Foreign retailers step up pressure on local firms

By Hendarsyah Tarmizi

JAKARTA (JP): Competition among the retailers in Indonesia is getting fiercer with more foreign firms invading the capital's glittering new malls and modern shopping centers.

At least seven foreign retail giants have set foot here to serve the burgeoning middle class. And their presence has resulted in a stronger wave of competition.

The opening of a Wal-Mart outlet in Lippo Supermal last month, for example, drastically reduced the number of shoppers going to Mega M, a Matahari department store, which was once the main attraction at the Supermal.

Within the first week of Wal-Mart opening, Mega M was almost empty.

Mega M's advertising which guaranteed that its prices were 10 to 20 percent cheaper than any other outlet in Indonesia did not help lure shoppers. They mostly entered Wal-Mart, next door.

Wal-Mart, which has "Always Low Prices" as its theme, has successfully amazed shoppers. Its prices are indeed reasonable, but shoppers do not go there merely for "Always Low Prices". They want a bite of American taste.

The number of the shoppers going to Mega M has since retuned to normal, but the store must work hard to survive this fierce competition.

The government does not actually allow foreigners to open shops in Indonesia because it wants to protect local retailers. But this policy is ineffective.

The Japanese retail giant Sogo was the first foreign retailer to break the domestic barrier when it opened its first outlet in 1990 in Plaza Indonesia on Jalan Thamrin, Central Jakarta.

The Japanese retailer's entrance here through a technical assistance agreement with local companies was strongly opposed by other local retail companies, but to no avail.

Singapore's Metro entered the local market the following year by establishing an outlet in Mal Pondok Indah. At the same time, Yaohan from Japan and Robinson from Singapore also entered the market.

Well-known foreign fashion houses are also rushing to serve Indonesian fashion lovers. Stand-alone stores for Issey Miyake, Gucci, DKNY, Kenzo, Escada, Prada, Machino, Guess and Mexx have opened in Plaza Senayan.

Not all foreign retailers have been successful here. Yaohan, for example, closed its outlet after being unable to compete with the local retailers in the Senen shopping center.

But Yaohan's failure has not discouraged the newcomers. Bigger foreign retail chains such as JC Penney and Wal-Mart, both from the United States, recently opened outlets in the Lippo Supermal, the first suburban shopping complex in Karawaci, Tangerang.

The latest move in the retail battle was made by Britain's Marks and Spencer, which opened its first outlet here a few weeks ago in the new Taman Anggrek mall.

Mega M and JC Penney opened their outlets within the same month early last year in the Lippo Supermal but the competition between the two has not been too intense because their markets differ.

But Wal-Mart has ripped away any comfort zone. Price wars between it and Mega M, which serve the same market, are inevitable. Matahari, the largest domestic retail chain, is reported to have formally issued a dumping charge against Wal- Mart.

Kustarjono Prodjolalito, an executive of the Association of Indonesia Retailers (Aprindo), acknowledged that the two retail giants had engaged in fierce price wars.

"There has been a dumping charge from Matahari against Wal- Mart but we have to prove it," he said.

Competition does not only come from the new big kids on the block, such as Wal-Mart. It also comes from local retailers.

Located two kilometers from the Lippo Supermal, Mitra Toko Diskon -- Hero Supermarket's subsidiary which focuses on a lower- income market -- lost most of its customers in the days following Mega M's opening.

Other small retailers encounter the same problem when ever- bigger rivals open outlets near them. Fierce competition has forced some outlets to close.

Kustarjono said it was difficult to eliminate unfair competition because there were no laws protecting small retailers.

"A retail law is becoming more urgent, especially if we want to protect local retailers in the free market era within the next decade," he said.

The country's retail industry has grown rapidly in the last five years in line with the increasing number of new malls and shopping centers in Jakarta and other major cities.

According to the retailers association, there are expected to be 60 shopping centers in Jakarta and its surrounding areas by 1998: There are 13 at present.

In the next two years, the country's retail space is expected to treble to over 3.5 million square meters, twice the available retail space in Singapore. Nearly 80 percent of this retail space is located in Jakarta.

The number of large retail outlets in Indonesia increased 44 percent to 562 last year from 393 in 1994. The number of large retail companies rose from 121 to 153 in the same period: Sixty- four of these are department store chains and 84 are supermarket operators.

The new retail outlets have helped push up the retail industry's total sales turnover to Rp 6.2 trillion (US2.6 billion) last year from Rp 5.3 trillion in 1994.

In 1998, the total turnover is projected to increase to over Rp 9.7 trillion, given that people's incomes are expected to rise.

The country's vast population and its increasing middle class are expected to attract more retail companies, especially foreign retail chains.

A number of foreign retailers such as Warner Bros. from the U.S., Printemps of France and Hanshin Department Store of Japan will also open their Indonesian outlets within the next two years.

Hanshin will, for example, open an outlet in Senayan Plaza under a technical agreement tie-up with Great River International and PT Indomulti.