New foreign retailers will jack up domestic retail market
Posted on January 22, 2008
Filed Under Retail
In 2008, retail property supply in Jakarta is estimated to rise by 400,000 sqm, or a 47.6 percent-hike from last year’s. The increase will increase retail property supply in the capital to a total of 3.2 million sqm, or a 15.7 percent hike. On the contrary, demand for retail space will decline. Consumer saturation on the domestic market is suspected to be the factor behind the market slowdown.
A research conducted by PT Procon Indah Savills revealed that retail space supply will increase in 2008. Actually, such a rise started last year. Even, in the third semester of 2007, retail space supply recorded a twofold increase. Although lease prices recorded a stable trend, net take-up of retail space in Jakarta experienced a significant decline, by 52.9 percent.
That situation paralleled with the growth of national retail industry, which was estimated by the Indonesian Retail Merchants Association (Aprindo) to grow by 15 percent this year, the same as last year. However, this estimate does not go with the optimistic prediction of the Indonesian Shopping Center Developer Association (APPBI).
APPBI General Chairman A. Stefanus Ridwan said this year’s retail market will grow above the 2007 growth level. “This is because many foreign retailers will enter Indonesia. Their presence will further activate the national retail industry, and surely will not cause stagnancy,” Ridwan told Asian Property Investment.
Ridwan said retail market stagnates when new players do not come in. Many Indonesians’ buying power is so high, especially for branded fashion. “They even hunt for branded fashion products in foreign countries like Singapore, Malaysia and Hong Kong. They do this because they there is no branded fashion outlet here in Indonesia. Those experiencing stagnancy will be retailers currently running outlets in almost every mall and shopping center in Jakarta. Consumers feel bored with the very same brands,” Ridwan said.
With the presence of new retailers, Ridwan said, the performance of national retail industry will improve. Moreover, the government has given a green light to foreign investors wishing to open supermarkets of 1,200 sqm and departments of above 2,000 sqm. As such the domestic retail market with such big potentials—and with a population of 230 million people—will surely develop even further.
So far, people have worried about foreign retailers ‘eating up’ local players. But, perhaps, in the current era of free competition in the regional and global arenas, the government has no choice other than issuing new policies to allow foreign investors to enter the country’s retail industry. If not, the state will incur big losses. Ridwan calculated that Indonesians spent Rp6 trillion per year on branded goods in foreign countries. That amount accounts for 10 percent of total turnover of the domestic retail industry, which was estimated at Rp60 trilion last year.
Reliable sources said foreign retailers ready to enter Indonesia included Tesco Supermarket from England, and that it had targeted several locations in Jakarta; Central Department Store (Thailand); and Takashimaya and Isetan (Japan). In addition, several world giants were also planning expansion to Indonesia, the sources said. Given this situation, it is alright that developers have started building property in 2007-2008.
Estimated to rise
At this time, at least 60 shopping centers are found in Jakarta, and they are estimated to rise to 80-90 by the end of this year. Meanwhile, data at the Jakarta City government said that investments in shopping center projects in the capital amounted to over Rp100 trillion per year. They excluded investments in Bogor, Depok, Tangerang and Bekasi (Bodetabek), Jakarta’s supporting areas. The 2007-2008 period has seen quite rapid development in the retail property sector in Bodetabek. In Serpong (Tangerang), for example, PT Summarecon Agung Tbk has completed the construction of Summarecon Mal Serpong, and it also has finished Bekase Square in Bekasi. Similar development is also found in Depok. Serpong will continue to see an increase in retail property development this year.
Aside from Summarecon Mal Serpong, PT Alam Sutera Realty Tbk also has started building a shopping mall that is scheduled for completion in the third quarter of 2008. Following the concept of integrated shopping center under the theme of indoor and outdoor parks, the mall measures 22.75 hectares with investments of no less than Rp500 billion. It will house around 300 retailers.
A question remains whether retail property business in the 2007-2008 period is caused by a significant rise in retail space supply, especially in Jakarta. Ridwan said the capital now has a population of 7.5 million people while shopping centers are around 60 in all, which are far from enough. “With such a big population, Jakarta needs a total of 200 shopping malls, ideally speaking” Ridwan said.
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