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Indonesia’s $326b Retail Market Still Has Strong Appeal, Index Shows

Indonesia achieved its highest-ever ranking in an index released by global management consultancy A.T. Kearney that measures retail investment worldwide, as retailers seek to expand in the country to tap the burgeoning middle-income population.

According to the 2015 Global Retail Development Index (GRDI), Indonesia has risen three positions to 12th place, its highest spot on the index since it was first published in 2001, A.T. Kearney said in a statement on Monday.

The index, which analyzes 25 macro-economic indicators and retail-specific variables, ranks the top 30 developing nations for retail investment worldwide.

It aims to identify investment opportunities in emerging markets.

“The GRDI’s findings confirm the mid-term optimism of many of Indonesia’s and the world’s leading retailers in the country’s potential,” says John Kurtz, president director of A.T. Kearney Indonesia.

“The growing middle class, coupled with consumers’ embrace of multiple formats and channels bodes well for Indonesia’s growth in the future. All eyes are on indices such as this to determine whether Indonesia will finally mature to become the market that everyone has been hoping for,” he adds.

A.T. Kearney said it expected Indonesia’s economic growth to rebound after reaching a five-year low last year, and “should outpace other regional markets.”

“Despite a slight decline in retail sales per capita last year, total retail sales grew 14.5 percent. The sector has got off to a sluggish start in 2015 but retailers continue to be drawn to Indonesia’s large population and growing middle class,” the consultancy said in the statement.

It estimated that Indonesia’s retail market was currently worth $326 billion.

Still, the company says Indonesia need to improve its retail infrastructure and have a more favorable regulatory environment to help spur investment in the sector.

“Regulations still remain stringent with the [Trade Ministry] recently reiterating limitations on the maximum number of franchise and company-owned stores,” A.T. Kearney said.

The company noted a trend in Indonesia where under-penetrated markets of tier-2 cities have been driving growth in the modern retail sector. Local players have been leading the expansion, it said, citing convenience store chains Indomaret and Alfamart as planning to boost their footprints across the country.

On a larger scale, A.T. Kearney noted that the Lippo Group’s Hypermart was already eyeing expansion into the eastern regions of the country.

The consultancy also noted a move by US private equity firm Warburg Pincus to form a joint venture with Indonesia’s Nirvana Development to develop hypermarket-anchored malls in tier-2 and -3 cities, and other international retail players joining the competition to tap the Indonesian market.

“New entrants in 2014 included SPAR International, American Eagle Outfitters, and WHSmith, while South Korea’s Lotte, already present in the department store segment, opened its first supermarket in Jakarta,” A.T. Kearney said.

“In addition, 7-Eleven, Parkson, AEON, KFC and Domino’s Pizza have all announced ambitious store expansion plans.”

Online retail is also expected to grow rapidly in the country as Internet penetration climbs thanks to the proliferation of cheap smartphones and investment from major players, A.T. Kearney said.

It cited the Lippo Group’s plan to invest $500 million in the e-commerce platform MatahariMall.com, which the conglomerate is billing as the “Alibaba of Indonesia.”

“We believe that Indonesia has both the fundamentals and particular traits among consumers that can help boost the e-commerce sector,” A.T. Kearney’s Kurtz said.

“Whether or not Indonesia can create a true e-commerce giant remains to be seen, but one thing is clear: there is definitely a big opportunity for the sector’s growth driven by factors such as device penetration, innovative entrepreneurs and the Indonesian consumers’ appetite for online shopping.”

GlobeAsia is affiliated with the Lippo Group.

Source: Jakarta Globe