Luxury firms target Indonesia

18 October 2012

JAKARTA: Increasing numbers of luxury goods groups are targeting Indonesia, despite the major challenges which face companies seeking to progress in the country.

Gucci, a unit of PPR, is developing a flagship store in Jakarta with a floor space of 5,500 square feet, as it attempts to exploit the favourable trends observable in the Asian nation.

"We firmly believe in the potential of the Indonesian market, because of the steady economic growth, stabilising political environment and rising middle class," Alexis Babeau, managing director of PPR's luxury division, told the Wall Street Journal.

"Indonesians show a liking for luxury, they appreciate quality products and they value craftsmanship."

As a further demonstration of PPR's commitment, François-Henri Pinault, its CEO, and over ten other leading executives visited Indonesia in early 2012 to assess the outlook.

Some issues facing the company include the nascent level of infrastructure development, a complex legal environment and sales tax of anything between 10% and 200%, but room for optimism remains.

Euromonitor, the insights provider, has estimated that luxury goods sales in Indonesia should reach $742m this year, almost twice the total recorded in 2007, with considerable space for future growth.

Hermès, the French luxury group, opened its third store in Jakarta earlier this month, specialising in high-end watches, while Fendi, owned by LVMH, has also unveiled two new sites in Indonesia in 2012.

Among the other players tapping Indonesia are SA des Galeries Lafayette, a French firm, and Central Retail, a department store chain from Thailand, which hopes to have five local branches in 2017.

According to research from CLSA Asia Pacific, the brokerage, the number of individuals possessing investible assets of more than $1m is increasing by 25% annually, the best figures in Asia.

Oliver Petcu, the founder of CPP Luxury Industry Management Consultants, argued that the joint ventures and franchise deals most firms rely on today are soon likely to become a thing of the past.

Consumers, he said, are currently at a stage of enjoying "showing off the brand, the bags that they have". He added: "It's this appetite that's been growing."

Data sourced from Wall Street Journal; additional content by Warc staff