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BUSINESS PROSPECTS OF DEPARTMENT STORES STILL OVERSHADOWED BY CRISIS.

The rapid economic growth in the past led to increases in the number of middle-upper income people with financial ability and a taste for prestige, and this in turn brought about changes in the people's lifestyle. They started to require the service and comfort which modern markets could offer. The business of modern markets started to grow rapidly in the area of Jabotabek (Jakarta-Bogor-Tangerang-Bekasi), in terms of the number of outlets, the shopping space, the range of goods offered, a:; well as the number of players. The growth in the business of modern markets was boosted by increases in the number of people with a monthly income of Rp 1 million or more because such people are modern markets' potential customers.

Modern markets come in different types such as department stores, supermarkets, convenience stores, super stores, hypermarkets, malls, and plazas. As for department stores and supermarkets, there has been a growing tendency over the last few years for the two types to be inclusive of each other. Matahari Department Store, for example, now also sells household goods and staple items through a supermarket called Super Bazaar, in addition to handling its core business, i.e. selling fashion products. Even the super store Mega M handles the two types of business (i.e. department store and supermarket) together through its concept of one-stop shopping. A similar concept is also implemented by large-scale foreign retailers such as Carrefour and Continent in Jakarta.

Large-scale retailers like Matahari have managed to survive the crisis although they have had to improve efficiency, e.g. by reducing the numbers of their outlets. To medium- and large-scale retailers, the crisis was worsened by the May 1998 mayhem in Jakarta, which caused them to lose some of their outlets. Similarly, the business of shopping centers, which grew rapidly in the past, has also been affected by the crisis, which has caused many shopping center projects to be delayed.

This report discusses the condition and growth of the department store business in the area of Jabotabek. The department stores that are covered in this report are those which have more than one outlets (or chain stores). The discussions focus on various aspects of the retail business of department stores such as their population, their geographical distribution, their management, the competition among them, and their potential customers.

Department stores

Modern markets with the department store concept were introduced in Indonesia early in the 1970s. They first emerged as retail shops that were larger than the usual ones. As retailers, department stores sell garments/fashion products, shoes, bags, waist--bands, and other accessories directly to end-users. They provide a room in which buyers can try on the garments they want to buy so as to make sure that the garments are exactly their size.

To attract customers and to provide them with comfort, department stores usually have specially designed space in which fashion products are nicely displayed. Visiting customers are pampered with air-conditioned space and the freedom to browse and choose, served by neatly clad shop-assistants, and enjoy a feeling of safety. The products offered by department stores usually have guaranteed quality, except those placed on "on sale" boxes.

The products sold by department stores have fixed prices, and each of them has a price tag to make it easy for customers to find out how much exactly they have to pay if they want to have it. Throughout the area of Jabotabek, department stores open at 09:00 and close at 21:00.

Department stores promote their business by intensively advertising themselves through printed and electronic media. In addition, they also adopt other methods to attract customers such as providing discounts, providing prizes through raffles, and giving out direct prizes in certain quantities.

In most cases, a large-scale department store also provides a small-scale supermarket outlet which sells other household items to attract customers to do one-stop shopping. Among such department stores are Matahari and Ramayana. With such a concept, department stores can serve not only as a shopping center but also as an alternative way for families to have some recreation. Therefore, a number of department stores have equipped themselves with a children's play ground and other such facilities.

Although there are no clear-cut limits, department stores vary in space from 1,500 square meters to 16,000 square meters. Even so, there are also department stores which have a space of less than 1,000 square meters. Some department stores are owned by individuals while others are owned by business groups. The latter are usually chainstores.

Department stores in Jabotabek

The first department store in Indonesia was established in Jakarta in the 1960s, and it was called Sarinah Department Store. Owned by the Government, Sarinah Department Store was then the only large-scale retailer to operate in Indonesia. In the 1970s, some sharp-eyed private businessmen noticed a shift in the lifestyle of urban people in which they wanted practicality, ease, and comfort when shopping. In view of these, these businessmen established department stores. The first private-owned department store to operate in Indonesia is Matahari.

Matahari Department Store originates from a small shop called "The Sun" in the Central Jakarta area of Pasar Baru. In 1970, Hari Dharmawan bought the shop and Indonesianized its name into Matahari. The period of 1995-1997 was a golden era for the growth of the Matahari Group, which then enjoyed an annual sales turnover of Rp 2.1 trillion. The year 1998, however, turned out to be a hard time for Matahari, which saw 11 of its outlets damaged and looted during the May 1998 riots, of which 7 were burned to ashes.

The Matahari Group is still the largest of department store groups in Indonesia, both in terms of the number of outlets and in terms of space. As per the end of 1999, the Matahari Group had a total of 73 outlets spread over several Indonesian provinces, and these outlets had a combined space of 646,000 square meters. Some 34.2% of these outlets (or 25) were located in Jabotabek, and they had a combined space of 242,000 square meters.

