Indonesia’s Shop-Til-You-Drop Attitude a Gold Mine for Retailers

By webadmin on 09:59 pm Apr 01, 2012
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Francezka Nangoy & Tito Summa Siahaan

With Zara and DKNY among the global brands for which Mitra Adiperkasa holds the local franchise rights, the retailer group’s recent announcement that its same-store sales increase exceeded growth in the economy as a whole bodes well for the strength of retail in Indonesia.

Sales at its stores open for at least a year rose 14 percent, Fetty Kwartati, corporate secretary at Mitra Adiperkasa (MAP), said on Wednesday. That was more than double the economy’s 6.5 percent expansion in 2011.

The same-store sales growth “was helped by bigger traffic in malls and bigger spending as well,” Fetty said. “So, many people didn’t only come to the malls to just hang around, but they spent money, too.”

The company — which also holds the franchising rights for Burger King, Starbucks, Kinokuniya and department stores such as Sogo and Debenhams — plans to add more brands this year. With 1,062 stores across Indonesia, it plans to add as many as 300 outlets, including two department stories and 75 food and beverage shops.

Shares in MAP have climbed 23 percent this year, exceeding the benchmark Jakarta Composite Index’s 7.8 percent gain.

Further gains may be warranted, some analysts say, should economic growth continue at around last year’s pace and Indonesians spend more. Personal spending accounted for about 60 percent of Indonesia’s economic activity last year.

The company is betting on the rising number of middle-income households to boost spending on lattes, Whoppers and Kiehl’s facial cleansers. Government data show that in the nation of about 240 million people, average per capita income last year climbed to $3,500 from $3,000 in 2010. There are 30 million people in Indonesia categorized as middle and upper class, Fetty said, citing Nielsen Indonesia data.

“There is a fundamental demographic shift underway in Indonesia,” said Andrew Argado, consumer sector analyst at eTrading Securities. “We have a lot of young and productive [people] here, and their spending is often determined by trends and lifestyle.” MAP’s brands, he said, reflect their aspirations well.

Shares in Hero Supermarket, one of the country’s largest retailers, climbed 17 percent last week, the most in five weeks, and have gained 91 percent this year. In the past 12 months, the stock has delivered a return of 296 percent to investors.

A week ago, Hero said it had signed a deal with Inter Ikea Systems to sell the Swedish company’s iconic furniture and interior design products in Indonesia. The franchising agreement will allow Hero to open Ikea stores across the nation from 2014 to 2021. Ikea, with 287 stores in 26 countries, is the world’s largest furniture retailer.

Still, the volume of trading in Hero’s shares is small, reflecting the fact that almost all of Hero’s stock is held by one shareholder — Mulgrave Corporation of the Netherlands, which owns 94.28 percent of the company, according to Bloomberg.

But not all retailers have matched the performance of MAP or Hero.

Shares in Trikomsel Oke, a seller of mobile phones and devices, have fallen 5.6 percent this year. Its net income last year rose almost by half to Rp 303 billion on higher revenue. Shares in Ace Hardware, which sells light bulbs, folding bicycles and ladders, have gained 8.5 percent.

Some analysts question the sustainability of investment in the retail industry in a nation spread across more than 17,500 islands.

Indonesia is not an ideal place for retailers to invest in as it has “a distinct demographic characteristic unlike many countries, a chain of islands and poor infrastructure,” said Suryadi Candra Kasih, head of research at AmCapital.

“However, the potential market for retailers in the country is still larger than the cost. Investors can still reap profit by concentrating in large cities. Only experienced players have the capacity and willingness to branch out in smaller cities,” he said.

Economic growth at more than 6 percent would be sufficient to sustain Indonesian consumers’ purchasing power at a rate that is satisfactory for retailers, Suryadi said.

The changing shape of the marketplace provides both opportunities and challenges to retailers. Increasing numbers of Indonesians are turning to the Internet to meet their retail needs, drawing traffic away from bricks-and-mortar stores.

And Jakarta is in the midst of a moratorium on the approval of new construction permits for shopping malls, potentially encouraging retailers to look to the nation’s other cities to expand their businesses.