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Retailers suffer as Indonesians choose travel over shopping

Clarks and Gap to close as shift in behavior hits consumer spending

Shoppers line up in front of a Clarks outlet in central Jakarta, which is offering steep discounts before the brand shuts its local stores. (photo by Wataru Suzuki)

JAKARTA -- Clarks and Gap are among the fashion retailers counting their last days in Southeast Asia's largest economy.

The U.K. and U.S. brands are both expected to close all of their stores in Indonesia within the coming weeks, following in the footsteps of Debenhams, the British department store chain which shut down by the beginning of this year.

"Sales were falling 50%, 60% from a year ago," said Rubby Destrison, a spokesman for Anglo Distrindo Antara, the local distributor for U.K. footwear brand Clarks. "Meanwhile our operational costs were rising. So the company's financials became very unhealthy."

The company began closing its 25 Indonesian stores during the middle of 2017, and is now conducting a fire sale at its remaining 10 outlets before shutting completely. Its 170 employees will be laid off.

The string of closures has sparked concerns locally about Indonesia's dwindling purchasing power.

The data suggest that household consumption has been growing at a slower pace compared to previous years. On Monday, the Central Statistics Agency said gross domestic product grew 5.07% in 2017, a slight pickup from the previous year. Household consumption, which accounts for more than half of the economy, grew 4.97% and weighed on overall growth.

But some economists point to a more fundamental reason driving the brands out of business -- a change in consumer behavior. Indonesians are no longer spending on clothes; expenditure on clothes and shoes grew only 3.62% last year -- making up the lowest segment of household consumption. Instead, they have been saving up and spending more on experiences such as traveling.

Meanwhile, the tourism sector is booming. Domestic airline passengers in 2017 grew 11.07% from a year ago to 89.4 million people. Outbond air passengers grew 12.43%. Household spending on restaurants and hotels grew 5.38%. The government has slashed foreign ownership restrictions on budget hotels and restaurants, and is rushing to build infrastructure like Kertajati airport in West Java, which is expected to start operations later this year.

"This is a typical characteristic change from the middle class," said former finance minister Chatib Basri. "They no longer talk about 'needs' but 'wants'. Fifteen years ago affordability was the most important [factor], but now there is a shift to leisure."

That shift is putting pressure on brick-and-mortar shops. Mitra Adiperkasa, Indonesia's largest retailer of foreign brands, tripled its store count between 2008 and 2015 to 2,059 outlets, but as of September 2017 had cut back to 1,916 stores. Following a "strategic review" of its department store division, the company announced in October that it would discontinue two of its five department store brands, including Debenhams. The company recently told analysts that it would book a one-time charge of around 100 billion rupiah ($7 million) in restructuring charges for the year ended December.

Indonesia's Raja Ampat Islands (Photo by Shinya Sawai)

As some fashion brands lose their appeal, mall operators are shifting to food and entertainment. In September, Japanese retailer Aeon opened a mall on the outskirts of Jakarta in which 52% of its tenants were food-court stalls or restaurants, a composition that is 10 percentage points higher than at its first mall. Others are focusing on integrating the digital experience into their physical stores. Lippo Group, a local conglomerate that runs a large retail business, has been offering discounts for users who use its Ovo electronic wallet app in restaurants and parking lots.

"Since 1998, with a few corrections it has been strong growth," Lippo's Executive Director John Riady told the Nikkei Asian Review in a recent interview. "But we are entering a new normal, where growth will be a bit lower. So businesses will have to work harder."

Indonesia is a sprawling archipelago where traditional, independent "mom-and-pop" shops still dominate the retail industry. So far, there have been few signs that employment in the retail industry, which accounts for about a fifth of the working population, is being squeezed. But the closure of foreign branded stores is fueling concerns over the labor market.

"There is little doubt that a structural shift in the retail and the services industries is ongoing, which could potentially result in more layoffs and labor-market tumult over the medium-term," economists at Bank Central Asia said in a recent research report.

This Jakarta eatery accepts payment through Ovo, Lippo's proprietary e-money platform. (Photo by Jun Suzuki)

Such concerns will be on policymakers' minds as the nation heads towards key elections -- simultaneous regional elections will take place this June and a presidential election follows in April 2019.

Rising prices of crude oil and other commodities such as coal are starting to put pressure on government-controlled fuel and electricity prices. Some observers believe that price hikes are unlikely in the near term, which is likely to burden the state budget or the finances of state-owned companies.

"We are committed to supporting consumption growth of around 5%," Finance Minister Sri Mulyani Indrawati told an investment forum in Jakarta on Wednesday.

Nikkei Staff Writer Erwida Maulia in Jakarta contributed to this story.

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