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Extending its reach

Released at: 16:16, 04/02/2018

Extending its reach

Photo: Viet Tuan

FPT Retail, Vietnam’s second-largest mobile retailer, aims to record high growth in the competitive retail market into the future.

by Minh Do

FPT Retail (FRT) has made many positive changes in recent times and represents a substantial portion of consolidated revenue at its parent company, the FPT JSC. Now an affiliate of FPT, not a subsidiary, Vietnam’s second-largest retailer needs to identify further growth opportunities given the country’s saturated mobile phone market. 

Efficiency per outlet

FRT owns two retail chains: FPT Shop, which specializes in technology product retail, and F.Studio, which sells genuine Apple products and accessories. To seize opportunities and develop on the right track, it has rapidly expanded its chain and revenue has increased as a result. Turnover rose from VND1 trillion ($44 million) in 2012 to VND10.5 trillion ($462 million) in 2016, making it Vietnam’s second-largest retailer. 

In the first eleven months of 2017, pre-tax profit reached VND301 billion ($13.2 million), up 41 per cent year-on-year. “Its business results saw impressive growth,” Bao Viet Securities wrote in its latest report. “Profit margins continue to improve as it enters stable operations.” FPT Shop, according to Euromonitor and Retail Asia Publishing, is the most efficient retailer in terms of revenue per sq m of floor area. 

FRT has an advantage in the premium product segment, according to the Bao Viet report, with products retailing for VND13 million ($570) or more accounting for 43.9 per cent of all turnover, while the industry average is 30.8 per cent. As the largest provider of Apple products, the company is much better placed than its rivals. The number of FRT outlets rose seven-fold in the 2012-2017 period, and revenue will grow 27.2 per cent in 2017 and pre-tax profit 30 per cent, according to forecasts by HSC Securities, due to it opening 95 new outlets. 

Given the rise in revenue that has accompanied new outlet openings, FRT plans to continue doing so. Seven new FPT Shop outlets are being opened every month on average. From now to 2020, it will open 100 annually, for 700 in total. The challenge for any retailer, however, is location. But the criteria for opening new opening new outlets, according to CEO Nguyen Bach Diep, includes opening one near where a rival outlet is recording average monthly revenue of VND3 billion ($132,160). 

Expansion is also the name of the game for the F.Studio chain, which now numbers around a hundred. Apple products sold in Vietnam total $900 million, but while the number of official Apple outlets in Thailand, Indonesia, and Singapore is 364, 480 and 527, respectively, there are only 15 in Vietnam, with F.Studio holding a 40 per cent market share. Apple has no plans to open its own outlets in Vietnam prior to 2022, which represents huge potential for the development of F.Studio. 

FPT Shop chain

Source: FPT Retail

New growth strategy 

FRT was established out of FPT Trading in 2009, as a manufacturers’ showroom. This restricts FRT in terms of sources and suppliers. FRT only developed impressively once separated from FPT Trading, in 2012. Though it entered the market early, it’s in no position to take over the country’s leading retailer - Mobile World (MWG). 

But it’s not too late for the retailer to improve its growth. Besides its expansion strategy, FRT also focuses on improving the quality of its services and customer experience. Under the F-Friends program, the company will cooperate with corporate clients to buy products for employees at preferential prices and with delayed payments. The program currently has 500,000 customers, with monthly revenue of VND60 billion ($2.64 million). “Customer response has been very positive,” Ms. Diep told VET, and the company expects to have 2 million shortly. 

At the same time, FRT plans to cooperate with telecom providers to buy mobile devices. In December, it signed an agreement with Samsung Vietnam and Vietnamobile to provide mobile phones with high-speed connections and affordable packages in rural markets, which are considered to have greater potential than urban markets. 

Its offline distribution channel no longer has potential, however, and it plans to cease opening new outlets after 2020 and will then boost its investment in online channels. E-commerce is the next channel with major opportunities for a traditional retailer like FRT. Its strategy is to have a delivery time of around one hour for orders within 10 km of its warehouse. Revenue in online channels grew 122 per cent in the first eleven months of 2017 and is expected to reach VND3 trillion ($132 million) by 2020, accounting for 15 per cent of the total. 

It targets annual growth of 24 per cent in revenue and 34 per cent in profit over the next five years. It would certainly be difficult for it to realize such targets via its current chain. It also plans to list on the stock exchange in late April and is moving into the pharmaceutical sector, with its CEO recently investing in the Long Chau pharmacy chain. The pharmaceutical market is valued at $5 billion per year and is growing in the double digits, but still lacks a major player. 

The Long Chau chain was established in 2007 and has seven pharmacies in Ho Chi Minh City. It is expected to contribute to FRT’s revenue by early 2019. “However, we are in the process of researching the efficiency of the industry and will officially announce further investment in the middle or the end of 2018,” said Ms. Diep. 

FRT revenue and after-tax profit

Source: FPT Retail

FPT Retail’s share ownership structure

Source: FPT Retail

At the same time, its main rival, MWG, is also is in the process of completing its acquisition of the Phuc An Khang pharmaceutical chain. Similar in model to Long Chau, Phuc An Khang was established in May 2006 and has 14 pharmacies in Ho Chi Minh City. MWG targets opening about 50 or 60 pharmacies next year, according to a report from HSC. This may thwart FRT’s ambitions to some extent. 

Local investors have commented that with MWG focusing on electronics, fresh food, and pharmaceuticals, FRT’s strategy, though similar, is not in conflict with MWG’s. Industries it will invest in include food, pharmaceuticals, fashion, and convenience stores, all of which have potential. Such industries have already received investment from funds like VinaCapital and Dragon Capital, which holds FRT shares. Consumption, according to Mr. Andy Ho, Managing Director of VinaCaptial, is a priority investment field for VinaCapital. Meanwhile, Mr. Vu Huu Dien from Dragon Capital said the professionalism of its leaders, their management experience, and capacity in the retail sector is why capital went to FRT.

FRT, meanwhile, expects to continue implementing its strategies. “The core of retailers is their ability to open and manage chains,” said Ms. Diep.

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