New round of Indonesian retail market
Posted on September 22, 2008
Filed Under Retail
Retailers and developers of shopping centers in Indonesia are making expansion to secondary cities. They are not focusing on major cities only. Which cities have promising prospects?
By Deddy H. Pakpahan & Novita Soraya
It can be said that at this time the Indonesian retail market is entering into a new round in which retailers and developers of shopping malls are making expansion in secondary cities. But this does not mean that they are leaving the country’s largest cities like Jakarta, Surabaya, Medan and Bandung. For them, secondary cities have great potentials like the established ones. With a total population of 235 million people, which makes it the world’s fourth largest after China, India and the United State, no doubt Indonesia has very great potentials in the Asian and global retail markets.
In a media briefing entitled ‘Indonesia, The Greatest Untold Story’ conducted by Jones Lang LaSalle in early August, it was made clear that, in line with rising demand, the development of shopping centers with different new concepts has started in different parts of Indonesia. This shows that the country’s retail sector is entering into a growth period, or a transitional period – from the traditional to the modern business.
According to Lucy Rumantir, Chairman of Jones Lang LaSalle Indonesia, despite its diverse natural resources and big population, Indonesia has often been seen with (half an eye) by some from the international community. “In fact, apart from existing social and political dynamisms, Indonesia has great potentials for business growth,” Lucy said.
The retail sector, she said, is one of the very prospective sectors. Supported by dominant consumption levels, solid growth of the middle class, high urbanization and changing consumption lifestyles, Indonesia’s domestic retail sector has developed into a modern and better organized business.
This has encouraged players in the retail sector, local and foreign ones, to expand their operations in other areas in a progressive way so as to control the potential market. In line with this development, the concepts of modern retail like supermarket, hypermarket and mini-market have continued to develop, and in the process, eating up some portion of the traditional retail markets.
This condition has prompted the development of new shopping center projects, not only in major cities like Jakarta, Surabaya and Medan, but also in other large cities. To date, in almost every large city we witness the development of new shopping malls with diverse designs and concepts.
In order to better understand the landscapes of the Indonesian retail market development, Jones Lang LaSalle conducted a study about 25 large cities in order to determine their growth potentials based on two main parameters namely their social and economic potentials and current retail activities in the areas, which were measured by the growth of the number of area retailers, sales rates and property development. “The study was meant to assess and divide the cities into 3 categories of growth namely maturing [highly developed], emerging [developing] and nascent [promising],” said Anton Sitorus, Research Division Head of Jones lang LaSalle Indonesia.
The study showed that Jakarta, Surabaya, Medan and Bandung are maturing cities in the retail sector. They serve as launching pads for new retailers that want to expand to Indonesia. For retailers that support international brand names, those cities are “must have” locations.
The development of luxurious shopping centers is easily found in the cities. Meanwhile, included in the emerging category are cities like Semarang, Makassar, Bodetabek (Bogor, Depok, Tangerang and Bekasi), Solo, Denpasar, Yogyakarta, Palembang, Pekanbaru, and Samarinda.
Regional autonomy policies implemented since 1999 have helped promote economic and business growth in the cities, including the growth of the retail sector. National retailers in the cities are very aggressive in making expansion in line with the development of new shopping malls in the areas.
Meanwhile, cities like Batam, Manado, Padang, Bandar Lampung, Malang, Banjarmasin, Tasikmalaya, Cimahi, and Pontianak are put into the nascent category. Although the development of retail businesses in the cities are not that fast as in the emerging cities, they have very great potentials for growth in the future. A number of large retailers and developers are also eyeing the cities, hoping to take advantage of the areas as first movers. The development of new shopping malls is still limited so that future development potentials are so widely open.
Further, Anton said that grouping of the cities is a useful move as it provides a reference for retailers and developers to consider expanding their operations in the areas. Wendi Haryanto from the Retail Division of Jones Lang LaSalle said that the dynamic growth in the retail sector requires appropriate strategic planning by retailers and shopping mall developers so that they will be able to make full use of available opportunities and at the same time anticipate possible future challenges. “Understanding the local context should be given attention to by all parties, and it seems that the focus has to be directed to consumer preferences in the future,” Wendy said.
Retail property market
Then, how about the retail property market in maturing cities like Jakarta? With property clock as a reference, it can be said that at this time the Jakarta retail market is in a down swing position. Although supply is continuing to rise, absorption of retail space is relatively low. But, shopping mall operators are optimistic that their market potentials are still big.
In Q2-2008, the Jakarta retail market did not get new supply. But, although the market was moved by the sales of retail space carried over from Q1-2008, absorption in Q2-2008 declined 40 percent. In Q1-2008, the absorption of retail space reached 51,600 sqm, and they were only 29,300 sqm in Q2-2008.
If the retail space market is continuing showing a downward trend, it is almost certain that net absorption in the whole year of 2008 will be lower than last year. It is even worse that during this year until end-2009 Jakarta will be flooded with large shopping malls like Emporium Pluit Mall, Mall of Indonesia, Plaza Indonesia (extension), Kuningan City, Ciputra World, Gandaria City, Kemang Village, Kota Kasablanka, Central Park, and Seasons City, with their retail space reaching 564,000 sqm, combined.
