Retail competition
Retailing is, by character, local business following the path and impact of national economic development. Needless to say, the retail format and concept should be tailored to the ways local people live, the changes in their ways of living and their changing needs. Why then have local retailers, who are supposed to be the masters in their own home, been worrying about the onslaught of foreign merchants?
Though foreign direct investment remains prohibited in the domestic retail business, local retailers still feel they are being threatened by the entry, through technical assistance and franchising agreements, of an increasing number of general merchandise and food outlets owned by international chains. Last week the Indonesian Retailers Association once again urged the government to enact legislation or issue special rules to protect domestic retailers from foreign competition and from what they see as unfair trading practices allegedly committed by foreign retailers.
The association's request, we think, practically asks the government to reverse the accelerated process of linking the country with the global economy by further tightening the lid on the market to much-needed competition and new marketing expertise and technology.
Domestic retailers apparently have yet to realize that instead of being worried about and threatened by foreign competition they should gear themselves up for further international competition. The ASEAN Free Trade Area is only seven years away. The domestic retailers, in order to remain the master in their own home base, should instead allocate more resources to studying demographic trends, changes in work patterns, daily lifestyles and consumers' shopping habits and design better strategic responses accordingly to meet those trends and changes.
Marketing will certainly assume an increasing sophistication as the economy grows steadily and the number of affluent consumers expands rapidly. But as noted at the outset, retail is detail. That means the retail format requires one to continuously adapt to locally-tailored prices and ranges of goods and to adjust the assortment of merchandise offered. As shopping involves lifelong habits and social interaction, local stores should be in a better position to meet the needs of the local people. As lifelong habits and needs reflect the income strata and educational level of consumers, the market also offers a wide range of opportunities for all kinds of retail formats, ranging from the traditional, open air, wet market, to pop-mom shop houses, to supermarkets and mega-department stores.
The wide variety of retail outlets currently springing up in major urban areas, including direct selling outlets such as Amway, warehouse retail clubs such as Makro, in addition to the supermarket and department stores, specialist stores and food chains, reflect the market responses to the varying and rising needs and changes in the shopping habits of consumers.
True, there is always a number of common factors influencing the retail business. One of them is the increasing similarity in the tastes and shopping habits of the elite consumers within the country and their counterparts in more-developed economies. But even the big retail chains from developed economies which are feared by local retailers cannot simply transplant their operations here. Centralizing everything risks ignoring the peculiarity of local tastes and shopping habits. The similarity stops when it comes to the experiences of social interaction where local retailers supposedly possess the comparative advantages. Most domestic consumers remain socially more comfortable with the services provided by locals.
What is still preventing local retail chains becoming really competitive in the rapidly changing marketplace is an extreme lack of efficient and effective managerial setups. It is these two factors, we think, which are sought by local retailers through technical assistance or franchising agreements with foreign retail chains. Local retailers should also allocate more resources for the development of those two factors through the use of new technology and modern information-processing systems to decrease inventory costs and to enable them to keep abreast of changes in consumer preferences.