The 2nd Annual Southeast Asia Retail Technology & Innovation Summit in Jakarta, Indonesia on 15-16 June 2016 began with a warm welcome and an introduction to retail in Indonesia by APRINDO Chairman, Mr. Roy N. Mandey and many distinguished speakers sharing local experiences and international insights. Doing business in Indonesia is challenging but worth investing in thanks to huge demand, with a population of over 260 million in 2016. E-commerce is starting to see a clearer picture, in particular in the apparel and consumer electronics industries, but regulatory issues present some challenges for foreign investors to overcome. Looking from an online perspective beyond Indonesia through Philippines and Thailand, what can we expect?
2016 begins with positive trends in Indonesia
In 2016, the Indonesian economy sees brighter prospects in spending owing to increased expenditures from the private sector and government. Total consumption in 2016 is expected to stay around 10-11%, picking up slightly from 2015. Cigarettes should see higher value in spending than instant noodles and other groceries. Smaller format stores like convenience stores and minimarts will benefit greatly. Top growth categories comprise liquid milk (thanks to population growth), snacks, cooking oil, and RTD tea and juice which are expected to enjoy double-digit growth, according to Mr. Mandey.
Indonesia, a case study for online and offline opportunities
Apparel/footwear and consumer electronics are the two major categories sold through internet retailing in Indonesia. Mr.Hadi Wenas, CEO of mataharimall.com, shared the impressive performance of the newly online brand, mataharimall.com, which has been operating for less than a year. Matahari is the leading banner in department stores and is the third largest overall retail banner in Indonesia. Mataharimall.com manages to dispatch products throughout 90% of the nation, which is equivalent to more than 470 cities from a total of over 500 cities in Indonesia. Some online customers shared that they preferred picking up their orders from the store because there is a sense of prestige associated with being able to order products online.
Mr. Bagus Satriya, VP of Customer Management of Berrybenka.com, one of the key apparel online retailers, set a target to reach double-digit sales growth in 2016, having operated in Indonesia for over four years. Muslim apparel is a key growth driver for the brand.
Mr. Tony Mampuk, Chairman of Retail Working Group of EuroCham Indonesia, highlighted the regulatory challenges which could be a barrier to some multinational companies looking to set up business in Indonesia. There are several criteria that investors must consider:
- No more than 15% of SKUs can be private label unless the retailer has a partnership with a local SME or imported high tech products
- 80% of outsourcing needs to be made in Indonesia
- Maximum of 150 stores of company owned outlets unless there is a partnership or franchise system for more stores
- Restrictions on certain sectors, such as jewelry and electronics retailing which are subject to 100% local investment
- Each store in Indonesia must apply for a license to operate within a certain period, with periodic renewals required thereafter
Internet retailing is in its infancy in these markets
One of several issues related to online sales is whether high growth and a jump in performance indicate genuinely sustainable growth for a given company. Surveys on some online players revealed that strong online sales didn’t mean that the company was profitable. As a result, some companies had to sell themselves to bigger players in order to keep the brand alive and survive within the complicated world of online demand.
On one hand, international brands such as Lazada, Zaloraand eBay have gained significant recognition, generating substantial sales during the past few periods. On the other hand, local players like Mataharimall.com from Indonesia or Myregalo.com from the Philippines or Itruemart.com from Thailand have built up their networks nationwide and must continue to build relationships in order to generate higher sales.
How will the online platform perform in these three countries?
Indonesia and Philippines have a similar geographic landscape, comprising 17,000 and 7,000 islands, respectively. This is considered a key threat to online players who must dispatch products nationwide. However, this challenge could also become an opportunity for online players, as it allows retailers to circumvent the need to set up physical stores scattered across the islands, which would be very costly to maintain and operate. Online channels could be a better way to serve customers within those difficult areas. As for Thailand, consumer behaviour, rather than geographical issues, is a key issue. Thai consumers prefer ease of use and convenience, clicking and waiting for deliveries. Providing options to pay by cash upon delivery, card payment or bank transfer helps to spur online sales.
Mobile commerce will definitely see greater exposure and will likely cannibalize sales from regular e-commerce. Smartphone penetration per household is over a hundred percent in Indonesia and Thailand and close to a hundred percent in the Philippines. There is a huge opportunity for mobile sales in these three countries, with a combined population of over 430 million in 2016. International players dominated the online platform across those three countries in 2015-2016. Moving forward to the forecast period, local players are expected to gain momentum. They also have an edge on international players thanks to their existing local insights, experience and knowledge.