Besides conducting a horizontal expansion, the Matahari Group has also been penetrating into the middle-upper market segment (which consists of people with a monthly income of Rp 1 million or more) through its Galeria outlet concept. A Galeria outlet has a space of 10,000 square meters, like the ones found in Mal Taman Anggrek and in Lippo Supermal Karawaci. Besides Galeria outlets, which are located in large cities, the Matahari Group has also developed Mega-M outlets, which are hypermarkets in the true sense of the word. A Mega-M outlet varies in space between 15,000 and 18,000 square meters. One Mega-M outlet has been established in Batam, and another one at Mal Pluit Jakarta. A Mega-M outlet sells garments, food products, and household appliances. In addition, Matahati has also developed shopping centers for children like the one called "Mega Kid" at Mal Taman Anggrek, Jakarta.

Hari Dharmawan became a minority shareholder in PT Matahari Putra Prima (MPP) following an acquisition in 1997 of some 202,950,000 shares (4.5%) in Matahari by PT Multipolar Corporation (the Lippo Group). These shares were originally owned by PT Mataharijaya Puteraperkasa (MJPP), the holding company of MPP. To increase its control of MPP into 50.1% (or 222.95 million shares), Multipolar subsequently offered to buy 23 million shares (5.1%) from the public through the stock exchange. The Hari Dharmawan family now intends to buy back their shares in MPP.

As for the Ramayana Department Store, it originates from a shop called Ramayana Fashion on H. Agus Salim Street in Central Jakarta. The shop was established by Paulus Tumewu and his wife, both of which originally come from Ujungpandang, in 1978. In 1983, the couple changed the status of Ramayana Fashion into a department store called Ramayana and established a corporate body called PT Ramayana Lestari Sentosa to manage the store. The Ramayana Department Store initially concentrated on middle-lower and lower market segments. It sold garments for men, women, and children, accessories for men and women, shoes, household appliances, and staple items.

In 1988, Ramayana increased the range of goods it offered by establishing a supermarket called Bazaaria, which sold toiletries and dried food products. Late in 1995, the range of goods sold through Bazaaria was further increased to include fresh food products and meat. As per the end of 1999, Ramayana had 63 outlets, of which 60 were located in Java. The other three were found in Bali, Lampung, and Batam. The number of Ramayana's outlets grew rapidly following its success in taking over the Cahaya Department Store in 1997. As a result of the May 1998 riots in Jakarta, Ramayana lost 13 of its outlets, including the ones in Pal Merah, Kramat Jaya, and Pasar Minggu.

Another large-scale department store is the Yogya Department Store, which originates from a small batik shop called Toko Djockja in the Bandung area of Kosambi. The shop was owned by Gondosasmita, who originally comes from Solo. Between 1974 and 1982, Gondosasmito's daughter Tina Handayani and a friend of her husband's named Boedi Siswanto together developed Toko Djockja into a department store. In October 1982, the department store called Toko Yogya was established on JI. Sunda, Jakarta. In the following years, this department store managed to grow into a chainstore serving consumers in the capital city.

Table - 1 Department store operating in Jabotabek and number of their outlet, 1999
 Name of Total Total
Owner/Manager dept. store outlets spaces

PT Matahari Putera Matahari 73 646,436
 Prima
PT Ramaya Lestari Ramayana & 63 350,196
 Sentosa Robinson
PT Akur Pratama Yogya 13 52,848
PT Borobudur Borobudur 13 40,000
 Department Store
PT Sarinah Sarinah 8 40,000
PT Pasaraya Pasaraya 2 20,000
 Nusakarya
PT Terminal Prasetya Artomoro 2 10,000
PT Panen Lestari Sogo 3 34,000
 Internusa
PT Metropolitan Metro Dept. 2 15,000
 Retailmart Store
Others - 53 198,438

Total 272 1,435,418

 Outlets in Combined space
Owner/Manager Jabotabek in Jabotabek

PT Matahari Putera 25 242,371
 Prima
PT Ramaya Lestari 40 199,320
 Sentosa
PT Akur Pratama 3 8,500
PT Borobudur 12 38,000
 Department Store
PT Sarinah 2 10,000
PT Pasaraya 2 20,000
 Nusakarya
PT Terminal Prasetya 1 12,000
PT Panen Lestari 3 34,000
 Internusa
PT Metropolitan 2 15,000
 Retailmart
Others 10 13,631

Total 134 637,572



Source: Data Consult

Foreign retailers

In the past, the Government protected the retail trade sector in Indonesia from the entry of foreign investment in order to help local businessmen. Through Government Regulation No. 19 of 1988, the Government expressly stated that foreign retailers were not allowed to deal in retail trade in Indonesia. In addition, Decree of the Minister of Manpower No. KEP-682/ MEN/85 also prohibited expatriates from entering the retail sector. Another form of protection for the retail sector was also provided by the Government in the form of Presidential Decree No. 32 of 1992, which included retail trade in the so-called Daftar Negatif Investasi (i.e. the list of business lines closed to foreign investment). This presidential decree was subsequently strengthened by the issuance of Presidential Decree No. 31 of 1995.

In the face of such barriers, foreign retailers sought to do business in Indonesia by making use of the loopholes available, e.g. through the franchising system or by serving as technical assistance providers. The first foreign retailer to enter Indonesia by making use of such loopholes is Sogo, which established its department store in Jakarta in 1990. Other foreign retailers were also attracted to the middle-upper market segments in Indonesia. A year after the establishment of the Sogo Department Store at Jakarta's Plaza Indonesia, the Metro Department Store of Singapore opened its outlet at Pondok Indah in South Jakarta. In 1992, the Yaohan Department Store of Japan set up its outlet at Atrium Plaza in the triangle area of Senen in Central Jakarta.

Yaohan did not fare as well as Sogo in Indonesia because the triangle area of Senen turned out to be not good for middle-upper market segment shopping centers. Yaohan managed to say at Atrium Plaza only for two years before its outlet was taken over by the Matahari Group. Even so, this did not discourage foreign retailers from entering Indonesia. On the contrary, they seemed to be racing against one another to get to Indonesia first. This can be seen from the fact that Seibu (of Japan), Wal Mart, J.C. Penney, and Mark & Spencer (all of the United States) finally also established their outlets in Jakarta. Mark & Spencer was even very expansive in its first years in Indonesia. However, the three U.S. retailers did not stay here long because they could not withstand the crisis, which caused the price of import garments to skyrocket as a result of the sharp depreciation of the rupiah against the U.S. dollar.

The entry of Sogo into Indonesia initially provoked strong reactions among many, who were worried that it would drive local retailers out of business. However, Sjamsul Nursalim, the major shareholder in PT Panen Lestari Internusa (of the Gajah Tunggal Group), asserted that the company operated under the domestic investment (PMDN) scheme and that Sogo only provided technical assistance and did not own any shares in the department store at Plaza Indonesia. Panen Lestari, which invested some Rp 45 billion in setting up the Sogo Department Store at Plaza Indonesia, is obliged to pay to Sogo a royalty amounting to 0.5% of its net sales.

Sogo, which then had outlets in 35 major international cities, apparently succeeded in attracting Jakarta consumers, and this led the department store to opening its second outlet in Kelapa Gading Mall in North Jakarta. Earlier, the location where Sogo's second outlet has been set up was eyed by Yaohan. However, since the negotiations with Yaohan did not proceed well, the opportunity was snatched by Sogo. Sogo became increasingly expansive in North Jakarta. When Mega Mal Pluit was built by Metropolitan Lingga Kencana in 1996, Sogo became its anchor tenant. Sogo's outlet at Mega Mal Pluit stands next to the outlet of the largest domestic department store, Matahari.

Unlike Sogo, Metro Holding of Singapore came into Indonesia without stirring up public opinion. Metro Holding cooperated with the Rajawali Group in establishing a Rp 20 billion outlet at Pondok Indah Mal in South Jakarta. Like Sogo, Metro does business in Indonesia through the franchising system, under which it receives a fee amounting to 0.5% of the net sales from its partner, the Rajawali Group. Following its success in sectoring a market share in South Jakarta through its Pondok Indah Mal outlet, Metro established a second outlet at Senayan Square in 1996 to strengthen its position in the area (South Jakarta). Senayan Square itself was built by the Era Persada Group, which is owned by national businessman Hashim Djojohadikusumo.

Table - 2 Department store operating under foreign franchise, 1999
Departemen Total
store Operator outlets

Sogo PT Panen Lestari 2
Metro PT Metropolitan 2
Retailmart
Seibu(*) PT Pasaraya 1

Departemen Space Location of
store ([m.sup.2]) outlet

Sogo - Plaza Indonesia
 - Kelapa Gading
Metro 26,000 - Pondok Indah
Retailmart - Senayan Plaza
Seibu(*) 12,000 - Supermall
 Karawaci



(*) Taken over by Pasaraya

Source: Data Consult

Foreign retailers now allowed to do retail business in Indonesia

Nowadays, as the end of the 20th century is approaching, foreign retailers have found no significant barriers against their entry into Indonesia because, as a result of the signing on 15 January 1998 of the Letter of Intent (LoI) with the IMF, the Government revoked its ban on foreign investment in wholesale and retail trading effective as from March 1998. This means that the Government has opened the door for foreign investors to do business in wholesale and retail trading.

Initially, following the signing of the LoI, the Government still tried to impose certain restrictions on foreign investment in wholesale and retail trading by issuing Decree of the Minister of State for Investment/Head of the Investment Coordinating Board (BKPM) No. 11/SK/1998, signed by Sanyoto Sastrowardoyo, which stipulated among others that the foreign investor in wholesale/retail trading should allocate a minimum 49% of the shares for the local partner(s). However, this provision was seen by the IMF as unsatisfactory and, as a result, the said decree managed to be effective only for less than six months before it was finally revoked through Decree of the Minister of State for Investment/Head of the BKPM No. 29/SK/1998 dated 29 September 1998.

With the revocation of Decree of the Minister of State for Investment/Head of the BKPM No. 11/SK/1998, the licensing procedures and other conditions for foreign investors in wholesale/retail trading are now the same as those for local investors. This is stated in Presidential Decree No. 99 of 1998 re Business Lines Reserved for Small-, Medium-, and Large-scale

Retail Trading. One condition for foreign retailers is that they should establish partnership with local investors if they want to operate at the district/municipality level; otherwise, they can operate only at the provincial capital. It took not time before a number of foreign retailers started to grab this opportunity. They include internationally reputed ones such as Carre-four and Continent (hypermarkets) as well as medium-size ones such as Point Break Enterprises Pty. Ltd. (of Australia) and Delhaize' Le Lion (of France). Point Break Enterprises has opened an outlet at Pondok Indah Mal.

