In Vietnam's retail landscape, the rapid rise of e-commerce is dramatically reshaping consumer behavior, especially in major cities like Hanoi and Ho Chi Minh City. According to a report from YouNet ECI and YouNet Media, e-commerce transactions in Vietnam are projected to reach a staggering $49.9 billion by 2028. This remarkable growth is reshaping the traditional retail market, compelling physical retailers to adapt to new consumer expectations.
E-commerce offers numerous advantages, including fast shopping, diverse product selections, and price comparisons, allowing businesses to reach wider audiences beyond geographic limitations. However, it also highlights certain drawbacks like product experience, delivery timelines, and product quality concerns. In this context, traditional retail spaces continue to play a crucial role, offering customers tangible interactions, personalized consultations, and building trust.
Matthew Powell, the Director of Savills Vietnam, notes the pressing need for retailers to adapt to this changing landscape by integrating online and traditional sales models. He emphasized, “Combining online retail and traditional stores will help businesses optimize the advantages of both” while ensuring consumers have a holistic shopping experience. Major brands are increasingly investing in this integrated model, balancing customer convenience with the intrinsic value of physical retail spaces.
Despite the burgeoning e-commerce sector, retail properties in Vietnam maintain strong occupancy rates. Savills' Q4 2024 market report indicates that retail occupancy in Hanoi remains stable at approximately 85%, while Ho Chi Minh City's figures are even higher at 93.5%. Hoang Nguyet Minh, Senior Director, Commercial Leasing Department at Savills Hanoi, points out, “The Vietnamese retail market is still too young for e-commerce to put pressure on demand for retail space.” While domestic brands note improved sales on e-commerce platforms, foreign brands are still prioritizing physical storefronts to establish presence before shifting focus to online sales.
Looking forward, the supply of retail space is set to grow significantly. By the end of 2025, Hanoi is expected to see an addition of 140,700 square meters of new retail space from four shopping centers and three retail podiums. In 2026 and 2027, an additional 174,100 square meters will come from seven more projects. Similarly, in Ho Chi Minh City, 12 new projects are anticipated to contribute around 165,429 square meters of retail space, marking a consistent growth rate of 3% per year.
The increasing availability of quality retail spaces is crucial for accommodating the rapidly growing consumer base, especially as Vietnam's population is young and increasingly affluent. However, the current retail landscape still struggles with a lack of premium commercial real estate, hampering the growth of more sophisticated retail offerings. “Compared to more developed countries in the region, our retail space is still modest in scale, quality, and experience,” adds Minh.
Bernstein analysts also point out that the future of retail beyond Vietnam, particularly in the U.S., will be significantly influenced by e-commerce growth. With current e-commerce revenues exceeding $1.2 trillion annually, accounting for 16% of overall retail sales, companies like Walmart, Target, and Costco are anticipated to lead this trend. Bernstein predicts that Walmart's media commerce segment could skyrocket from $4.4 billion to $10 billion, leveraging vast consumer data for targeted advertising.
Furthermore, the rising media commerce sector is projected to create a $100 billion industry by 2028. As the e-commerce sector accelerates, traditional retail still holds its ground, with significant return on scale acting as a defensive measure in the market. Political and economic shifts could further impact supply chains for traditional retailers, underscoring the importance of maintaining relevance in a changing landscape.
While transactional retailing faces fierce competition, sectors like DIY home improvement are likely to see a resurgence. Amid rising home prices and labor shortages, young homeowners from the millennial and Gen-Z demographics are expected to turn to DIY projects, which would benefit companies like Lowe’s and Home Depot.
In conclusion, the intersection of technology and physical retail creates dynamic opportunities and challenges. Both e-commerce and traditional retail must collaborate to effectively shape the retail environment in Vietnam and beyond. Listening to consumer needs while innovating will be vital as the landscape continues to evolve.