Wanton competition drives electronics stores into bankruptcy

Posted On 21/12/2013

Many electronics stores in Vietnam are facing the risk of bankruptcy after a period of rapid expansion and competition.

Many electronic stores in Vietnam are facing the bankcruptcy risk

The demand for electronic products in the local market has dropped by 30%  this year compared to the same period of last year. Despite promotion programmes, electronic stores still find difficult to attract customers, forcing many of them to close shop.

Tran Anh Digital has opened many electronic stores in Hanoi’s inner-city areas. HomeCenter launched two new branches in the capital city and some other stores in the northern region, while Media has opened their 7th store in Hanoi.

Part of the reason is that real estate is currently at a low and it is cheaper to open new branches. Also banks are offering loans at low interest rates.

The electronics market in Vietnam is considered to have high potential, as no one company accounts for more than 10% of the domestic market share.

Yet there are many risks in the sector. Most newly-opened stores require large investments and use their inventory as collateral.

Bankruptcy wave

Early September this year, HomeOne a chain of three electronic stores, owned by Tien Phong Retail Service Company, had to close due to losses.

Many months earlier, HomeOne rented space and salary and had a labour force that cost bililons of VND.

Set up in 2011, HomeOne had an investment capital of around VND200 billion (USD9.52 million), but after two years of operations the capital ran out and the company folded.

In Hanoi, many electronic stores are on the verge of bankruptcy. One company, which owns seven big electronic stores, now owes up to VND600 billion (USD28.6 million) to a number of banks.

Viet Long Eletronic Store Chain, one of Vietnam’s leading electronic retailers, is facing many difficulties. Many suppliers have asked Viet Long for for overdue payments. Viet Long had to close one of its big store in Ha Dong District.

In the third quarter of this year, a big electronic store in Tu Liem District was also forced into bankruptcy, as they reported earnings of only VND200 million (USD9,500) per day.

Seeking customers in rural areas

A number of electronics companies have expanded their operations to provinces such as Thanh Hoa, Thai Binh and Hai Duong to decrease the cost of overhead by decreasing the cost of labour and rental space. Demand for electronic products in these areas is quite high.

Some electronics stores, which have opened branches in rural areas have achieved good results. More electronics stores are expected to pop up in such areas in time to come. However, as these companies rush to rural areas competition will inevitably increase.

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