Space grows by 3.1% annually

The growth in the total space of department stores in Jakarta has been slow over the last few years partly because some of the outlet have become inoperable due to the arson and looting that took place during the May 1998 riots. Meanwhile, the development of shopping centers, which provide space for department stores, has also been impeded by the economic crisis which has been pervading Indonesia since mid-1997.

Among the department stores which saw some of their outlets damaged as a result of the May 1998 mayhem are Matahari, Ramayana, and Yogya. The Matahari Group lost 7 outlets, the Ramayana Group 12 outlets, and the Yogya Group one outlet as a result of the riots. The incidence of mass riots and the fact that the development of shopping centers has slowed down due to the crisis have caused the total space of department stores in Jakarta to grow by only 3.1% annually over the last five years, from 363,000 square meters in 1995 to 408,000 square meters in 1999.

The May 1998 mob violence in Jakarta caused the total space of department stores in the city to drop by 10%. The Yogya Department Store outlet at Central Klender Plaza in East Jakarta was burned to ashes together with the shopping center, and there have been no signs that the shopping center will be re-built in the near future.

In 1999, as national economy began to show some improvement, a number of department stores started to re-build their outlets which had been damaged during the May 1998 mayhem. Some of these have been re-opened, and some are still being repaired. Earlier, in 1996, the total space of department stores in Jakarta grow by a high 12% from the previous year with the commencement of operations of some new outlets such as Matahari at Klender Plaza, Matahari at Megamal Pluit, Galeria at Mal Taman Anggrek, Matahari Mega Kids at Mal Taman Anggrek, and Ramayana in North Jakarta.

Table - 3 Estimates of Department store space in Jakarta, 1995 - 1999
 Central North West South
Year Jakarta Jakarta Jakarta Jakarta

1995 122,622 34,000 40,887 128,376
1996 122,622 50,721 53,887 128,376
1997 122,622 50,721 79,887 128,376
1998 116,622 46,221 66,887 117,376
1999 116,622 50,721 71,387 128,376

 East Growth
Year Jakarta Total (%)

1995 41,316 362,701 -
1996 50,494 406,100 11.9
1997 50,494 432,100 6.4
1998 41,316 388,422 -10.1
1999 41,316 408,422 4.3

Average Growth (%) 3.1



Source: Data Consult

Among the five mayoralties in Jakarta, the one with the most department stores is South Jakarta (29 outlets with a combined space of 128,000 square meters or 20% of the total in Jabotabek), followed by Central Jakarta (23 outlets with a combined space of 117,000 square meters or 18% of the total in Jabotabek), West Jakarta (71,000 square meters), North Jakarta (51,000 square meters), and East Jakarta (41,000 square meters).

Although North Jakarta has the least number of department store outlets (7), the average space per outlet is the largest in this mayoralty (7,300 square meters). The average space per outlet in South Jakarta is only 4,600 square meters, that in Central Jakarta 4,900 square meters, that in West Jakarta 6,500 square meters, and that in East Jakarta 3,000 square meters.

Meanwhile, the department store outlets in Bekasi have a combined space of 89,000 square meters, making Bekasi the second largest area in Jabotabek after Jakarta in terms of such space. As for the department store outlets in Jakarta, they have a combined space of 408,000 square meters. Tangerang has 73,000 square meters and Bogor 67,000 square meters. The average space per outlet in Bekasi (6,900 square meters) is larger than that in Tangerang (4,000 square meters) or in Bogor (3,700 square meters).

Table - 4 Department store in Jabotabek: their outlets and space, 1999
 Total Space Share in
Region outlets ([m.sup.2]) total (%)

North Jakarta 7 50,721 8.0
Central Jakarta 23 116,622 18.3
East Jakarta 14 41,316 6.5
South Jakarta 29 128,376 20.1
West Jakarta 12 71,387 11.2

Total Jakarta 85 408,422 64.1

Bogor 18 66,950
Tanggerang 18 72,800
Bekasi 13 89,400

Total Jabotabek 134 637,572 100.0



Source: Data Consult

North Jakarta not very attractive to large-scale investors in retail business

The population density in North Jakarta is relatively low compared to that in the other mayoralties in Jakarta. This may be one reason why North Jakarta is not very attractive to large-scale investors in the retail business. However, North Jakarta has been shown rapid growth. Over the last few years, real estates for middle-upper income families have been developed in North Jakarta, including Kapuk and Mutiara.

The large-scale department stores which operate in North Jakarta include Sogo, Matahari, Lotus, and Ramayana, each of which only has one outlet in the region. Sogo's outlet in North Jakarta is located at Mal Kelapa Gading in the elite real estate called Kelapa Gading, and it is Sogo's second outlet after the one at Plaza Indonesia.

South Jakarta, which is designed as a residential area, has been increasingly crowded with the continued emergence of new real estates. South Jakarta has the most department store outlets, i.e. 29, and they have a combined space of 128,376 square meters. Since South Jakarta is a beautifully designed residential area, it is inhabited largely by middle-upper income families. The commercial centers and real estates in South Jakarta are home to department stores, and they include Melawai Street, Pondok Indah, and Blok M.

Central Jakarta has 23 department store outlets. This area has the most commercial centers and the highest population density (i.e. 20,303 persons per square meter) among the five mayoralties of Jakarta.

