Vingroup will use part of US$200m bond sale proceeds to build a mall in Ha Long Bay next year
[HANOI] Vingroup JSC, Vietnam's largest property developer and mall operator, will look beyond the country's two biggest cities to build shopping centres and woo the growing number of middle-class consumers.
The company, based in Hanoi, will use part of the US$200 million it raised from the sale of bonds last month to fund a seven-story mall in the tourist city of Ha Long Bay in 2014, chief executive officer Le Thi Thu Thuy said in an interview. It will also open malls in cities including Hai Phong, Can Tho, Da Nang and Binh Duong over the next few years, she said.
"Vietnam's consumer market has so much potential," Ms Thuy said yesterday in Hanoi. "It always makes sense to be the first big mall in any big city."
Options for consumers in Vietnam's urban cities outside of Hanoi and Ho Chi Minh City are limited, said Ralf Matthaes, a Ho Chi Minh City-based regional managing director at market research firm TNS.
Shares of Vingroup dropped 0.7 per cent in Ho Chi Minh City at open yesterday. The stock has climbed 18 per cent this year, compared with the 22 per cent gain in the VN Index.
Vietnam's middle class is growing. The International Monetary Fund estimates per capita income in Vietnam to almost double to US$2,174 next year from US$1,182 in 2009.
Lotte Group opened its sixth shopping centre this month in Phan Thiet. The mall, spread over 7,000 square meters, is Lotte's largest retail centre in the country's central region and the first by a foreign company in Binh Thuan province, according to website VietnamPlus, citing the local operator, Lotte Mart Vietnam.
Vingroup, which also develops residential properties and operates resorts, will consider malls in cities with population of more than one million. It plans to build shopping centres in Can Tho and Danang by 2016, Ms Thuy said. Vincom Retail, the division that operates the malls, will open its sixth shopping centre in two weeks in Hanoi. The company sold a mall in Ho Chi Minh City earlier this year.
Shopping centres can bring in traffic by offering entertainment and dining choices, TNS's Matthaes said.
Vingroup has taken note of Vietnamese consumers' penchant to go to malls for food and drinks, says Ms Thuy. Its malls have a higher food and beverage mix than is typical in Southeast Asia and is designed to be an entertainment complex, she said.
"In Vietnam, the dining culture is big and food and beverage brings in customers," she said. "People go to malls to eat and then shop."
The company opened its Vincom Mega Mall Royal City in Hanoi in July. Vingroup says the shopping centre is Asia's largest underground mall with more than 180,000 square metres of restaurants, shops, a skating rink and a waterpark.
Revenue from Vingroup's malls will reach about US$75 million this year, up from about US$58 million last year, she said. The company plans to begin construction of a megamall in Ho Chi Minh City in the second half of next year, she added.
Real estate leasing accounted for about 16 per cent of Vingroup's revenue last year, according to its financial statement.
Vingroup's strategy to increase recurring revenue from its malls and hospitality services is sound, said Dinh Thi Mai Anh, a Hanoi-based analyst at Saigon Securities, which has a "hold" rating on the company.
"It would be good for the group to maintain its stable cash flow when the overall residential sales segment does not show strong performance," she said. "This also eases pressure of debt payments."
Still, Vingroup's mall expansion comes as consumer demand cools. Retail sales rose almost 13 per cent in the eleven months through November, the slowest pace since at least 2005, according to government data. Vietnam's economic growth of 5.25 per cent last year was the weakest since 1999. The government forecasts the economy will expand 5.4 per cent this year.
With the economic slowdown, price-sensitive consumers have turned to traditional mom-and-pop stores and neighbourhood open- air markets for everyday needs, Mr Matthaes said. Sales at shopping malls and other modern outlets increased 11 per cent this year, slower than the 19 per cent pace in 2012, he said.
Developers should be considering building more affordable centres that cater to middle class consumers, he said.
"Everyone's building these five-star shopping malls no one can afford. They should be building two- or three- star malls which would make it affordable for tenants and consumers."
Vingroup raised money from an overseas bond sale last month as it prepares to boost its mall operations, Ms Thuy said. The company announced in May that Warburg Pincus LLC, the private- equity owner of Neiman Marcus Group, is leading a consortium to invest as much as US$325 million. - Bloomberg