Brick & Mortar Retailers Under Pressure to Join Digital Bandwagon Amid Rapid E-Commerce Growth

Less than 10 percent of the 600 Apindo members have begun to move online. (Antara Photo/Umarul Faruq)

By : Vanesha Manuturi | on 10:15 PM January 21, 2016
Category : Business

Jakarta. Traditional brick and mortar retailers in Indonesia are facing growing pressure to strengthen their online channels in order to catch up with tech-savvy consumers amid rapid growth of pure e-commerce companies, gunning to enjoy a piece of the expanding middle class and increasing smartphone penetration in Southeast Asia's largest economy.

Estimates and forecasts on the size of the market in Indonesia vary, but global consulting firm Bain & Company estimated that Indonesia already has approximately 51 million of digital consumers, or roughly 20 percent of the country's 250 million population, while technology market research firm International Data Corporation expects the market size to reach $5 billion this year from $2 billion in 2014.

Despite the fast growth, a recent report by Bain revealed that traditional chain retailers are missing from the picture since almost all of transactions in Indonesia are still dominated by pure e-commerce players, led by the likes of online classified site OLX and marketplace site Lazada.

Sebastien Lamy, a partner at Bain & Company, said that it's time for traditional retailers to join digital bandwagon and invest on their online channels. "As e-commerce wave was hitting [Europe and the US] ... there was a realization that as retailers, they would need become omni-channel, which means offering an experience to consumers that would be offline and online," Lamy told the Jakarta Globe in Jakarta on Thursday.

"That is certainly a path retailers in Indonesia need to take as well."

Such sentiments were echoed by Roy Mendey, the chairman of Indonesia's Retailers Association (Aprindo), who has been calling on members of the association to start moving online. According to Roy, less than 10 percent of the 600 retailers in the association — which range from department stores and mini markets to niche store chains — have made the move.

"We do realize that business development is not only pointing to physical stores but things are moving forward to online store," he told the Jakarta Globe at the sidelines of the Internet Retailing Expo Asia in Jakarta on Tuesday. "This needs to be educated to our members so they can take advantage of online retail.

Among the retailers that have already began their journey online is Sumber Alfaria Trijaya, the operator of the Alfarmart mini market chain, and its one-year old online venture, AlfaOnline.

The publicly-listed company, which currently has some 10,300 outlets across Indonesia, have been developing its online venture in the past year as a way to complement its physical stores, as well as attract younger customers to the chain, Haryo Suryo Putro, chief operating officer of AlfaOnline said.

"Retailers are being demanded to change because the consumer is changing, and consumer is king," he told the Jakarta Globe at the IRX Asia in Jakarta on Tuesday. "[This is why] we want to be aggressively growing. Right now, only 60 percent of our stores are integrated with AlfaOnline. Our goal is to be able to leverage to the fullest."

AlfaOnline is not alone in the quest. Lippo Group launched its online marketplace site in September last year called MatahariMall, borrowing the name of its 58-year old department store chain Matahari Department Store. Mitra Adiperkasa, one of the country's largest fashion retailers with brands like Zara and Nike under its belt, also announced MAPemall.com last year.

While little is known yet of how the entry of such big chains will impact Indonesia's e-commerce scene, an already crowded market as shown by the 140 companies that participated in the annual shopping campaign Harbolnas or National Online Shopping Day last year, Bain's Lamy noted that traditional retailers certainly hold an edge thanks to their established warehouse and logistics system.

"It's a very tricky transformation ... [but] traditional brick and mortar retailers do have natural competitive advantages to compete against pure players and that certainly holds true in Indonesia," he said.

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