Retail business to see slower sales growth on declining purchasing power

The Jakarta Post, Jakarta

The decrease in people's purchasing power because of the recent fuel price hikes means the retail industry will likely fail to meet its targeted growth of 30 percent this year, a spokesman says.

"After the fuel prices hike, people are likely to hold back on their consumption. This would cause slower growth in the retail sector in terms of annual sales," Indonesian Retail Merchants Association (Aprindo) chairman Handaka Santosa said on Friday.

This year total annual sales would only grow by 10 percent to 20 percent, Handaka said.

Last year, the 72 retail companies in the association recorded total sales of Rp 35 trillion.

The decline was mostly due to a decreased purchasing power in middle to lower-income consumer groups while sales in the upper income group would likely remain stagnant, Handaka said.

"People are still in shock with higher transportation costs that they must set aside money for. We will see after a couple of months if conditions will return to normal," he said.

Handaka said that total annual retail sales, taking into account traditional retailers, would reach Rp 150 trillion this year.

The national retail industry, according to an AC Nielsen survey, had in 2004 an annual turnover of Rp 600 trillion ($65.22 billion), second in the Asia Pacific region after China.

While growth in sales are showing signs of a slowdown, the industry still had plenty to offer in term of revenue, the survey says.

As of September, there were 4,200 outlets as compared to 3,500 stores reported at the end of last year.

The country's economy relies heavily on consumption as exports and investment are yet to pick up -- a condition economists say will not be sustainable in the long term.

However, during the past couple of years, local and foreign retailers here have been aggressively opening new outlets. From 1998 until the first half of this year, five hypermarket operators opened 54 outlets in Greater Jakarta alone.

"With tighter competition, retailers must be more efficient. To survive, one only has to increase gross profits or to lower operating costs," Handaka said.

"Companies trying to survive face challenges from supermarkets and hypermarkets now. This is OK, as long as it is done through healthy, fair competition," he said.