Traditional Retail Sector Indonesia Needs to Adapt to Digital Reality
Traditional retail companies in Indonesia need to change their business-as-usual mindset to overcome fierce competition from online shops or e-commerce. In line with rising Internet and smartphone penetration as well as improving infrastructure, more and more goods and services can now be purchased online - often at more competitive rates -, implying the role of Indonesia's "old fashioned" traditional retail companies is on the decline.
A great example of new online players undermining the position of the traditional suppliers in Indonesia are transportation services. Traditional taxi and motor-taxi services did well until several years ago when newcomers Go-Jek, Grab and Uber entered the market with more efficient business models (based on Internet) that allowed cheaper tariffs. These newcomers significantly damaged the corporate earnings of traditional taxi services companies, and the latter is therefore highly dependent on government support (tighter regulations for ride-hailing apps).
If these traditional taxi services companies would have reacted sooner by innovating their services and by (partly) adjusting (or expanding) their business models to include mobile apps, damage may have been limited.
Meanwhile, online shopping is becoming increasingly popular in Indonesia, hence undermining the role of traditional shopping centers with their conventional retail business models. Currently, online trade still accounts for less than 10 percent of total (retail business-related) trade. However, without innovative and creative strategies the traditional retail industry (including developers of retail space) will see its significance in the economy slide. Specifically fashion and electronics are segments that are being targeted by new e-commerce players.
Lini Djafar, Head of Retail at Cushman & Wakefield Indonesia, said the traditional retail business is still strong in Indonesia. For example, demand for retail space in new malls and other shopping centers remains strong this year.
However, this does not mean the traditional retailers should sit back and enjoy their sales. On the contrary, it means they have been given some more time to think about innovating their business strategies to stay alive in the decades ahead. Currently, developers of malls are becoming more selective with regard to tenants. For example, Ciputra Development is now more stricter, and aims for tenants that have innovative and creative business models (who adapt to technological developments) and therefore are expected to have positive long-term prospects.