Matahari has four outlets in Central Jakarta: two at Pasar Baru and two at Atrium Plaza in the triangle area of Senen. The two outlets at Pasar Baru have a combined space of 24,713 square meters, and the other two at Atrium Plaza 23,409 square meters. Meanwhile, Sogo has an outlet with a space of 12,000 square meters at Plaza Indonesia in the golden triangle area of Sudirman.

West Jakarta has been showing rapid growth in terms of its territory and population. The territorial and population growth of West Jakarta has been supported by the growth of the Municipality of Tangerang. Like Bekasi, Tangerang has become a buffer zone for the rapid growth in the population of Jakarta. Besides real estates, West Jakarta has also seen the number of industrial and business centers in its territory growing. The department store outlets in West Jakarta are found at business and residential centers such as Citra Land, Hayam Wuruk, Gajah Mada, and Mangga Besar.

Matahari initially had two outlets with a combined space of 11,925 square meters in West Jakarta, one at Citra Land Plaza and the other at Lokasari Plaza. In 1997, the Matahari Group opened another two outlets with a combined space of 26,000 square meters in West Jakarta, both at Mal Taman Anggrek. One is called Galeria, and the other Mega Kids.

East Jakarta has the potential to accommodate more department stores in its territory. This is so not only because East Jakarta is home to residential areas and industrial centers but also because it borders with Bekasi, which has developed into a major city serving as a buffer zone for the population growth of Jakarta. Most Bekasi residents seek their living in Jakarta. Since East Jakarta is geographically very close to Bekasi, it is also increasingly crowded.

Table - 5 Department store in Jakarta and their space, 1999
 North South
Name of
Dept. Store Outlets [m.sup.2] Outlets [m.sup.2]

Matahari 1 6,721 4 26,126
Sogo 1 12,000 -
Lotus 1 6,000 -
Ramayana & Robinson 1 4,500 9 31,500
Diamond 1 4,500 -
R & G 1 3,000 -
Borobudur - 4 12,000
Pasaraya - 2 20,000
Seibu - 1 12,000
Metro - 2 15,000
Trend - 3 3,250
Rimo - 1 3,000
Grand Melawai - 1 2,500
Esa Genangku - 1 1,500
Central - 1 1,500
Niko - -
Yogya - -
Liberty - -
Artomoro - -
Malioboro - -
Miana - -
Lainnya 1 4,000 -

Total 7 50,721 29 128,376

 Central West
Name of
Dept. Store Outlets [m.sup.2] Outlets [m.sup.2]

Matahari 6 48,122 4 37,025
Sogo 1 12,000 -
Lotus 1 6,000 -
Ramayana & Robinson 5 10,000 3 10,700
Diamond - -
R & G - -
Borobudur 2 8,000 -
Pasaraya 1 10,000 -
Seibu - -
Metro - -
Trend - -
Rimo 1 5,000 1 6,000
Grand Melawai - -
Esa Genangku - -
Central - -
Niko 1 1,500 -
Yogya - 1 13,000
Liberty - 1 2,500
Artomoro - -
Malioboro - -
Miana - -
Lainnya 3 2,000 2 2,162

Total 23 116,622 12 71,387

 East
Name of
Dept. Store Outlets [m.sup.2]

Matahari 4 25,777
Sogo -
Lotus -
Ramayana & Robinson 3 10,000
Diamond -
R & G -
Borobudur -
Pasaraya -
Seibu -
Metro -
Trend -
Rimo -
Grand Melawai -
Esa Genangku -
Central -
Niko -
Yogya
Liberty
Artomoro 1 2,000
Malioboro 1 1,000
Miana 1 600
Lainnya 4 1,939

Total 14 41,316



Source: Data Consult

Botabek (Bogor-Tangerang-Bekasi) has the potential to accommodate more department stores

The area of Bogor-Tangerang-Bekasi, which is popularly called Botabek, borders with Jakarta, the capital city of Indonesia. As a result, the growth of Botabek has been boosted by that of Jakarta. Botabek has been receiving excesses from all the economic, social, and cultural activities taking place in Jakarta. As a result, Botabek has become home to more and more of the people working in Jakarta. Naturally, therefore, the people living in Botabek have higher income levels than those living in other areas in Indonesia. The income levels of Botabek's residents are comparable to those of Jakarta's.

Under such circumstances, Botabek is seen by retailers as a potentially large market for them. Both local and foreign retailers have been eyeing Botabek. Bogor, for example, now has 18 department store outlets, some of which are located in the Administrative Town of Depok. The department store outlets in Bogor are generally found at shopping centers and at food centers. Sinar Matahari (of the Matahari Group), for example, is located at the Jembatan Merah shopping center, and Matahari Mega M (12,000 square meters) at Kedung Badak. Ramayana is located at Kebon Kembang, and Yogya at Bogor Plaza.

