An inactive escalator in Grand Serpong Mall on Thursday (20/07) The presence of online business indirectly, gradually erode the existence of sellers or merchants who open offline or conventional stores (JG Photo/Yudha Baskoro)

Johannes Nugroho: Changing Times for Indonesia's Retail Sector


AUGUST 04, 2017

Thomas Lembong, chairman of the Investment Coordinating Board, or BKPM, recently admitted to being baffled by a trend in Indonesia's economy. "Investment is up but purchasing power is down.  We must try to solve the question why. When investment is up, income usually goes up too. So it’s a mystery at the moment," he told the media while answering reporters’ questions at the State Palace in Central Jakarta.  Official figures have been released to show that investment in the first semester this year was 12.9 percent higher compared to last year. However, the retail sector only grew by 3 percent in the same period.

Yet Lembong’s take on microeconomics was dismissed by University of Indonesia (UI) economist Rhenald Kasali, who argued that retail spending has experienced a shift towards non-conventional markets, such as online trading. While statistics on Indonesia’s online market is scant, he pointed to the volume growth of goods delivered by logistics couriers as evidence of a boom in non-conventional markets.

Pending reliable data on the supposedly emerging non-conventional markets, various attempts to explain the disparity between the government’s claims of macroeconomic growth and microeconomic woes remain inconclusive. Nevertheless, the proliferation of online shops  ─ Tokopedia, Bukalapak, Lazada, Bhinneka, Bibli, to name a few ─ in recent years, as well as application-based transport providers such as Gojek, Grab and Uber, reinforces the argument that more and more Indonesians are making online transactions.

The phenomenon is in itself revolutionary, since as early as 10 years ago only a small percentage of urban Indonesians would dream of ordering anything online. With the affordability of smart phones and the march of online banking, buying goods and services on the Internet has increasingly become commonplace.

The question is, if indeed more and more buyers are forsaking conventional suppliers in favor of their online counterparts, what advantages does online trading have over its more traditional predecessor? There are at least two redeeming features of legitimate online marketplaces ( Tokopedia, Lazada and the likes) that conventional shops lack: service and payment security standards.

Customer service has always been something for which most Indonesian conventional stores are found wanting. The horror stories from brusque, cavalier or downright condescending behavior of Indonesian retailers and their staff to deceitful marketing strategies are easily found.

Courtesy and service might be excellent at a branded couture store in an upmarket mall but things could be gruesomely shabby at places like Glodok, Jakarta, where shops claim to sell at wholesale (read low) prices, hence good service is just superfluous. Until recently,  it was also widely believed that customers did not have any alternative to conventional stores, so no matter how much they grumbled about the service, they had no other choice as long as they wanted the goods.

By contrast, online vendors at Tokopedia, for example, cannot afford to be rude to their customers. All the services a seller provides: from courteous query responses, safe packing and handling to the swiftness of delivery are all rated and posted on the seller’s page, which then becomes points of reference for future buyers. Vendors with a bad track record of service are automatically avoided by buyers.

Online marketplace operators also act as escrow companies to which buyers make their payments. Upon the satisfactory completion of an order, the buyer then instructs the escrow to release payment to the seller. Funds are usually withheld by the escrow when a complaint is made by the buyer regarding the product, generating buyer confidence that they have control over their money. Market sites also act as arbiters in the event of a dispute between seller and buyer.

Online payment arrangements are comparatively better than those existing in the conventional market. Refunds are usually difficult at most traditional stores while no credible arbiter could adjudicate between seller and buyer when a dispute arises, unless one party chooses to involve the law, which could prove to be expensive. Consequently, buyers often feel at a disadvantage especially when dealing with sellers, especially when full payment has been made.

Even modern retail franchises are not immune to accusations of hidden charges and false advertising by the public. Whether these allegations are true or not, public confidence in modern retail stores has been affected accordingly. Indomaret, a minimarket franchise with stores all over the country, reported a 71.03 percent drop in their profits for the first semester this year. Alfarmart, another franchise, reported  a 16.3 percent profit loss as well.

Apart from the convenience of forgoing the process of physical shopping, online buyers may have switched from their traditional sellers because of the missing elements of service and payments security standards in the conventional marketplaces. Here also lies the key to recouping the lost market share by traditional sellers, which is to provide a semblance of the two elements in their conventional stores.

The trend of online trading is now irreversible. Most savvy traditional suppliers have also branched into it by opening their own online shops. No doubt, the experience will have taught them something about what is lacking in conventional trading by now.

The non-conventional markets such as online trading are also an area the government is in dire need of catching up with. At the moment, it is barely touched by taxation. It is only a matter of time before online sellers have to deal with the taxman. When that moment comes to pass, the current ease and convenience of setting up and operating online shops in the country will also cease, as the non-conventional joins the ranks of the conventional.

Johannes Nugroho is a writer from Surabaya. He can be contacted at and on Twitter: @Johannes_nos