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Modern retailers electronic goods growing fast.

In the past 10 years, the number of outlets of modern retailer of electronic goods electrical appliances has increased rapidly. The numbers of hypermarket outlets such as those of Carrefour, Giant, Hypermart and Lotte Mart and super store specially selling electronic goods and household electrical appliance such as Agis, Electronic City, etc., have increased rapidly.

The role of modern retailers is stronger giving them greater bargaining power facing suppliers. Panasonic and Sharp, for example, have special marketing divisions to deal with hypermarkets as hypermarkets like Carrefour and Lotte Mart agree to deal only with producers or their sole agents. Now producers also allow only sole agents to deal with modern retailers.

With the strength of their outlets, modern retailers somestimes could force suppliers to bow to their demand in prices and terms of payments. Modern retailers also demand producers/suppliers to share in the payments for the cost of promotion of products and in discount they offer. It is, therefore, often that the prices in modern retailer outlets are cheaper than in traditional markets, disrupting market stability.

Large producers like Sharp or Panasonic in the beginning refused to bow to demand by hypermarkets as their retailers in traditional markets protested and demanded that they be allowed to sell Sharp and Panasonic electronic products at lower prices than set by modern retailers. Hypermarkets, however, have greater bargaining power than retailers in traditional markets.

They like it or not big producers/suppliers of major brands have to follow in line and rely more on modern retailers to dispose of their products.

New brands also have to rely more on modern retailers. They agree to offer with lower prices. They hopes their products would gain from the strong image or reputation of the hypermarket. The producers do not have to build up their own distribution system as they could gain from the wide distribution networks of the hypermarket through its outlets.

Market Share of Modern Retailers Increasing

The role of modern retailers in selling electronic goods has grown fast putting behind traditional electronic stores. In 2003, modern retailers accounted only for 10%-20% of the total sales of major brands of electronic goods in the country. Now, modern retailers are estimated to account for 40%-50% of the sales of electronic goods and household electrical appliance.

Modern retailers help new producers in expanding their distribution and market coverage but they have to bow to the demand of modern retailers in price and payment terms.

Currently producers of electronic goods begin to gain from the expansion of modern retailers. Samsung is one of the brands that rely more on modern retailers in marketing and distribution of their products. By 2011, the South Korean brand sold 55 percent of its production through modern retailer outlets including electronic specialty stores.

Similarly, Sharp has sold more products through the outlets of modern retailers now reaching 50% of its total sales.

Modern retailer chains accounted for 30% of LG's total sales in 2011.

Main Players in Electronic Goods Modern Retail Business

Modern retailers have grown rapidly in Indonesia since the 1970s both in number and commodity format.

Hypermarkets brought about change in the types of commodities being sold in modern retail outlets. Electronic goods previously were not sold at modern retail outlets now have become one of the main commodities at supermarkets or hypermarkets. The trend led to establishment of special stores for electronic goods in Indonesia. In the past several years specialty stores for electronic products have expanded drawing many shoppers.

There are two types of modern market selling electronic goods and household electrical appliance--hypermarkets and specialty stores. Specialty store for electronic goods was first established by Gunung Sari Intan, but later Agis and Electronic City, respectively putting first outlet in operation in 2000 and 2001, lead in the market. Since then the business of operating specialty stores for electronic goods flourished.

Modern retailers began to play a greater role in the sales of electronic goods when Carrefour opened its outlets in Jakarta. It grew to become the largest hypermarket in the country. Carrefour's rivals followed later such as Giant, which was established by the Hero Group, which previously operated chain of Hero supermarket. Later, Matahari Department Store pout into operation its hypermarket named Hypermart.

Carefour strengthened its domination by acquiring Alfamart supermarket and hypermarket.

Another chain of hypermarket selling electronic goods is Lotte Mart, a whole saler. The market segment of Lotte Mart is different from other hypermarkets as it operates more as a wholesaler rather than as a retailer, but in the case of electronic goods it is the same in operation as other modern retailers.

Profiles of Main Players

Among the players in specialty store business selling electronic goods are Gunung Sari Intan (GSI), Agis, Electronic City, Electronic Solution, and Best Denki.

Gunung Sari Intan

In the beginning the company operate a store selling household electronic goods and electrical appliance with stores named Gunung Sari Indah (GSI) established in 1989. On 29 March 1998, the format was changed into eletronic department store named Gunung Sari Intan occupying a land plot of 6,000 sq.m. in Surabaya.

GSI expanded its business by opening a branch in 2004 named Electronic Mart with a floor space of 5,000 sq.m. In 2005, GSI opened two new outlets in Malang.

Agis

Agis is operated by PT. Agis Electronic of the Agis Group with holding company PT Artha Graha Investama Sentral (AGIS) Tbk. AGIS was once the principal for 14 brands of household electronic products like Sony, Toshiba, Philips, Goldstar and RCA.

