Ikea Joins Indonesia Rush to Tap Demand Amid 6.5% Growth: Retail

Indonesia Retail
Shoppers browse shoes at a shopping mall in Jakarta, Indonesia. Photographer: Dimas Ardian/Bloomberg

Teti Umarih is doing brisk business selling Ikea products in Indonesia via Facebook Inc.’s social networking website. Before long, the Jakarta entrepreneur will get a new competitor with the furniture chain planning its own debut in the Southeast Asian nation.

A rising middle class that is earning more and has access to credit at cheaper rates is aiding Umarih and global retailers in Indonesia, where spending accounts for 60 percent of gross domestic product. That’s a reversal from 15 years ago, when the Asian financial crisis dented economic growth.

The retail push into Indonesia comes as the economy grew more than 6 percent last year and as the central bank has cut interest rates to a record low. That may help propel sales for Ikea, Carrefour SA, Starbucks Corp., South Korean department store Lotte Shopping Co. and luggage maker Samsonite International SA, as they look past infrastructure hurdles to invest in the world’s fourth most populous nation.

“This is just a beginning,” said Adrian Joezer, an analyst at PT Mandiri Sekuritas. “The middle class is small compared with the total population. So the opportunity is out there.”

Facebook Entrepreneur

Umarih, the homemaker turned Facebook entrepreneur, funds her business, called Toko Barang Ikea, with a credit card she said charges her no interest on purchases for three months. Umarih, who is pregnant with her second child and wore a headscarf and flowery dress as she spoke in her suburban home, said she has sales of about 30 million rupiah ($3,264) a month by buying the Swedish retailer’s household goods via Singapore and selling them to Indonesian shoppers via Facebook.

Ikea plans to enter Indonesia in 2014 after signing a franchise agreement with PT Hero Supermarket. Delft, Netherlands-based Inter Ikea Systems BV is controlled by Sweden’s Ingvar Kamprad, who ranks fourth on the Bloomberg Billionaires Index with an estimated net worth of about $43 billion as of April 26.

Indonesia, Southeast Asia’s biggest economy, regained an investment-grade credit rating after 14 years last year and its consumers have benefited from low interest. Bank Indonesia cut its benchmark rate to 5.75 percent in February, taking advantage of easing inflation to support growth in a deteriorating global economy.

‘Aggressive Banks’

Indonesia’s gross domestic product expanded 6.5 percent last year, the fastest pace since before the Asian financial crisis, benefiting lenders as consumers borrowed more to finance homes, vehicles and appliances.

Consumer loans rose 24 percent to 667.2 trillion rupiah last year from 537.1 trillion rupiah in 2010, according to Bank Indonesia.

“Banks are now more aggressive,” said Joezer. “They know that Indonesia is a very lucrative market.”

The value of credit card transactions surged 34 percent to 178.2 trillion rupiah in 2011 from 2009, according to the Indonesian Credit Card Association.

One result of greater affluence and better access to loans: Indonesians are getting more adventurous. “We believe shoppers are becoming more impulsive,” Dian Haryokusumo, an analyst at Credit Suisse, said in a research note.

Indonesians who said they never planned purchases rose to 21 percent in 2011 from 10 percent in 2003, Haryokusumo said, citing a Nielsen survey. GDP per capita based on purchasing power parity grew to $4,325 in 2010 from $3,341 in 2006.

‘Hot Spot’

Samsonite Chief Executive Officer Tim Parker called Indonesia his company’s next “hot spot” in a March Bloomberg Television interview.

The luggage company, which in 2008 formed a joint venture with local firm PT Mitra Adiperkasa, said it wants to boost sales of its Samsonite brand by “double digits” this year by targeting affluent consumers. At the same time, the Mansfield, Massachusetts-based company is pushing to double sales of its American Tourister brand for the country’s middle class.

PT Matahari Putra Prima, an Indonesian hypermarket operator, sold control of its department-store arm to a unit of U.K. buyout firm CVC Capital Partners Ltd. for 7.2 trillion rupiah in January 2010.

Boulogne-Billancourt, France-based Carrefour, Europe’s biggest retailer, opened its first store in Indonesia in 1998 and now runs 84 outlets.

“We plan to add five to 10 outlets in Indonesia this year,” said Satria Hamid, spokesman at PT Carrefour Indonesia.

Infrastructure Hurdles

Companies still face hurdles in expanding. Indonesia’s infrastructure is a shortcoming even as the country becomes more important in the world economy, an analysis by the World Economic Forum found.

“Its roads and railroads are generally in poor condition, and the capacity of seaports is extremely limited,” the report said.

Indonesian President Susilo Bambang Yudhoyono won upgrades from Fitch Ratings and Moody’s Investors Service, which brought Indonesia to investment level as he pledged to contain the budget deficit and allocate resources to infrastructure projects, fight corruption and woo investment to spur economic growth.

Seattle-based Starbucks, which has more than 100 stores in the country, plans to invest more there, John Culver, Starbucks’ head of China and Asia Pacific, said in an interview. “We are going to continue to see Indonesia as a big growth opportunity for the company,” he said.

Starbucks’ operating margin in its China and Asia Pacific business was 34.6 percent in the quarter ended Jan. 1, topping the 21.8 percent for its Americas business, according to the company’s January earnings statement.

Umarih acknowledges the potential pressure to local business people from the foreign entrants. The arrival of the real Ikea may bring an end to her business. She’s still counting on the consumer boom to keep her going.

“Maybe I will keep my online business by importing things that aren’t available here, or I may open a travel agency,” she said. “More Indonesians are getting richer and like to spend their money by buying fancy stuff.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE