Despite the expected sluggish economic growth this year, Indonesian food and clothing retailers are gearing up for expansion to capture a greater share of the middle class and its higher income.
“Expansion is crucial for the retail industry to boost sales turnover, other than renovating old branches,” said Tutum Rahanta, executive at Indonesian Retailers Association (Aprindo), adding he estimated sales turnover from the nation’s retailers to grow between 10 percent and 12 percent this year.
Last year, Aprindo’s data showed turnover at Rp 150 trillion ($12.75 million).
Tutum added that competition between retailers is intensifying, so companies must take risks by expanding.
He said if expansion is delayed, a retailer may lose its market share.
One retailer eager to expand is Hypermarket operator Matahari Putra Prima, which plans to open 20 new branches over this coming year.
The company, which is controlled by the Lippo Group, has set aside Rp 700 billion for capital expenditure this year, an increase of 7 percent from 2013, most of which will be used for financing expansion of outlets in eastern Indonesia.
Danny Kanjongian, corporate communication director at MPP said in January the company plans to open up to 22 outlets this year, mostly in the eastern islands of the country.
“The company’s cash generation capability is strong, so it can support expansion plans,” Danny told reporters on Friday on the sidelines of an inauguration ceremony of a Foodmart Gourmet outlet in Cilandak Town Square, South Jakarta.
As of the end of last year, MPP operated 99 Hypermart outlets in as well as 97 Boston Health & Beauty stores and 30 Foodmart outlets.
Other retailers in different segments, including supermarket chain operator Indomarco Prismatama, department store Ramayana Lestari Sentosa, fashion retailer Mitra Adi Perkasa and electronic retailer Ace Hardware are also in expansion mode.
Indomarco, controlled by Salim Group through Indoritel Makmur Internasional, the operator of Indomaret, plans to spend Rp 1.3 trillion adding 1,300 new outlets.
Ramayana, which sells clothes to low-income consumers, plans to spend Rp 350 billion adding six branches this year.
Mitra Adi Perkasa, which sells a number of well-known fashion brands, is also keen on a massive expansion with previous reports suggesting plans to spend up to Rp 600 billion opening 250 new outlets across the country.
Despite increasing competition and ballooning expenses, retail businesses in Indonesia will continue to grow over the next few years, according Maybank Kim Eng Securities analyst Janni Asman.
The country’s growing purchasing power and living standards are the catalyst to that growth, Janni said.
Indonesia, over the past few years, has been the darling of the investment community, with economic growth of around 6 percent each year since 2007 to 2012 though it is predicted to slow in 2014.
Gross domestic product has increased five times within 10 years and GDP per capita has increased four times to around $5,000 now.