Table - 6 Department store in Botabek and their space, 1999
 Bogor Tanggerang

Name of space space
dept. store Outlets ([m.sup.2]) Outlets ([m.sup.2])

Ramayana 3 20,500 6 32,000
Matahari 3 25,500 2 23,300
Borobudur 2 4,000 2 6,000
Shangrila 2 3,000 -
Yogya 2 8,000 -
Robinson 1 3,000 1 2,500
Terang 1 1,000 -
Pojok Busana 2 750 4 2,000
Ngesti 1 600 -
New Ngesti 1 600 -

Total 18 66,950 18 72,800

 Bekasi

Name of space
dept. store Outlets ([m.sup.2])

Ramayana 4 30,000
Matahari 4 39,800
Borobudur 2 8,000
Shangrila -
Yogya -
Robinson 1 4,600
Terang -
Pojok Busana 2 4,000
Ngesti -
New Ngesti -

Total 13 89,400



Source: Data Consult

Sales turnover down in 1998

Due to the crisis, which weakened the people's purchasing power, and to the May 1998 mayhem, the sales turnover of modern retailers dropped by an estimated 25% to US$ 9 billion in 1998 from US$ 12 billion in the previous year. In 1999, however, it grew by an estimated 22% to US$ 11 billion, thanks to the Government's efforts at improving national economy.

Table - 7 Estimates sales, turnover of retailers
 (US$' billion)

 Modern Traditional
Year retailer retailer Total

1996 11 44 55
1997 12 50 62
1998 9 32 41
1999 11 44 55



Source: Data Consult

Selection of location

One vital factor which determines the success of a department store is its location. A location is selected because it is thought of as suitable for the target market. Every department store has its own target market. Matahari. Lotus, and Sarinah, for example, have middle-upper income families as their target markets. On the other hand, Pojok Busana, Ramayana, and Borobudur target their products at middle-lower income people.

Department stores with middle-upper income people as their target markets like Matahari, Lotus, and Sarinah select middle-upper class business centers and residential areas as locations for their outlets such as Citraland Mal, Blok M Mal, Sunter Podomoro, and Menteng. On the other hand, department stores which target themselves at middle-lower income families select second-class business centers and residential areas such as Tanah Abang and Pasar Minggu and, even, business centers and residential areas outside of Jakarta such as Depok, Bogor, Tangerang, and Bekasi.

Table - 8 Department store and their locations
Department Business Residential Office
Store center area buildings Others

Lotus v v - -
Matahari v - - v
Pojok Busana v - - -
Sarinah v v v v
Yogya v v - -
Malioboro - v - -
Ramayana v v v v
Borobudur v v - -
Pasaraya v v - -



Source: Data Consult

Shopping centers attractive to department stores

Although the property business of shopping center development was already marked with tough competition, it continued to attract new investors. This was so because the anchor tenants of many of the already existing shopping centers were not only local department stores but also foreign ones such as Seibu, Sogo, Wal-Mart, J.C. Penney, and Yaohan. As has been mentioned earlier, Wal-Mart, J.C. Penney, and Yaohan have closed down their operations in Indonesia. A number of shopping centers have also closed down due to the vandalism, arson, and looting which took play during the May 1998 mayhem. One of them is Mal Jatinegara, which has been left abandoned up to the present.

The crisis has dealt the business of shopping centers a heavy blow with many of the tenants either leasing less space or closing down their operations due to the people's weakened purchasing power. Throughout 1998, shopping centers in Jakarta saw a considerable part (46,000 square meters) of their space left behind by tenants and another 111,800 square meters damaged by the May 1998 riots. Coincidentally, shopping center development projects had to be discontinued due to funding problems. For the same year, the total supply of shopping space in Jakarta is estimated at 1.07 million square meters with the following breakdown: 22.9% in West Jakarta, 19.8% in South Jakarta, 19.7% in North Jakarta, and 37.6% in Central Jakarta and East Jakarta.

Each one of the department stores locate at shopping centers is equipped not only with air-conditioning but also with other vital facilities such as an elevator, a lift, and parking space. Nowadays, some of such department stores are also equipped with other facilities such as a children's play ground and a food center. Matahari, Ramayana, and Yogya are among the department stores which have equipped their outlets with a children's play ground and a food center.

Table - 9 Shopping center in Jakarta that have department store and supermarkets among their tenants, 1999
Name of shopping Commencement
center Location of operation

North Jakarta :
Kelapa Gading Plaza Kelapa Gading 1991
Jayakarta Plaza Hayam Wuruk -
Sunter Mall Danau Sunter 1994
Mega mall Pluit 1996
Mal Mangga Dua Mangga Dua 1997

West Jakarta :
Duta Merlin Gajah Mada 1970
Gajah Mada Plaza Gajah Mada 1982
Golden Trully
- Suryopranoto Suyopranoto 1985
- Slipi Slipi -
Glodok Plaza Gajah Mada 1987
Lokasari Harmoni 1988
Slipi Plaza Slipi 1990
CitraLand Mall S. Parman 1993
ITC Roxy Mas Hasyim Anshari 1995
Supermall Karawaci 1996
Mal Taman Anggrek Slipi 1997

Central Jakarta :
Sarinah MH Thamrin 1990
Proyek Senen Senen Raya 1972
Plaza Indonesia MH. Thamrin 1990
Metro Pasar Baru Pasarbaru 1978
Golden Trully
- Gunung Sahari Gunung Sahari 1991
- MH Thamrin MH Tharin 1984
Atrium Senen Senen Raya 1991
Mega ITC Cempaka Cempaka Putih 1997

