ounts for only about 7 per cent of Central Retail’s revenues, so the sale transaction enables the company to focus on its core businesses in Thailand and Vietnam, eliminating the distraction of a far-away department store business that is profitable but has low or no growth. From a financial standpoint, it strengthens Central Retail’s balance sheet, releases funds for its Southeast Asia ventures, lowers its effective tax rate and enables the company to make a significant special dividend distribution to shareholders. There is another reason as well: conducting business in Italy is a legal compliance nightmare. The country has a massive bureaucracy, which is only suitable for doing what massive bureaucracies are always good at: creating a labyrinth of tax, labour and other regulatory hurdles that don’t even have the decency to stay constant. It’s shifting all the time, meaning that the bottom line is being eaten up by retainers to advisory services that help the company manoeuvre through the regulatory thicket. According to the Global Business Complexity Index compiled by TMF Group, which ranks 79 countries, Italy is the seventh-worst country in which to do business. By comparison, Thailand and Vietnam, Central’s main markets, are ranked 56th and 54th, respectively, as the most difficult. Growth prospects are more attractive in Asia The transaction is also timely for other reasons. Recent results on the home front have been weak, at least by the company’s standards, while growth opportunities in Indochina are more attractive than those in Europe. At a macro level, while GDP growth in Vietnam is expected to be around 8 per cent this year and will be among the fastest in Asia over the next five years, exceeding 5 per cent annually on average, Italy’s is expected to crawl along at less than 1 per cent. The average personal income in Vietnam increased by more than 10 per cent in 2024 in urban areas. The growth of the middle class in Vietnam is very much an urban story: growth in incomes and personal spending has not grown commensurately in rural areas, which is a big challenge for established retail platforms such as Vincom that have planted malls everywhere in an attempt to sew up the market before its rivals could get a proper foothold. One of those rivals is Central Retail, which derives 20 per cent of its sales from its operations in Go! hypermarkets, malls, and several other food formats. The company opened a new GO! mall in Hung Yen, just south of Hanoi, in July, and another in Yen Bai in the extreme north of the country in September. Some of its operations there are performing way below what they need to be. The worst offender is Nguyen Kim (NK for short), the appliance retailer that Central Retail acquired fully in 2019, and which has now been reduced to 39 stores. It had 49 this time last year, but despite removing 10 more baddies, things are still dire at NK: same-store sales growth, which is to say year-on-year sales growth at the surviving stores, was -22 per cent in the second quarter. Struggles in parts of the Vietnam operation and the possibility of more acquisitions are only part of the reason why Central needs to focus more sharply on Southeast Asia. It has a new wholesale format in Thailand, Go Wholesale, which is rolling out across the country to compete with Makro, the country’s biggest wholesaler. To add even more urgency to a focus closer to home is that recent results haven’t been as flattering as the company has come to expect in the past. Total company revenues fell by 0.8 per cent year-on-year in the second quarter. Food sales rose by 3.1 per cent, and income from a network of lifestyle malls in Thailand and Go! malls in Vietnam grew by 1.6 per cent, but Central’s fashion and hardlines segments experienced sales declines of 1.3 per cent and 4.6 per cent respectively even though store counts were higher than a year ago. Profit after tax fell by 31 per cent to 1,237 million baht (US$39 million). A decline in tourism arrivals contributed to the weaker results from its Thai operations, along with uncomfortably high consumer debt. Central is doing its best to counteract these headwinds, expanding and renovating its domestic stores and malls. After divesting itself of La Rinascente, Central will operate a portfolio of 76 department stores, about 90 home improvement superstores, 700 Tops supermarkets,  more than 40 hypermarkets, 13 wholesale warehouses under the new Go Wholesale banner, and an array of speciality retail brands. In all, it will be the master of more than 3,800 points of sale. However, same-store sales have declined by 5 per cent across the company’s portfolio this year on top of a similar trend in 2024. Central reports sales in three categories, and all have been down in the dumps: food same-store sales were down by 4 per cent in the most recently reported quarter, with hardlines 8 per cent and in fashion 6 per cent. The moderation in the food segment is tilted toward Vietnam, where same-store sales at Go! hypermarkets, Tops and Lanchi supermarkets declined by 12 per cent. In hardlines, the underperformance at NK has already been noted. Finally, there are the malls. Central Retail operates 75 malls in Thailand and Vietnam under the Robinsons Lifestyle, Tops Plaza and Go! banners, with approximately 780,000 square metres of leasable area. The malls tend to be located in second-tier or infill markets that are not quite big enough to sustain a full-sized superregional mall. Rental income from the mall portfolio increased by 1.4 per cent for the first half of the year compared to the same period in 2024, but three new openings during the year contributed to a positive result. The problem, though, is a familiar one to mall operators in Vietnam: vacancy outside the main urban cores. Go! malls have an average occupancy rate of only 83 per cent across 42 properties. The bottom line is that Central’s divestiture of La Rinascente is timely: there’s a lot of work to do in its own backyard. Further reading: Why Southeast Asia is Anta Group’s strongest testing ground