Foreign retailers step up pressure on local firms
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.