Jakarta, Indonesia (Image: Wikipedia)
By 2030, more people will join the consumer class in Indonesia than in any other emerging nation except China and India. Southeast Asia’s largest economy is set to account for 40% of ASEAN growth through 2030, with much of that expansion coming from private consumption (McKinsey).
Wealth in Indonesia is on the rise, at a time of decline in Japan, Mainland China, India, Hong Kong and Singapore. Luxury spending is also being fuelled by a boost in the number of middle class and upper income groups, making luxury goods increasingly affordable to a growing number of people in the country (Euromonitor).
Wealth X attributes UHNW population growth to the outstanding performance of the economy, which looks set to continue to the foreseeable future. Indonesia’s demographics are largely in its favour, with more than half its population under the age of 30 and a large portion of its population poised to enter the middle class
“ The combined net worth of Indonesia’s UHNW population grew by 41.2% from 2012 – 2013 ”
Whilst the UHNW population of Indonesia only grew 4.7% from 2012 – 2013, the combined net worth of these 785 individuals grew by an impressive 41.2%, to $120 billion. Wealth-X analysis shows that there are already 25 billionaires in the country, worth on average, $2 billion each.
Euromonitor’s Luxury Goods in Indonesia report values the local luxury goods market at $644.7 million in 2012 fuelled primarily by domestic spending. In 2013, this figure is expected to grow to $742.5 million, an increase of over 10%.
Bain & Company believe that Indonesia – alongside other Southeast Asian nations, including Malaysia, Vietnam and Thailand – is fast becoming one of the new engines of luxury growth within the Asia region.
According to Bain, Southeast Asia witnessed 11% growth in the personal luxury goods market in the 2012-2013 period, compared with 6% globally. Local executive Shannon Hartono estimates that luxury goods growth in Indonesia could rise to 40% – 60% annually, given its small base (NYTimes).
“ Southeast Asia witnessed 11% growth in the personal luxury goods market in the 2012-2013 period ”
Since 2011, brands such as Givenchy, Michael Kors, Fendi, Balenciaga, Boss, La Montre Hermès and Versace have entered the local retail market, joining names such as Cartier, Chanel, Hermès, Rolex and Gucci.
Luxury awareness is rising, in part thanks to low-cost carriers enabling travel to Singapore, Bangkok and Hong Kong, where Indonesians discover a taste of what is happening in the region’s fashion capitals. The Internet and social media boom throughout the nation keeps them up to date with the latest trends globally (OBG).
With this influx of information has come a more global approach to pricing luxury goods locally. As Oxford Business Group reports, it was once common practice to charge a high premium for items sold in Jakarta with the overriding assumption that the consumer did not know any better, or was not bothered being overcharged to consume locally.
Now however, in order to reach a larger cross section of the high end, global brands have started to price at international levels, lessening the need for Indonesians to travel to neighbouring regions to benefit from more competitive pricing. The establishment of local monobrand boutiques has also allowed brands to increase the available range of products.
Bulgari Hotel Bali
Finally, Indonesia – with its pristine beaches and luxury hotels in Bali and Lombok – has long served as a holiday destination for affluent Australians, and more and more, wealthy Chinese. This in turn has a positive knock-on effect on luxury consumption in the region.
According to Euromonitor, data from the tourism board indicates that Indonesian tourists are big spenders in countries such as Singapore and Bangkok, primarily on luxury goods. The challenge remains therefore remains in encouraging consumers to shop for luxury goods at home instead of overseas normally as part of their holiday and business trips.
Oxford Business Group has also questioned the depth of the market and whether or not luxury establishments will work in even the larger of Indonesia’s second-tier cities. “There many rich people in Surabaya,” Adrian Joezer, an analyst at Mandiri Securities, told OBG, “but their habits are different. They are more price-conscious and relaxed.”
“ Indonesian tourists are big spenders in Singapore & Bangkok, primarily on luxury goods ”
Then there is the issue of luxury infrastructure. Jakarta is home to just five “upscale” shopping malls where luxury goods are sold. Analysts say Indonesia’s luxury goods segment is being hampered by rental space that is expensive by local standards and investment laws requiring foreign brands to have a local business partner. (NYTimes).
Social pressure forced Jakarta’s last two governors to halt the building of any further malls (OBG). And indeed, there are concerns that open displays of prosperity may not be tolerated in the long term, in a country where over 40% of the population lives on less than $2 a day.
Despite the challenges, Indonesia is expected to be among the largest in spending on luxury goods in Asia and is set to outperform Singapore in South East Asia for the next decade (Euromonitor). The growing economy and population, coupled with increased entry by luxury brands, implies that luxury consumption will continue to rise.
What can be confirmed is that Indonesia is an emerging market for luxury goods in the world. “I think companies see that this is the future,” surmises Shannon Hartono, sole authorized distributor for brands such as Chanel, Fendi, Rolex and Gucci. “They want to have a first-hand look at Indonesia, not because of the sales but because of the potential.”
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