproves, Trang said.
Although challenges are likelyto prevail at least in the short term, there have been some encouraging signsemerging as Vietnam is on the road to recovery.
Some developers are alsosupporting their retail tenants by providing online ordering and deliveryservices at their end, taking away the burden of operational costs incurredwith using the services.
The ‘new’ operating environmentwill require landlords and retailers to proactively adjust strategies to meetpotential changes in consumer patterns and business practices, includingleveraging technologies to enable cashless transactions and online deliveries./.
VNA
