Shoppers tighten their belts, even luxury ones

By Dini S. Djalal

JAKARTA (JP): It is lunch hour at Plaza Senayan, and Vita, a 30-year-old marketing executive, is browsing through the shops.

Inside an opulent marble-floored boutique, she eyes a black leather handbag not unlike the one she is proudly carrying.

Vina picks up this fine sample of Italian craftsmanship, peers at the price tag, and promptly puts the temptation back on the shelf.

"A few months ago, I may have still been able to afford the bag," the single Vina, who liked to spend her Rp 4 million monthly wage on the latest fashions, said.

Now, with the rupiah, and consequently her wage, shrinking in value against dollar-based goods, Vina said: "When I go shopping, I'm just window-shopping."

With more and more shoppers following Vina's lead, the windows may no longer be much to look at.

After two years of staggering retail expansion but only three months of rupiah depreciation, falling by 35 percent since August, Jakarta's shopping malls are in serious trouble.

They are finding out the hard way that when the going gets tough, the tough do not go shopping.

"Everything is dropping -- sales, customer visits, profits," according to Dewi Moran, president director of PT Mahagaya Perdana, the Indonesian license holder of luxury brands Prada, Hugo Boss, Escada, Etienne Aigner, Alfred Dunhill, and Granello.

Dewi says the very wealthy are still shopping, albeit not as zealously as before, but the aspirational middle class, who used to be steady customers, are not.

Those who have stopped shopping are the career women, the ones who used to save up their wages or commissions to buy handbags and shoes, she said.

Now the middle class, along with the poor, are watching their modest, disposable incomes shrivel, and worse still, preparing for unemployment.

"My middle-class customers are worrying about layoffs," Dewi said. "They're certainly not shopping."

More affordable brands may be seeing busier trade, but not much, Jody Dharmawan of PT Kushendy Asribusana, licensers of Chevignon and Lee Cooper Jeans, said.

"Our sales haven't dropped drastically but the margin has gone."

In order to keep customers coming into the stores, retailers have to hold sales more often, thus cutting in on their profits, he said.

Kushendy stores have held two sale promotions in three months -- usually they hold sales twice a year.

Expect even bigger sales as the credit crunch becomes more acute.

"We encourage our tenants to have big sales," Mia Egron, advertising and promotions manager for Plaza Indonesia, said. "It helps them liquidate their stock."

Getting rid of last season's stock may be relatively easier, at least it was before retailers adjusted the prices.

When the dollar was at a high of Rp 3,850 in early October, shoppers flocked to the mall, Mia said.

"There was such a big rush that parking attendance was at an all-time high. But, of course, when the new arrivals came in, it was a different story."

It was a sad tale for retailers who then saw their sales plummet 30 percent while their rents, pegged in dollars, shot up.

At upmarket malls, tenancy is based on a five-year lease, 20 percent of which must be paid before tenants even see the shop. Now cash-strapped retailers have a hard enough time securing the money for this month's rent.

For example, a 100-square-meter store (a modest size for a luxury boutique) at US$150 per square meter (an average rent for a choice location) translates into a Rp 53 million monthly outlay for rent alone -- before electricity, telephone, and maintenance costs.

Mahagaya has 12 large boutiques in Plaza Indonesia and Plaza Senayan. Do the maths and you can imagine Dewi Moran's headache.

And she is finding little consolation at the bank -- "One bank told us the crisis will last two years. We told him we can't last two years!"

Dewi is joining other retailers in lobbying for a rent discount from mall operators and owners.

Another request is the regulation of a fixed rate to the dollar so retailers can forecast how much they need to borrow. Negotiations are still taking place.

Dewi said the malls should listen to retailers' complaints, or risk vacancies.

"They need us too. What if we all leave?."

Chin up

However, there is little chance of international fashion houses fleeing Indonesia, which was once regarded among the world's fastest-growing markets for luxury goods.

At the very least, the designers and manufacturers in Milan, Paris, and New York, can not afford to tarnish their image in an immense market that still holds great promise.

And, indeed, the principals are keeping their chins up.

"They know what's going on. What can they do?," Dewi said.

Mahagaya will likely halve its orders for this season and next.

Jody said he will probably follow suit, although Kushendy has the advantage of manufacturing many of its products itself and locally.

"We can be more flexible but we still have to buy fabric. So we're talking to our suppliers and asking them to understand," he said.

Smaller orders would at least reduce imports, already down by 60 percent since the rupiah plunge according to the Indonesian Importers Association (Ginsi). This would ease the country's budget deficit, now looming at US$2.6 billion, and help the economy get back on track.

What it does not ease are the worries of new malls, such as the planned Orchard Road shopping row on Jl. Casablanca in Central Jakarta, due to open next year.

Consumer spending power is expected to drop more than 25 percent in 1998, thus cutting down demand for retail space by at least 25 percent as well.

"New malls? Forget about it," Dewi said.

"Before the developers wanted high rents. Now they can't give them away."

Yet no tenants means more debts and layoffs, ensuring that the domino effect and vicious circle of economic crisis continues. However, retailers insist they should not have to bear the burden of the developers' bad debts.

"Sure, developers have their own difficulties too, but I don't see why the costs of running a mall here should be judged in dollars,' Jody said. "Electricity costs are in rupiah, labor costs are in rupiah. I think some malls are taking advantage of the crisis."

Retailers are forging ahead despite the difficulties, albeit gritting their gold teeth.

Will some shops close down? Perhaps, but boutiques are more likely to tighten their luxury belts rather than do away with them altogether.

Jody said they will try to weather the crisis but, with less optimism, he warned: "Expansion is definitely out of the question."