Large retailers see strong growth ahead

Viva Goldner, The Jakarta Post, Jakarta

Three of Jakarta's largest retailers have expressed confidence in Indonesia's economic future, backing the government's prediction of strong consumer spending in 2002.

Makro president Simon Collins said the company increased its market share last year, through higher sales of food products in particular.

"When you look at the GDP per capita in Indonesia, it's quite low. But sales here last year continued to be strong. They were strong the previous year as well - we certainly got double digit growth in real terms," Collins said in an interview on Wednesday.

Carrefour asset and development director Agus Alwie said the company's eight stores were observing a trend of increased sales across most product lines, while The Club Store general manager Rudy Suwandi said growth in 2002 would be primarily driven by middle to upper-class consumers.

"We hope to gain an increase in sales this year, but it depends on the political and economic situation of Indonesia," Rudy said.

The government aims to reduce inflation to nine percent from last year's high of 12.55 percent, with domestic conditions central to its forecast of 4 percent economic growth.

Collins said the current pace of reform bodes well for the country's retail sector, despite concerns over the impact of regional autonomy on Makro, a company with half its 12 stores located outside of Jakarta.

"Makro are very confident in the long-term future of Indonesia, although that confidence is shaken every so often," Collins said.

"With power going to the regions, it gives the possibility that we have six different tax regimes, and that is obviously difficult to cope with."

All three retailers stressed the importance of creating a favorable legal environment through regulation and accountable institutions.

Agus said the government needed to provide incentives for investment in the country's retail sector in order to facilitate future consumption.

"Although exports are still very important, spending by the customer will contribute to creating more production, and ultimately the wheel of the economy will turn faster and faster," he said.

Agus acknowledged that recent hikes in fuel and electricity costs would most affect those in lower- to middle-income consumers, who represented a significant proportion of Carrefour's clientele.

"We have already seen in the first month of 2002, spending habits are down due to the impact of higher prices for basic commodities," he said.

With Bank Indonesia forecasting weak consumption and higher inflation, Collins conceded Makro would need to absorb costs in order to achieve 15 to 20 per cent growth in like-to-like sales this year.

"The companies that will win are those that get more and more efficient in their operations - you have to be a low-cost operator in Indonesia. We will be making further savings on our operational costs this year, which will enable us to lower our margins, and to sell things cheaper," Collins said.

He said the country's manufacturing sector also had to improve production and curb hoarding practices.

"One of the problems throughout the year has been supply, rather than demand. Supply and logistics are still quite difficult, and I think a lot of the manufacturers are certainly not meeting our requirements in terms of supply," Collins said.

While the country faced considerable challenges, Rudy said prospects for Indonesia's retail sector were bright.

"The Indonesian retail market is very big - we have over 200 million people here. So, if political and economic security is restored, there is going to be a lot of retail activity coming in," he said.

Makro plans to open three or four new stores this year, while Carrefour will open two, and The Club Store will add another outlet to its existing two in 2003.