With a penetration rate of 12%, the modern retail especially malls, has still much room to grow.
As an emerging market with the biggest population in Southeast Asia, Indonesia has much room to grow in its retail sector. Modern malls, traditional shops and e-commerce are far from saturation point with current sales very encouraging despite economic headwinds since 2015. The country’s favourable demographics comprising a young and middle class population of 170 million (70% of total population) has high purchasing power and high consumption habits making this country a much sought-after new market for retailers worldwide.
EXPANDING FOOTPRINT
Prior to 2015, retail sales recorded double-digit growth rate. Growth fell to 8-9% in 2015, still an enviable figure compared to its neighbours. Foreign modern retailers continue to expand especially in large cities like Jakarta and Surabaya and even in secondary cities. However, profit margins in big cities are continually being squeezed by stiff competition, growing labour wages and high operating expenses.
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Notwithstanding that, modern malls have become lifestyle destinations. In big cities like Jakarta where traffic jams are endemic, staying under one roof for all your shopping, dining, entertainment and recreational needs is convenient and cost-effective. Hence, shoppers are still drawn to the malls which are becoming the dominant retail space with its air-conditioned comfort and variety of goods.
Following the easing of restrictions, many local and foreign retailers have proceeded with expansion plans. Lotte Group, Lulu, Lawson, Courts, IKEA, H&M, AEON and Matahari are all on an aggressive expansion drive in the next few years.
Going forward, the growth prospects of Indonesian modern retail is still bright due to its penetration rate of 12% which is still considerably low compared to Thailand (42%), Malaysia (53%) and Singapore (70%), according to reports.
E-COMMERCE CATCHING UP
Although its economy is still at a developing stage, the use of smartphone apps is widespread, for example, the ride-sharing app, Gojek (which has trumped Uber in Indonesia) is practically indispensable now. It has helped tremendously in the logistics aspect of e-commerce, delivering goods speedily in jammed-up areas.
The potential for further growth in e-commerce is undeniably huge – currently, online sales account for 5% of total domestic retail transactions. This is predicted to rise to 20% within the next 3 years, say analysts.[/ihc-hide-content]