In March, the Swedish retailer reportedly signed an agreement with Hero Group to establish Ikea stores across Indonesia. The first outlet is scheduled to open in 2014.
For the past six years, the market has been talking about Ikea’s foray into Indonesia. The world’s largest furniture retailer has many fans in Indonesia and any indication of a possible opening in the country has always sparked hot discussions amongst aficionados. Meanwhile, developers, landlords and local retailers are competing to secure the potential opportunities created from Ikea’s arrival.
The arrival of more foreign retailers to Indonesia is a reflection of the maturing retail industry in the country, a result of the rising middle class, rapid urbanisation and a shift from a traditional to a modern lifestyle.
Ikea and other European brands such as Mango, Zara, Topshop, Debenhams, FitnessFirst, Pizza Marzano and Tony & Guy are considered latest lifestyle icons in the city. Their Asian peers such as G2000, Muji, Sogo, Metro, Lotte, Bossini, Charles & Keith and Baleno are also perceived in the same way. They have joined the growing Indonesian middle and middle-up class retail segment, which was previously dominated by American brands such as GAP, Old Navy, Guess, NEXT, Nine West, DKNY, Ace Hardware, Starbucks, Nike, Coach, etc.
With higher purchasing power and better exposure to the outside world, Indonesia’s middle class demands a larger variety of better-quality products and services to support its lifestyle. While more and more people are becoming passionate about specific brands, they also like to try new things. These people want the latest styles for their homes, to taste international cuisine from the new restaurants, to shop at latest stores or to hangout at the new gym near the office, etc. This attitude has helped new brands grow their business in this market.
However, not every brand has a remarkable story. There are cases where new brands have failed in a relatively short period after opening, such as Harvey Nichols in Grand Indonesia Shopping Town. In other cases, several brands have suffered low sales and stagnant activity, and are just waiting for their leases to expire.
Despite having a high passion for famous brands and a new lifestyle, many Indonesian consumers remain price sensitive. Popular brands like Starbucks, Mango, Zara, FitnessFirst, Guess, GAP, NEXT, Charles & Keith seem to be well positioned among the locals due to the quality and good value for money, while Harvey Nichols was perceived by the locals as being somewhat ‘too expensive’ for its high-end segment, as compared to other boutique stores in the same league selling similar products. Beside, for luxury or high-end products, a lot of Indonesians often shop overseas such as Singapore, Hong Kong and Europe rather than in the country.
As for Ikea, with loads of loyal customers already in place coupled with the concept of affordable modern furniture, the brand has much potential to grow and expand in this country.
About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.