“Surely, competition in the Jakarta retail market will become even more tougher with the incoming of new supply,” said Utami Prastiana, Associate Director of Strategic Advisory Group of PT Procon Indah. According to Utami, the ever tougher competition will force retail operators to be prepared to compete by keeping their shopping malls attractive to visitors. “I am pretty sure that any operator knows the strengths and weaknesses of their malls so they can make necessary efforts to improve their quality,” Utami said.
The research conducted by Jones Lang LaSalle showed that the Jakarta retail market is now slow, but operators of shopping malls that are grouped in the Association of Indonesian Shopping Centers Association (APPBI) disagree. APPBI General Chairman A. Stefanus Ridwan said that at this time shopping centers are not merely stores, but they have further developed in order to keep with the diverse needs of consumers. The big supply of space and the many shopping malls should not cause operators pessimistic.
“The most important thing is don’t hold negative thinking. Always try to think positively. Big supply of new space does not automatically cause retail market saturation. It exactly makes shopping centers even more attractive to visitors,” Utami said.
These days, she said, shopping center owners must be able to anticipate and adapt to any rounds of market changes. Trends in the retail market are now changing. The retail sector is experiencing an evolution. Retail businesses are not merely about space, products and prices. They are also about how to offer new things like product variations and quality, cleanliness, comforts, and accessibility.
Presently, shopping centers not only offer markets but also experiences to their customers. “In order to attract consumers, shopping center operators need to offer creative, unique and attractive concepts while not forgetting the concept of comfortable, practical and complete shopping,” Ridwan said.
To date, many older shopping centers have been renovated so as to look more attractive. Generally, they renovated their building designs and interior. They had to do so in order to fulfill consumers’ needs for more comfortable atmosphere at malls. Their move was also a strategy of making themselves more marketable.
Retail trends
Concerning the future of the retail market, Rudi Hartono, Leader of Leased Mall of Indonesian Shopping Centers Association said that the future trend is that there will be only two types of malls namely suburban malls and mix-use malls that are malls combined with office compounds and apartments. The examples of suburban malls are malls in Pondok Indah (South Jakarta) and those in Kelapa Gading (North Jakarta). In these areas developers can build community facilities that also help increase land prices. The examples of mix-use malls are Grand Indonesia, Plaza Indonesia, Ciputra world, St. Moritz and Kemang Village.
“People can work, live and do shopping in same location and they do not have to get trapped in traffic jams,” Rudi said.
Mushrooming shopping centers in Jakarta should be viewed through positive lenses. Shopping malls built in one area, even quite near from each other, should not be seen as competitors. The time has come for such malls to make synergy between them.
Ridwan also noted the importance of throwing away any worries about competition. It is also important for shopping centers to make differentiation and positioning. “In the past people said that standing in line on same sites means tough competition,” Ridwan said. Today, he said, such views are wrong. Shopping malls standing in line even provide greater attraction. “Do not say that it is competition. Even if it is, we should think how to make our mall unique and more attractive,” Ridwan said.
Rudi agrees. “Malls standing near one another do not necessarily mean competition. They can even complement one another. Competition means they have same concepts and same tenants,” Rudi said. He added that in the future each mall should make a difference and also should complement one another. “Say, I have tenants A, B, C. There is another mall next door which has tenant D. All the tenants can complement one another and make synergy with one another,” Rudi said.
Not only shopping malls that can make synergy. Developers can also make synergy with the government, local or regional government. Such synergy is important for boosting retail activities. With synergy the number of consumers, local and international, can be expected to increase. The main reason why tourists feel reluctant to do shopping in Indonesia is the fact that its shopping centers are far from one another, supporting transportation systems are not adequate, and goods are highly priced due to high taxes.
In neighboring countries like Singapore and Hong Kong, shopping mall visitors can reach 200,000-300,000 people per day, or 3-5 times above those in Jakarta. According to Rudi, transportation systems in other countries are very supportive so that many tourists go there for shopping. Shopping malls in foreign countries serve as stop-stations of transportation means.
As a matter of fact, Rudi said, shopping centers in Jakarta are not below those in other countries in terms of quality. “Material specifications of our shopping malls are more high-end as compared with malls in our neighboring countries. It is only that our government is less supportive as compared with Singapore, Thailand and Malaysia,” Rudi noted.
In other countries, the government supports their retail industries by applying tax-refund systems for foreign tourists. Such countries include Singapore, Thailand, France, Japan, Australia and New Zealand. In Indonesia, Indonesian Retailers Association (Aprindo) has proposed to the government to introduce tax-refund facilities.
Rudi said tax-refund facilities can encourage foreigners to come shopping in Indonesia. If this happens, the domestic market segment can be boosted and investment climate can be improved. So we had better wait and see before determining whether the government has a ‘sense of business’ for promoting growth of the Indonesian retail market.Source: Asian Property Investment, September 2008
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