South Jakarta :
Pasaraya Melawai 1987
Ratu Plaza Sudirman 1980
Aldiron Plaza Melawai 1989
Golden Trully
- Mampang Kapten Tendean 1989
- Fatmawati Fatmawati 1989
- Blok M Blok M 1986
Kalibata Mall Pasar Minggu 1991
Cinere Mall Cinere Raya 1992
Pondok Indah Mall Pondok Indah 1991
Bintaro Plaza Bintaro 1993
Super Ekonomi Grosir Tole Iskandar 1995
Plaza kota BNI Sudirman 1998
Mal Menara Kemayoran Kemayoran 2000
Plaza Kasablanka JL. Kasablanka 1998

East Jakarta :
Kramat Jati Indah Raya Bogor -
Arion Plaza Pemuda 1990
Yogya Dept. Store Ngurah Rai 1991
Pondok Gede Plaza Pondok Gede 1994
Metropolitan Mall Metropolitan 1993
Hero Plaza Kalimalang 1994
Duta Plaza Kalimalang 1993
Jatinegara Plaza Jatinegara 1995
Graha Cijantung Cijantung 1997

Name of shopping space
center ([m.sup.2]) Owner

North Jakarta :
Kelapa Gading Plaza 30,000 Summarecon Agung
Jayakarta Plaza 35,000 Pudjiadi & Sons
Sunter Mall 25,000 Gajah Tunggal
Mega mall 142,000 Metropolitan LK.
Mal Mangga Dua 45,000 -

West Jakarta :
Duta Merlin - Duta Indonesia
Gajah Mada Plaza 54,000 Harapan
Golden Trully Dwi Golden Graha
- Suryopranoto 6,000
- Slipi -
Glodok Plaza 42,000 Intra Maju Jaya
Lokasari 14,000 Bimantara
Slipi Plaza 12,000 Pembangunan Jaya
CitraLand Mall 70,000 Ciputra
ITC Roxy Mas 54,000 Sinar Mas
Supermall 100,000 Lippo group
Mal Taman Anggrek 132,000 Ciputra

Central Jakarta :
Sarinah 60,000 State owner
Proyek Senen - Pembangunan Jaya
Plaza Indonesia 60,000 - Gajah Tunggal
 - Sinar Mas
 - Bimantara
 - Rajawali
 - Ometraco
 - Dwi Golden G.
Metro Pasar Baru 9,700 Yakin
Golden Trully Dwi Golden Graha
- Gunung Sahari 20,000
- MH Thamrin -
Atrium Senen - Ongko
Mega ITC Cempaka 60,000 -

South Jakarta :
Pasaraya 42,000 ALatif Corp.
Ratu Plaza - Ratu Sayang
Aldiron Plaza - Aldiron Hero
Golden Trully Dwi Golden Graha
- Mampang 6,000
- Fatmawati 12,000
- Blok M 5,700
Kalibata Mall -
Cinere Mall 18,000
Pondok Indah Mall 40,000 Ciputra
Bintaro Plaza 25,000 Pembangunan Jaya
Super Ekonomi Grosir - Matahari
Plaza kota BNI 50,000 -
Mal Menara Kemayoran 90,000 -
Plaza Kasablanka 76,000 -

East Jakarta :
Kramat Jati Indah 21,000 Bimantara
Arion Plaza 12,000 Arion Paramita
Yogya Dept. Store -
Pondok Gede Plaza -
Metropolitan Mall 50,000 Metropolitan
Hero Plaza 15,000 Hero
Duta Plaza - Mega Diri
Jatinegara Plaza 20,900 Gunung Sewu
Graha Cijantung 17,000 Yayasan Kopassus



Source: Data Consult

Distribution of goods

To a department store with a wide network of outlets, the distribution of goods is a very important issue. Goods should not be accumulated in the warehouse because that would increase the cost of storage. Upon receipt, goods are generally stored in large warehouses before they are distributed to outlets by the Distribution Department.

In the face of increasingly tough competition in the retail business, retailers are making efforts to improve their efficiency. Some of them, for example, have adopted the so-called efficient consumer response (ECR) system, which is supported with an electronic data interchange (EDI) facility. One advantage offered by the system is that all documents from orders to deliveries to payment receiptscan be transacted through the computer. All the data can be accessed through the EDI facility, and this enables the retailer in question to improve efficiency in many areas, including cost.

For the same purpose, a number of retailers have also adopted the management information system (MIS) concept. With a server at the head office and with good cooperation with the suppliers, the retailer in question can make sure that the supply of goods to each of its outlets can be conducted immediately upon request and in a well-controlled manner. As a result, no cases in which an outlet is running out of certain types of goods or in which certain kinds of goods are accumulated in the warehouse can happen. Thanks to the MIS concept, Ramayana has managed to increase the efficiency of its distribution of goods by 10%, resulting in its gross margin growing by at least 1%.

Matahari has also adopted the same concept to cover all its outlets throughout Indonesia and has made a plan to develop it further by introducing e-commerce. As for New Carrefour, which currently has 6 outlets in Indonesia, this department store has adopted the POS system at the head office, which is linked through radio waves to each of its outlets and to the server. With this system the management of Carrefour can monitor its stock situation on a permanent basis and automatically place orders with the suppliers.

