Shifting to digital

Indonesia’s major department store chains have begun to feel the pinch of the rapidly growing trend of online shopping. Many retailers have suffered a decline in sales, forcing them to close some of their outlets. PT Mitra Adiperkasa (MAP), one of the country’s major department store chains, for example, has announced plans to shut down three more Lotus department stores in Jakarta. Previously, it closed two outlets in Greater Jakarta. MAP will also stop operations of its Debenhams outlet in Senayan City shopping mall in South Jakarta at year-end, having closed two outlets in Kemang, South Jakarta, and Karawaci, Banten.

Similarly, publicly listed PT Matahari Department Store closed its Manggarai and Blok M stores last month. Meanwhile, retail chain PT Ramayana Lestari Sentosa has closed eight outlets across the country.

The trend, as a result of slowing consumer goods sales growth, is in fact a global phenomenon. It has been occurring in Japan, the United States and many other countries. In Indonesia, sales growth at 55 fast-moving consumer goods brick and mortar retail outlets reached only 2.7 percent year-to-date (ytd) as of September, compared to a 10-11 percent increase in the same period last year.

Although analysts largely attribute the mass closure of retail outlets to sluggish sales, we cannot deny the fact that online marketplaces have started to replace traditional retail shops. Online transactions account for only about 2 percent of the country’s total retail sales so far, but their growth is accelerating and eating up the market share of offline retailers, thanks in part to huge investments injected into the new businesses.

With access to the internet multiplying, particularly among the younger generation, it comes as no surprise that online shopping has won consumers’ hearts and minds. Online shopping offers nearly unlimited choices, as well as a simple and convenient way of shopping as buyers only need to open apps to find their sought-after goods and settle their payments anytime, anywhere.

Forget traffic congestion or unfriendly weather, which may discourage consumers from going to shopping malls — not to mention difficulties in finding a parking space.

Cheaper prices are another key reason why buyers are shifting from offline to online stores. The government will impose taxes on goods and services sold online, but prices will remain the comparative advantage of the digital market over its traditional counterpart.

Indonesia has also seen this digital wave disrupt the conventional taxi industry, which has triggered unrest. Other industries will soon feel the disruption. The phenomenon is now creeping into the financial services sector, especially banking, amid growing interest in peer-to-peer lending, an online lending service for both individuals and businesses.

No one can resist digitalization. In fact, the world has entered a digital era, which has changed the way people do business — unfortunately, at the expense of thousands who have become jobless.

As Indonesia’s regulator, the government needs to monitor this major shift, so that the digital era can spur economic growth and create new jobs.