Retail keeps 'em coming despite uncertainty

Retail keeps 'em coming despite uncertainty
OR
Uncertainty no stop to retail expansion

Randy Witular
Hendarsyah Tarmizi
Jakarta Post
Jakarta

With a population of more than 215 million, Indonesia
continues to beckon to retailers even as the country's economic
fundamentals remain woefully uncertain.
The impressive population size is one of the main factors
attracting investors, and was probably the reason French
hypermarket chain Carrefour ignored worrisome economic
fundamentals to open its first outlet in Jakarta in 1998 at the
height of the country's multidimensional crisis.
Rani Sofyan, a retail analyst at Bahana Securities,
acknowledged the importance of demographics, but said long-term
prospects of the retail business mostly depended on economic
fundamentals.
Uncertainties resulting from the government's policies
often cause problems, evident from the hike in telephone and
electricity rates and fuel prices early this year which, although
later revoked, had a lasting impact on the retail sector.
Many retailers have been forced to review their expansion
plans due to price hikes that will not only reduce consumer
spending but also raise their operating costs.
Rani said that although the growth of the country's gross
domestic product (GDP) remains low at between 3.5 percent and 4
percent, the retail sector would continue to increase thanks to
continued growth in household consumer spending.
"Unlike in developed countries, in Indonesia the larger
part of the people's incomes is still spent on daily needs. This
explains why the retail business continues to grow despite some
difficulties."
According to data provided by the Central Bureau of
Statistics (BPS), household consumption expenditure rose by 17
percent to Rp 1,137 trillion (about US$133.75 billion) in 2002.
The deputy chairman of the Association of Indonesian
Retailers (Aprindo) for organizational affairs and public
relations, Rudy Sumampou, said the retail sector's development
would depend on the outcome of the general election next year.
"If the general election can create a pro-economy
cabinet, the retail sector will easily return to its golden age
before the crisis."
He said a new government must learn from the weakness of
its predecessor.
The government of Megawati Soekarnoputri has been widely
criticized for failing to respond to the crises besetting the
country. The decision to simultaneously increase fuel,
electricity and telephone rates was only one example of the
government's lack of understanding about fostering a dynamic
business climate.
"Promoting a conducive business climate should become the
first priority of the incoming government, or else the business
uncertainties will continue," Rudy said.
There is no recent official data on the growth of the
country's retail sales but Rudy estimated that total retail sales
reached about Rp 200 trillion (about US$23.5 billion) in 2002.
He said about 20 percent of the total sales came from
modern retailers such as hypermarkets, supermarkets and
department stores.
"Last year, the total retail sales rose by 10 percent but
it is still far below the average 20 percent booked before the
crisis. Hopefully, the business will grow by 15 percent beginning
next year," he added.
The Indonesian retail sector enjoyed its golden era in
1996 but was hit hard by the financial crisis which rocked the
country beginning in 1997 and peaked in 1998.
Local retailers also fell victim to the mass riots in May 1998,
as hundreds of department stores and retail outlets were burned
during the unrest which led to the resignation of authoritarian
leader Soeharto.
In 1999, when local retailers were in the midst of
consolidation measures to stay in business, the government
removed the retail sector from the negative investment list, a
move that allowed foreign retailers to operate in the country
without restriction.
The regulation provided more leeway for foreign retailers
such as Sogo, Makro and Carrefour to strengthen their footholds
in the local market. But for local retailers, their commanding
presence is viewed as a threat to survival, particularly the
expansion of the French hypermarket.
Richard Santosa, head of corporate, promotion and public
relations division of PT Ramayana Lestari Sentosa, which operates
Ramayana department stores in Indonesia, describes the growth of
the hypermarket as a "giant killer" for smaller retailers.
With greater capital at their disposal, foreign
hypermarkets have few problems competing with capital-strapped
local firms.
"To get a very cheap price, huge retailers such as
Carrefour have at least 100,000 items, while smaller stores are
only able to provide around 40,000 items," Richard said.
Carrefour spokesman Triyono P said the hypermarket was
doing nothing wrong in its Indonesian operations. "As long as our
location is not in violation of the law, the government has
issued permits for us to operate our stores."
But Rudy and Richard shared the view of the need to
impose restrictions on foreign hypermarkets. In fact, Aprindo
proposed that the government restrict the operation of a
hypermarket to the outskirts of the city to allow smaller
retailers to compete. The proposal has received no response.
Rudy recognized that the imposition of barriers against
the operation of foreign hypermarkets would be against the
government's commitment to adopt the ASEAN Free Trade Area
(AFTA), which came into effect this year.
But he said local retailers must be given the priority to
take advantage of the growing retail markets.
"There should be a regulation either in the form of a ministerial
decree or a provincial regulation to prevent the local retailers
from being swallowed up by foreign retailers."
With globalization, competition cannot be avoided, and
only those offering inexpensive, high-quality products will win
over buyers.
"Most local retailers understand this phenomena but they
need much more time to be ready to compete head to head with
foreign retailers, which are not only superior in technology and
human resources but also capital," Rudy says.
To anticipate fiercer competition, local retailers such
as Matahari and Hero Supermarket have formulated more customer-
oriented marketing strategies, which emphasize the need to
provide more competitive prices.
Hero has tied up with Malaysian retailer Giant to jointly
operate a hypermarket in Tangerang targeted at medium and upper
market segments.
Matahari is endeavoring to strengthen its operations not
only by opening new outlets but also changing its marketing
concept. The local retailer will continue to focus on the one-
stop shopping concept through its two retail units, Matahari
Department Store and Matahari Supermarket, but with an emphasis
on superior service.
"We have to be able to provide good service and continue
to improve performance, otherwise we'll be booted out of the
market," Matahari spokesman Danny Kojongian said.
Rani said that competition, which is now centered in
Jakarta, would gradually shift to provinces outside Java because
of expanding business activities with the implementation of the
autonomy law.
"The retail market in Jakarta has been saturated. Rich
provinces are now becoming the centers of future growth," she
said.
Matahari and Ramayana have opened a number of outlets in
cities outside Java as part of their expansion program.
Ramayana, which currently has 80 stores, plans to open
five new outlets in Sumatra and Kalimantan this year.

1