ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Industry watchers foresee ‘tough’ 2014 for Indonesian retailers
Publication Date : 09-12-2013
Indonesian retailers will mostly plan efficiency measures to defend margins while rolling out better-tailored products for the market as rising costs and lower consumer spending will potentially bridle their business growth next year.
“Next year is going to be a tough year for retail because of macro-conditions,” Satria Hamid, deputy secretary-general of the Association of Indonesian Retailers (Aprindo), said.
He added that the rise in operating costs from rent fees, toll fares to another hike in minimum wages would compound the struggles retailers already faced due to a weaker rupiah against the US dollar.
Multiple factors, from logistics to labor, could drive costs upward. Recently, the Jakarta administration decided to increase the minimum wage by 11 per cent to 2.4 million rupiah per month, further pushing up retailers’ spending.
“Malls generally base rent on the US dollar, although they convert it to rupiah when billing the retailer,” he said. “Even without an increase in rent fees, retailers have to pay more because of the depreciation of the rupiah,” he added.
The rupiah fell below the 12,000 mark in late November and as of December 6, stayed on 11,964 per US dollar, Bloomberg data suggested. Satria said with all the headwinds, the retail sector’s growth would “barely touch 10 per cent” next year.
The retail sector grew 12.5 per cent in 2012 and stagnated at around 10 per cent this year.
Universal Broker Securities analyst Satrio Utomo said retailers who imported a majority of their goods for sale would face the biggest challenge. “These retailers have little choice but to raise sales prices to avoid suffering from losses,” he said.
However, the move risked driving consumers away, given that consumers had to cope with higher living expenses.
In a November publication on consumer confidence, Bank Indonesia (BI) stated that the Price Expectation Index (IEP) in the next three months would move upward to 172.8 points from 170.6 points.
The weak retail business makes the shares of publicly listed retailers not so appealing to investors. According to Satrio, foreign investors have hesitated buying shares of companies in the retail sector. “The buying of shares of retailers has flattened in the past two months. Investors are cautious about the future prospects of retail companies,” the analyst said.
He added under such economic conditions investors were more interested in companies with big market capitalisation over mid-cap retailers.
Mark Matthews, head of research for Asia at Julius Baer, said Indonesia was “very vulnerable to foreign capital”.
“Emerging markets usually attract a following when the West is not doing well,” he said.
Now that the developed markets of the US, Europe and Japan were heading out of recession, investors were redirecting funds to those areas, he said.
“That’s why Indonesia has become one of the least performing markets, and the currency has taken a big hit against the US dollar,” he said.