PT AGIS Tbk is a listed company with 63% of its shares held by the public. Earlier, the company was controlled by Bhakti InvestamaGroup and Bank Artha Graha. Later, however, Bhakti Investama sold its entire 30% stake to the public.

AGIS plans to open six new outlets in 2012 including two superstores, and four express stores with an investment of Rp50 billion to increase its share in sales of electronic goods. AGIS also has increase the types and brands of goods sold at its outlets. In addition to Sony, it sells other brands like Samsung and Blackberry hand phones.

Early 2012, AGIS in cooperation with foreign partner, Fujian Xinjifu Enterprise, an investment company from China, established a joint venture named PT. Agis Resources with an investment of US$50 million. PT. Agis Resources holds 51% of the shares and Fujian Xinjifu takes the remaining 49% of the shares in the joint venture company.

PT AGIS Resources operates in gold mining, planning to acquire three gold mines over a 30,000 hectare concession in Pasaman, West Sumatra. In the first years, it plans to develop 2,000 hectares of the concession with production estimated at 50 million tons of gold a year.

AGIS recorded an income of Rp202.8 billion with a net profit of Rp 6.7 billion in 2011. In 2012, it set income target at Rp233.2 billion or an increase of 15% from 2011.

Electronic City

PT. Electronic City, owned by Tommy Winata of the Artha Graha Group, operates Electronic City stores. Artha Graha Group has a number of business units including banking, property, infrastructure, fish processing and mass media business. The largest among its business unit is Bank Artha Graha.

It started operation in 2001 with an outlet in a stand alone building having a floor space of 4,000 sq.m. at the expensive Sudirman Centre Business District under the Artha Graha Group. Since then Electronic City continues to grow and opened new outlets in other areas.

Currently, Electronic City began to expand its operation in the suburban areas of the Greater Jakarta area (Jabodetabek). By mid 2012, Electronic City had 17 outlets in the Greater Jakarta area and other cities.

Electronic City is set to open 10 new outlets in 2012. Three of the outlets would be stand alone outlets and other will occupy a rented space in shopping centers.

Electronic City provides guarantee as an after sales service different from those offered by competitors. Electronic City offers varieties of products having own auto service recognized in big service places in Indonesia.

Each outlet of Electronic City provides household electronic goods from audio visual, refrigerators, washing machines, AC, small home appliance and hand sets. Electronic City is known better by consumers for television sets especially LCD, which is still the best seller among the products of Electronic City.

Electronic Solution

PT. Electronic Solution Indonesia is jointly owned by foreign investment (PMA) companies including Sng Sze Hiang of Singapore (1%) and T.T. Corporation Pte. Ltd. also of Singapore (99%). It was established with an initial investment of US$3 million including US$1 million in equity and US$2 million in loan. This company operates an electronic goods retailer named Electronic Solutions coming on line in 2005.

Since mid 2007, PT AGIS Tbk started expansion to electronic goods retail business by planning to acquire other modern electronic shop, PT Electronic

Solution. At the same time PT Agis planned to acquire PT Akira, which produced various types of electronic goods with the brand of Akira.

However, the process of merger and acquisition failed to come to reality. Agis changed its business strategy from increasing the number of outlets through acquisition of its rival Electronic Solution. Instead AGIS is seeking to expand other types of retail business by planning to acquire retail company which operates in telecommunication equipment and hand phones by acquiring 30% stake each in two Singaporean companies--Comstar Mobile Pte Ltd and Erafone.

Currently, Electronic Solution already has 43 outlets in various shopping malls in the Greater Jakarta area, Bandung, Cirebon, Pekanbaru, Solo, Yogyakarta, Semarang, Palembang, Balikpapan, Batam and Makassar.

Since early 2012, Electronic Solutions launched Card of ES Membership Regular at a cost of Rp100,000 and Card of ES Membership Platinum at a cost of Rp200,000 both effective for 1 year. Holders of the Card of ES Membership Regular are entitled to a number of benefits including cash reward 5% of the transaction value, Price Match facility, Trade In, Free Installation, 30 Days Buy Back Warranty.

Holders of the Card of ES Membership Platinum are entitled to even more benefits including Free Insurance, Free delivery, 7-day guarantee for change of product, 5% discount for extended warranty, 50% discount 50% for service, 10% discount for spare part service, Free AC service once for 1 unit of AC, etc.

Best Denki

PT. Best Denki Indonesia is a joint venture company between Best Denki Singapore Pte. Ltd, Singapura (51%) and PT. Sinar Global Makmur Sejahtera (49%). It was established with an initial investment of US$ 4.5 million including US$1.5 million in equity capital and US$ million in loan capital.

PT. Best Denki Indonesia holds a franchise license from Best Denki, Co. Ltd s, a company selling electronic goods from Japan. It was established in 1953 by Mitsuo Kitada in Fukuoka, Japan. Best Denki succeeded in topping other rivals in sales in 1980 in Japan. Currently Best Denki has 600 chain stores all over Japan. Starting early 1980, Best Denki expanded its wings by opening branches in various other countries including Hong Kong, Singapore, Malaysia, Taiwan, Indonesia and Vietnam.

