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Asia300

Mitra Adiperkasa mulls scaling back department stores

Indonesian retailer to close unprofitable outlets as shoppers go online

V.P.Sharma, Mitra Adiperkasa vice president, speaks at a public conference in Jakarta on May 23.

JAKARTA -- Mitra Adiperkasa, the operator of foreign brands such as Starbucks, Zara and Marks & Spencer in Indonesia, is mulling scaling back its department store business as consumers increasingly shop online and spend more on activities like dining and traveling.

Mitra operates 58 department stores for five brands -- Sogo, Galeries Lafayette, Seibu, Debenhams and Lotus. They accounted for about half of Mitra's total floor space, but only contributed 2% to its operating profit in the first three months of this year, down from 4% in full-year 2016 and 17% in 2015. In a public conference on Tuesday, Vice President V. P. Sharma said the company was considering reducing the number of brands because department stores were becoming "less attractive" globally.

"Because the industry is changing, people are spending less money in department stores and fashion" and more on things like gadgets, travel and food, Sharma said. "We are looking at existing formats and whichever department store that we feel that are not going to make money in the near future or mid-term, then we will take the decision to shut it down."

Seibu, one of the five department store brands that Mitra Adiperkasa operates, at a mall in central Jakarta.

The company will make decisions based on a study by Boston Consulting Group, a U.S. consultancy, which is expected to submit its findings next week.

The move is the latest indicator of how retailers in Indonesia have become increasingly focused on profitability, rather than merely top-line growth, in the face of a slowdown in consumer spending and intense competition. Mitra's store count soared from 821 in 2010 to 1,931 in 2014, but profits tumbled during 2014 and 2015. Matahari Department Store, the country's largest department store operator, is trying to increase efficiency by installing LED lighting systems in its outlets.

Sharma said Mitra has closed "more than 100 stores" for fashion brands, which helped lift its bottom line. For the first three months of 2017, net profit rose to 58.6 billion rupiah ($4.4 million) from 15.3 billion rupiah a year earlier, on a 16% increase in revenue to 3.34 trillion rupiah.

The department store division's restructuring is similarly expected to produce "significant improvement," Sharma said. As the company's food and beverage business grows, it is also trying to attract more shoppers to its department stores by opening Starbucks cafes and other restaurants.

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