The course of electronics retail in Vietnam

First, some good news. Schools will open again around March 15! Yay for the parents!

Second and the topic of the blog today: I saw some news today that Central Group had finally bought the final part of its share in Nguyen Kim (although it’s a little confusing - it has 100% of the retail subsidiary and only 81.53% of the parent). Oh, and it turns out that this is pretty old news - it happened back in June, but the story is from today, timed with Central Retail Group’s IPO.

Source: GSO, Deloitte, Statista

Anyway, I didn’t know the history of Nguyen Kim, the electronics store. It turns out that the company has not been able to keep up with its competition or the retail market as a whole, despite the massive growth in retail sales in Vietnam..

Usually, companies have to spend a fair amount of their time stealing market share to grow their revenues. But in Vietnam, with a fecund retail environment, just running in line with overall retail sales can be an effective model. You would still grow in the double digits.

Unfortunately for Nguyen Kim, it has not been able to do that. In fact, it barely seems to have grown at all. Back in 2014, it did about VND8.4tr ($420m) in sales. This is one of the last real figures we have. According to this report, the company averaged sales of VND9.3tr ($411m, less than previous because of a depreciating dong) on average from 2014-2016. Although this report says it had sales of just VND6.6tr ($292m) in 2015.

Then for 9M2019, the company revenue was approximately VND5.1bn ($220). If we assume that 30% of sales happen in 4Q (which might be a bit off, but is a good guess), the company probably will do only something like VND7.3tr ($315m) for the year.

Source: Company data. Note margins for DMX reflect overall MWG margins. Margin for Nguyen Kim is an estimate based on overall Central Retail Group margins.

To make a long story short: The company has seen declining sales over a long period, despite a massive increase in retail sales in the country. The company has around 60 stores (it’s actually kind of hard to get a specific number), while its main competitor, Dien May Xahn (DMX, like the rapper) has more than a 1,000, and it is only 9 years old.

DMX, which is owned by Mobile World Group (MWG) is killing Nguyen Kim. DMX had revenues of VND44tr in 9M2019. In January alone, it had VND7.9bn. MWG had a net margin of 3.9% in 9M, while Nguyen Kim was probably around 4% (my estimate based on overall margins for Central Retail Group).

Often, companies have lower margins as they grow, and higher margins when they stop investing. But that doesn’t seem to be the case for Nguyen Kim.

Consumer electronics and appliances is a tough business. Vingroup closed its Vinpro stores after investing a lot of money, including the acquisition of 200 Vien Thong A stores in 2018.

It will be interesting to see what Central Retail Group does now. They already had a lot of management control, but they might be willing to invest more, because they would reap all of the rewards. It’s hard to say.

Long term, I don’t see the sector getting any easier. Online will be increasingly important, and new online retailers usually have lots of venture capital money to spend on marketing incentives, making price competition extremely difficult. Both Nguyen Kim and DMX have online strategies, and it seems like DMX is doing alright (it’s hard to say for Nguyen Kim without have more data). Looking at BestBuy, it made a massive shift from selling goods to upselling services. That has really kept them in business and thriving.