Retailers may survive for another six months

JAKARTA (JP): The country's large retailers would manage to survive the economic crisis for another six months, but many would go bankrupt if the situation kept worsening, Association of Indonesian Retailers (Aprindo) executive director Kustarjono Prodjolalito said yesterday.

"Retailers call it a survival period, which will last until June," Kustarjono told The Jakarta Post.

Kustarjono said the retail sector would experience a slowdown after the Idul Fitri holiday as the price of food and essentials was expected to increase and the purchasing power of the public would decrease.

"People will still buy goods a week after Idul Fitri, but they will rarely go shopping after that," Kustarjono said.

He said retailers would only manage to survive the next six months if they initiated efficiency programs, like increasing worker's productivity and reducing the profit margin to draw more buyers.

"The association's members have agreed not to lay off their workers, but they might have to do that if economic conditions do not get better in six months," Kustarjono said.

The fact that most retail space owners had agreed to set a lower exchange rate for rent would also help retailers survive during the period, he said.

The dollar's appreciation is expected to considerably raise rent, and as a result, retailers' operating costs, as rent is charged in dollars.

However, Kustarjono said, 90 percent of existing retailers had managed to reach agreements with rental space owners to set the rupiah's exchange rate much lower than the market rate for three months until March.

"The other 10 percent are going to close some outlets since owners charge rent according to the real exchange rate," Kustarjono said.

The agreed-upon rupiah exchange rate ranges between Rp 2,700 and Rp 3,400, compared to the exchange rates of between Rp 10,000 and Rp 17,000 over the past two weeks.

Rental rates

Property consultancy firm PT Procon Indah/Jones Lang Wootton said the rent of retail space located in prime Jakarta locations ranged between US$46 and $70 per square meter per month.

Retailers would not enjoy the low exchange rate for long as space owners would increase the rate considerably in the next few months to collect more dollars for the payment of their debts, Kustarjono said.

"The low exchange rate is only a short-term solution. In the long run, space owners have to raise the rate to survive and that means a threat to the survival of retailers," Kustarjono said.

Aside from rent, retailers have also to pay owners a service charge -- which includes security, electricity and water costs -- in dollars, which ranges between $5 and $7 per square meter per month.

Kustarjono said the association requested that the service charge be paid in rupiah, since all rental space owners paid for security, water and electricity in rupiah, too.

However, the owners turned down the request.

Procon Indah/Jones Lang Wootton said another 151,900 square meters of retail space would enter Jakarta's retail market this year with the completion of Ratu Plaza, Plaza Senayan Phase II, Pasaraya Manggarai and Mega ITC Cempaka Mas.

Occupancy rates, especially in upscale malls, will decrease unless attractive discounts on rent are offered to potential long-term tenants.

The firm also said some retailers who were committed to renting the new spaces were negotiating with space owners to delay openings until late this year. (jsk)