Generally, the purchase of goods by a department store from a supplier is conducted either on a cash basis or on a consignment basis. In the first manner, the supplier receives the payment in cash after it delivers the goods to the department. In the second manner, the department store pays the supplier only for the goods that have been sold to consumers. The goods that have not been sold can be either returned to the supplier or replaced with other goods.

Generally, the goods which a department store purchases on a consignment basis are exclusive items such as cosmetic products, branded products, and imported products. As for purchases on a cash basis, a department store pays the supplier a week or so after the goods are delivered in the case the supplier is a small-scale dealer/cooperative. In the case the supplier is a large-scale dealer, the payment is usually made by the department store between two weeks and two months after the delivery is made.

Whether the cash system or consignment system is to be used depends on the agreement between the department store and the supplier in question. The policy concerning payment systems differs from one department store to another. Matahari, for example, uses the cash system for 70% of its purchases and the consignment system for the rest while Lotus, whose target market is middle-upper income families, uses the cash system for 20% of its purchases and the consignment system for the rest.

Table - 10 Goods purchase system among department store
 Goods purchase system

Department Cash Consignment
store (%) (%)

Matahari 70 30
Ramayana 85 15
Cahaya 40 60
Pojok Busana 75 25
Yogya 60 40
Sarinah 45 55
Malioboro 60 40
Lotus 20 80



Source: Data Consult

Promotion

One strategy for attracting consumers in the increasingly competitive retail business is by intensifying promotion. Department stores generally promote themselves through printed media (such as newspapers, magazines, and fliers) and electronic media (TV and the radio). Matahari and Ramayana have been actively promoting themselves through TV, especially towards public holiday seasons such as Idul Fitri, Christmas, and New Year.

Table - 11 Means of promotion among department store
Dept. store Newspaper Magazine Radio

Matahari v v v
Ramayana v v v
Lotus v v v
Pojok Busana v - v
Sarinah v v v
Yogya v - v
Pasaraya v v v
Borobudur v - v
Malioboro - - -

Dept. store TV Leaflets Others

Matahari v v v
Ramayana v v v
Lotus v v v
Pojok Busana - v v
Sarinah - v v
Yogya - v v
Pasaraya v v v
Borobudur - v v
Malioboro - v v



Source: Data Consult

Payment systems

Department stores require buyers to pay either in cash or using credit cards. Some department stores have issued their own credit cards such as Matahari Card and Pasaraya Card.

Nowadays, in addition to credit cards, a number of department stores have also issued membership cards. They include the Yogya Department Store, which issues Yogya Member Cards, and the Sarinah Department Store (Sarinah Customer's Cards). These membership cards provide holders with a discount facility (e.g. a 10% discount on each purchase) and other facilities such as gift wrapping service, local telephone service, and free delivery service (for holders living in Jabotabek). The other facilities which membership card holders enjoy include telephone shopping service and the latest information on events and promotional activities which the department store in question is about to organize.

Competition

Of late, the competition in the department store business has been increasingly tough, especially among department stores with the same target market. Matahari and Pasaraya, for example, have the same target market: middle-upper income people. Similarly, Ramayana and Yogya also have the same target market: middle-lower income earners.

Such competition can be seen from, among others, the fact that department stores seek to outperform one another in providing discounts, especially towards public holiday seasons such as Idul Fitri and Christmas. Every significant moment, e.g. school holidays, seems to be used as an excuse by department stores to provide discounts. Besides the discount war, another form of competition is opening as many outlets as possible like what Matahari, Ramayana, and Yogya have been doing. These three large-scale department stores have established outlets in small district towns and municipalities in various provinces.

Conclusions and prospects

In the face of the crisis, those in the retail industry, including department stores, saw their performance sink due to the people's weakened purchasing power. Some foreign retailers, which sell mostly imported goods, even had to close down their operations in Indonesia due to the sharp depreciation of the rupiah against the U.S. dollar, and they included Wal Mart, J.C. Penney, and Mark & Spencer.

Due to the crisis, the existing department stores not only saw their expansion efforts come to a halt but also had to lose some of their outlets especially because of the 1998 mayhem in Jakarta. As per the end of 1998, the total space of department stores in Jakarta was only 388 thousand square meters, down 10.1% from 432,100 square meters as per the end of 1997. The total sales turnover of department stores for 1998 is estimated at only US$ 9 billion, down 25% from US$ 12 billion for the previous year.

In 1999, the total space of department stores in Jakarta rose by 4.3% to 408,422 square meters, indicating that the retail business has started to revive as a result of the Government's efforts at improving national economy. However, the growth in the number of department store outlets will not be as rapid as it was in the years prior to the crisis, given that a number of shopping center development projects in Jakarta have been discontinued and that the people's purchasing power is still weakened.

Although the presence of hypermarkets such as Carrefour and Continent will not have direct impact on local department stores, this will negatively affect the performance of their supermarkets because the supermarket business is the core business of these hypermarkets. Given that the people's purchasing power is still weak, the competition among department stores will continue to be increasingly tough. Because of this, the growth in the total space of department stores and in the total number of their outlets over the next few years is likely to remain less than 5% per annum.
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Comment:BUSINESS PROSPECTS OF DEPARTMENT STORES STILL OVERSHADOWED BY CRISIS.
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Jun 13, 2000
Words:7395
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