Currently Best Denki in Indonesia has around 14 branches in Jakarta, Bandung, Surabaya and Makassar. According to plan, Best Denki will open more outlets in a number of other big cities in Indonesia.

In mid 2012, Best Denki launched e-commerceBest Denki Indonesia in cooperation with Rakuten Belanja Online. The introduction of the new service has not contributed much to sales but it has improved the brand awareness.

Distribution of Outlets In Big Cities

Specialty stores are located mainly in big cities as the market targets are busy urban people that demand greater convenience.

Specialty stores aims not only to draw buyers from among the traditional market customers but also offers payment with credits from bank or other financial agencies. Credit and discount card, therefore, is generally used in specialty stores.

Strategies of modern electronic retailers imitating exhibitions

The concept of electronic sales centers generally imitate that of electronic exhibitions which have succeeded in Jakarta and other cities in Indonesia in the past several years. By opening electronic sales centers, it is like holding exhibitions from year to year.

The system, generally by offering prizes and credit facility like zero interest rate credit, turns out to be successful in drawing buyers.

Specialty stores also use the strategy of seeking to develop consumer loyalty by issuing membership card. The card holders are entitled to facilities such as discount as offered for holders of Carrefour card and other retailers.

Credit facility is also offered by opening counter for multi-finance companies in the outlets to facilitate buyers.

Modern retailers such as Electronic City, Electronic Solution, Agis, and GSI also offer consulting service in selection of types and installation of electronic goods.
Table--43
Contributions of modern retailers and traditional market to total
sales of electronic goods and household electrical appliance,
2012

Brand Market share (%)

 Traditional retailers Modern retailers

Sharp 50% 50%
Panasonic 70-80% 20-30%
Samsung 45% 55%
LG 60% 40%
Cosmos 70-80% 20-30%

Sources: ICN/Data Consult

Table--44
Specialty Stores for electronic goods in Indonesia, 2012

Name of Operator Start-up
specialty store year

Gunung Sari PT. Gunung Sari Intan 1998
Intan

Agis PT AGIS, Tbk 2000

Electronic City PT. Electronic City 2001
 Indonesia

Electronic PT Electronic Solution 2005
Solution Indonesia

Best Denki PT. Best Denki Indonesia 2006

Total

Name of Locations Number of
specialty store outlets

Gunung Sari Malang, Surabaya 4
Intan

Agis Jakarta 12

Electronic City Jakarta, Tangerang, 17
 Bogor, Bandung, Bali

Electronic Jakarta, Tangerang,
Solution Bekasi Bandung, 33
 Makasar

Best Denki Jakarta 14

Total 80

Sources: ICN

Table--45
Hypermarkets selling electronic goods, 2012

Name of Operator Start-up
Hypermarket year

Carrefour PT.Carrefour Indonesia 1998

Giant PT Hero Tbk 2002

Hypermart PT Matahari Putra 2004
 Prima Tbk

Lotte Mart Lotte Group (South 1991
 Korea)

Total

Name of Location Number of
Hypermarket outlets

Carrefour Jakarta, Tangerang, 85
 Bekasi, Bandung, Java &
 Bali, Sumatra, Sulawesi

Giant Jakarta, Bandung and 38
 Surabaya

Hypermart Jabotabek, West Java, 72
 Central, East Java,
 Sumatra, Kalimantan and
 Sulawesi

Lotte Mart Jabotabek, West Java, 27
 Central Java, Sumatra,
 Bali, Kalimantan and
 Sulawesi

Total 222

Sources: data consult/ICN

Table--46
Locations of electronic specialty stores and hypermarkets,
2012

Cities Hypermart Carrefour Giant Lotte Mart

Greater Jakarta 30 40 20
and Banten

Surabaya 3 8 3 3

Bandung 2 4 2

Bali -- 2 --

Malang 1 1 2

Medan 3 2 2

Riau 1 1 1

Balikpapan -- -- --

Makassar 2 4 --

Other cities 30 24 8 4

Total 72 85 38 27

Cities Agis EC ES BD GSI Total

Greater Jakarta 8 9 15 -- 150
and Banten

Surabaya -- 1 5 1 2 25

Bandung 2 1 5 1 -- 16

Bali -- 1 -- -- 3

Malang -- -- -- 2 6

Medan -- 2 -- -- 9

Riau -- -- 1 -- 4

Balikpapan -- -- -- -- --

Makassar -- -- 2 1 -- 9

Other cities 2 3 5 4 -- 81

Total 12 17 33 14 4 302

Sources: Data Consult/ICN
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Title Annotation:TRADE
Publication:Indonesian Commercial Newsletter
Date:Jul 1, 2012
Words:2489
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