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How Coronavirus Could Impact Retail Business in Indonesia?

Nora Setiawan

May 26, 2020

Before getting into the effect of Indonesian retail business, we should talk about how this outbreak has struck at the core of global value chain hub regions, including China, US, and Europe. Industrial production in China has fallen by 13.5% compared to the last year. It also has an effect on the international production.

This affected the economy, as many production sites closed in order to reduce possible contact between individuals. The significant declines in imports are to be found among products that are used in textiles, electric and electronic equipment. Also, exports from China have declined to all regions across the world.

After all, with the new coronavirus impacting the supply chains globally, and shifting the consumer behaviour on spending, retailers have to adapt, and must assess their response on a daily basis.


The Coronavirus Effect on The Retail Business

The closing factories or slowing down manufacturers, and limiting access to logistics to move goods, all give the disruptions on the retailers business. According to the local news, the retail industry of 7 cities in Indonesia showed a significant decrease in their daily income. Moka, the digital cashier startup reported that 5 cities that have the biggest decline, including West Jakarta, South Tangerang, Depok, Central Jakarta, and Bandung.

Even though there are only 7 cities affected, the percentage of the income decreases in the retail industry is the most significant, if it is compared to other industries. The biggest decline in income is in West Jakarta by 32% per outlet.

Kompas.com reported that clothing retail stores sales fell by 80%, it is because many shops are closed during the pandemic. The Deputy Chairman of The Indonesian Retail Business Association (Aprindo), Fernando Repi added, the groceries sales fell by 45% in the first quarter of 2020, when it is compared to the last year.

From 45.000 SKUs (Stock Keeping Units), it is only 20% contributing to sales. The number of visitors also declined by 50% as the physical regulations have been applied. As a result of the massive decline in sales, a number of retail stores began to carry out efficiencies by cutting their salaries.

Estimating The Impact of Coronavirus on Indonesian Retailers

During this outbreak, Indonesia GDP probably hit as much as -0.5% in 2020, however during the recovery time GDP may be by 0.7%. Its recovery timeline will be debatable. According to the report, economic growth is slowly lifting up in Q2. There are many sectors that got affected by the epidemic. It is indeed directly impacting Indonesia’s economy, especially on lesser exports, potential delay in FDI, and lower tourism revenue.

The overall impact will be c.-0.5% with export will drop the most (c.-2%) followed by investment (-0.6%) and to lesser extent consumption (-0.1%). The sizable impact to Indonesia’s economy is due to the investment and trade activity with China.

Furthermore, the retailers that are most affected are department stores, and then followed by the fashion retails. The closure of several shopping malls in Greater Jakarta has made their sales decrease.

It is somehow different from the supermarket retails, which they can open at any time without depending on the regulations. The supermarkets also sell basic needs, and people clearly shop their groceries on a daily basis. It is no wonder that supermarket retails are now harvesting their turnover during this outbreak.

Since the end of last month, a number of malls have closed or limited their operating hours. Such as Senayan City and Central Park. But, the government fears that the operating hours limitation would give an effect on the revenue of the retails, such as department stores. This could lead to the ability to pay their employees salaries. 

They hope that the government once again would give incentives to the retail industry. Giving a tax reduction of PPH 21, or suspension of tax payments, chapters 22-25, and other taxes would be good ways to start though. If both the operational costs and taxes would reduce, the retails industry can survive during this time.

If the retailers do not get the stimulus, the retailers like department stores could get affected. Considering, retails also become the biggest contribution to Indonesia’s GDP, and yet to maintain the economic growth in this industry.

With a lot of things going on, there are ways to minimize the disruption. Let’s check them out!


How Can Retail Business Adapt With The Disruption?

There are three ways to minimize the disruption, so the business retails will not take so much effect on it.

  1. Manage The Workforce

In order to limit the impact of COVID-19, the government and employers advised the employees to stay home and placed controls around both travel and visitor, also stop production and exporting. As the outbreak already has spread globally, retailers should strategize how to protect their workers’ health and support those who became ill. You need to provide clear and consistent communication through your Human Resource Department as well as the travel limitation, so it will ensure the teams avoid making poor decisions.

  1. Monitor Your Consumer Demand

Rewatch the supply and demand plans frequently based on the evolution of the virus, and your consumer’s order, because the demand might occur for certain products. The suppliers for commoditized products are at risk of losing the market, and clients tend to explore on substitute suppliers to get the products.

The retailers must analyze and forecast the effect of COVID-19 on customer demand and the products availability. Prioritizing in-demand products is a must to do.

  1. Evaluate Costs and Contracts

At such this time, retailers may experience increased shipping costs and struggle to meet their financial objectives. Your contractually agreed-upon prices and quantities may no longer be valid. Your suppliers could request the cancellation upon them or otherwise, you need to pass on additional costs throughout the supply chain.

The additional costs related to COVID-19 is an issue of the whole company rather than one department. However, you need to collaborate with your legal team to analyze all suppliers’ contracts, and to make sure the company is financially protected against future circumstances.

Furthermore, these three ways will minimize disruption and help to survive the business during this pandemic. We do not know when it will be over, but at least you have a solution to diminish the problems.

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