udes about renovations and upgrading the customer experience, but it is beginning to look like the creative talent isn’t in Vincom’s DNA. While mall development in neighbouring countries such as Thailand, the Philippines and even Cambodia has achieved world-class standards, Vietnam’s has not kept up qualitatively with the kind of retailers it would aspire to house. The company’s third-quarter results, released on October 30, brought no news to alter that thesis. Vincom generated total revenue of 2078 billion VND (US$82 million) in the third quarter, down 38 per cent from the third quarter of 2023. Leasing revenue was basically flat from a year ago at 1.983 trillion VND (US$78 million). The sale of inventory properties (shophouses) that had anchored revenue growth in preceding quarters has now run dry, which accounts for the crash on the top- and bottom lines. After-tax profit fell by 31 per cent to 906 billion VND (US$35 million). For the first nine months of the year overall, leasing revenues are flat and after-tax profit is down by 10 per cent. With the sale of inventory properties having now run its course, the focus is clearly on operating metrics, which look poor. Does the emperor still have clothes? New malls aren’t helping The vacancy situation in Vincom’s portfolio continues to be problematic despite a slight quarter-to-quarter improvement that may have an unmeasured seasonal component. It is better to compare the situation with the same quarter a year ago, and looking at it that way is a lot more dire. Occupancy is down for the portfolio overall, sharply so in the important Vincom Center format that services high-density neighbourhoods in the main cities. Also worrying is the increased vacancy in the Mega Mall format upon which Vincom pins a lot of its hopes for the future. Occupancy is now well down below 90 per cent in the Mega Malls. Meanwhile, the two formats Vincom operates that serve secondary locations — Vincom Plaza and Vincom+ — have chronically persistent vacancy rates in the 70-80 per cent range, which is high enough to suggest that some of these malls should never have been built. Undeterred, Vincom is pushing ahead with its mall expansion program, opening Vincom Plaza Bac Giang, near Hanoi, during the quarter and planning to launch Vincom Plaza in Dong Ha Quang Tri on the north central coast before the end of 2024. Three more malls are slated for opening in 2025: Vincom Mega Mall Ocean City (in Hung Yen, south of Hanoi) and Vincom Mega Mall Royal Islands (in Haiphong), both of which are part of mixed-use developments in partnership with Vinhomes, and Vincom Plaza Vin (in Nghe An in the far north). It is also talking up a good game about mall upgrades to take advantage of what it says are strong leasing conditions for food and beverage, fashion, and entertainment. Last year, more than 50 per cent of the major leasing transactions in Hanoi and Ho Chi Minh City involved fashion and accessories retailers and only 15 per cent food and beverage. This year, the situation has switched and now the two categories are both accounting for about 35 per cent of the transactions each. There is a continuing problem of retailers demurring about opening stores outside the core areas: the household income isn’t there and the malls themselves are uninspiring. Vincom’s strategy was to sew up the market everywhere and ready itself for future growth, much as SM Prime, Robinsons Land and Ayala Land have done in the Philippines, Central has done in Thailand, and Aeon Mall has done in neighbouring Cambodia. That’s ok if you do world-class developments and your timing is not too far ahead of the market, but otherwise, it can be a well-aimed shot in the foot. Necessities taking precedence over discretionary National retail sales, published by Vietnam’s National Statistics Office (NSO) are galloping along at a rate of 8.8 per cent in the first nine months of the year. The economy is buoyant, with GDP growth of 7.4 per cent in the third quarter, the envy of Southeast Asia. Inflation has been reasonably well-behaved, averaging 3.8 per cent over nine months but coming down sharply in the September quarter. International tourism is doing its bit to keep the economy bubbling: Vietnam’s General Statistics Office reports that there were 12.7 million visitor arrivals in the first nine months of the year, representing a 43 per cent increase on the same period of 2023 and almost dead even with the first nine months of 2019. In this kind of environment, it is unusual not to have a broad increase in retail rents, but in this instance, it is occurring only narrowly, particularly in the CBD of Hanoi where high-quality supply is still limited. Vincom itself is also reporting a shift in consumer spending with a greater emphasis on necessities over discretionary items. Consumer confidence has been stubbornly weak for the last two years and that is bad news for malls because in developing Asia it almost always causes consumers to spend less in modern malls and more in traditional formats, such as wet markets, and value-oriented ones such as e-commerce. What can Vincom do? In hindsight, it seems that Vincom’s expansion strategy — perhaps empire-building is a better phrase — has at times been oblivious to market signals and not deployed capital as well as it might have. While the company points to sequential (quarter-to-quarter) improvements in some metrics, there is no hiding the fact that their aggressive ueber-malling in secondary locations has left them with a significant portfolio overhaul to do, and it is going to cost real money.