Cambodia’s retail market: a competitive frontline

Cambodia’s retail market: a competitive frontline

Cambodia is seen as one the most dynamic and attractive retail markets in South East Asia thanks to strong economic growth and a rising middle class.

Over the last year domestic retailers have been facing growing pressure from an increasing number of foreign competitors. The retail market in Cambodia has recently seen a wave of foreign investors from China and Japan, with possibly more from Malaysia and Thailand in the coming years.

“After AEON Mall opened in 2014, other shopping centres such as Sorya and Sovanna Shopping Center have become increasingly challenged for their retail vacancies,” explained Chhuon Sun Heng from Phnom Penh City Center.

With a population of over 15 million and the ASEAN Economic Community (AEC) established in 2016, Cambodia’s retail market remains enormously appealing to both domestic and foreign retailers. One of the most significant driving forces contributing to the rise of Cambodia\'s retail sector is the rise in purchasing power and growth in consumer retail spending that has accompanied an increase in disposable income.

With such potential, Cambodia has become a favourite destination for many foreign retailers thanks to the new and aspiring middle class population.

For domestic retailers, such developments can raise concerns - the threat of losing market share, being eventually wiped out, or losing the opportunity to establish local retail brands. The dominance of foreign brands in the domestic retail markets has raised questions about the competitiveness of Cambodian enterprises. But in one respect, the surge of foreign companies can awaken these domestic retailers, driving them to change, adapt and play by international rules.

With the upcoming shopping centres in the pipelines, Cambodia’s retail sector is arguably no longer exclusively dominated by domestic companies.

This will increase the challenges for Cambodian enterprises. Some local retailers are not accustomed to competition from foreign enterprises. These companies should adapt by taking a more proactive and serious approach to mapping out their development strategies. For example, widening the network of their retail outlets and forging closer ties with customers, producers and service providers etc. Local enterprises can adjust their strategies, take bolder steps and learn from these foreign enterprises.

For domestic retailers that are not proactive in seeking new ways to develop, they will surely be defeated in the face of increasingly stronger competition in this market.  In fact, domestic retailers are still inferior to their foreign rivals in many respects. “The retail market is very competitive at the moment,”said Chan Mlop Sokha from Sokha Law Firm. Despite having made improvements, some domestic retailers still lack professionalism and experience in chain management, shop design and goods display. On the other hand, prices are not competitive, goods are not diverse and quality control is below expectations.

To survive in this competitive market, domestic retailers first have to establish their position in the market. At the same time, they should also pay attention to e-commerce, multi-channel distribution and online solutions management which are very popular outside Cambodia. Multi-channels, both online and offline will inevitably be the driver of growth in the coming years. In Cambodia, one problem is the underdeveloped logistics network and distribution remains inefficient. At present, only a small percentage of retail sales come through modern trading systems, while the majority of the sales are generated from traditional markets and street stores, with the remainder coming from private street traders.

From the retail operator perspective, the appearance of giant operators such as the second Aeon (Japan) and Parkson (Malaysia) in Phnom Penh, and the possibility of Big C (Thailand) are likely to sweep Cambodia’s retail market. “The growth in retail supply can be attributed to the delivery of new shopping complexes and the rise in large-scale, predominantly residential schemes with plans to incorporate notable retail components,” pointed out Chhuon Sun Heng from Phnom Penh City Center. These foreign retail operators are not penetrating the Cambodian market only via joint ventures.

They are mostly big enterprises with the advantage of having building capital and experience with solid and well developed strategies for running international retail businesses, and these present the biggest challenges for domestic retail developers in the future.

Currently, the domestic retail market has fallen behind foreign competitors, but there are signs that a number of major domestic retail developers will catch up. A positive example is community malls inside suburban gated communities built by local developers in Phnom Penh. Domestic companies can’t miss this chance to establish their new retail operator brands and lose market share. With the exception of the supermarket segment where domestic enterprises still dominate, domestic retail operators should invest in human and financial resources to prepare to compete with experienced foreign enterprises.

Competition in Cambodia’s retail sector is going to get more intense as foreign retailers rush to the Cambodian market to gain market share. The government itself can support and help these domestic retailers become more competitive in a number of ways. As penetration of foreign retailers into the country has increased, competition in the retail market has become more intense. This will put the retail market to the test and only retailers with the right positioning to meet market demand will gain market share. This pressure forces domestic retailers to rethink their business models, and also to enhance their capacity to differentiate themselves from foreign competitors.

In the future, it is predicted that shopping centres and supermarkets will play a crucial role in Cambodia\'s future retail industry. A rapidly urbanising market is pushing demand for large-scale modern commercial centres. Domestic enterprises should carry out market research and draw up their own strategies, strengthen cooperation with producers, diversify their sale channels both online and at physical stores in order to reach and serve the right types of consumers. 

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