2004 Dec Issue
Cover Story
Matahari - Restructured and Ready
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Cover Story
Matahari - Restructured and Ready

Matahari, Indonesia’s leading modern retailer, has mapped out a strategic plan to chart its growth and secure its status as the market leader in the populous country and beyond. Yoki Wong visits the group’s headquarters in Lippo Karawaci, Jakarta, for a dialogue with Benjamin Mailool, Matahari’s president director & CEO, and finds a well-structured company positioned for aggressive growth.

PT Matahari Putra Prima Tbk, Indonesia’s largest listed retailer, has been undergoing a major management restructure since 1997 when the Lippo Group took a majority stake in the company. It is emerging now as a formidable force in the country’s retail arena, poised for rapid expansion.

Following the completion of its reorganisation in 2002, Matahari streamlined its operations by institutionalising the company’s core retail business into three independently-operated business units — Matahari Department Stores (MDS), Matahari Supermarkets (MSM), and TimeZone a joint venture with LAI Games International of Australia. Market observers see this as a move in the right direction, leading to a lean, well-toned and well-structured corporation.

“Our vision is to be an internationally recognised retailer with a commitment to continued growth in the future and playing an active role in the economic, social and cultural development of Indonesia,” says Benjamin Mailool, president director and CEO at the helm
of this retail conglomerate, which has just won the prestigious Top Retailer 2004 Gold Award - Indonesia.

Mailool leads a team of highly-qualified retail professionals, picked for their specific experience and expertise. Heading MDS as its CEO is Pete Huffstetler, a retail veteran from the US with over 25 years of experience. His counterpart in MSM is Noel Trinder, who brings with him more than 30 years of supermarket retailing in the region.

While Mailool is quick to point out that being internationally recognised does not necessarily mean having a presence outside Indonesia, Matahari is already poised to enter significant markets in Asia. Matahari is now turning its attention to China, with the aim to set up its first department store there. Mailool confirms that the company is “deeply involved” in China. For a start, it has established a buying office for MDS and has appointed a country manager.

The next move is to set up its first overseas department store and it has identified a site for this in Shanghai, China’s most cosmopolitan city. It is no coincidence that the group’s president commissioner, Dr Cheng Cheng Wen, is based in Shanghai.

However, Matahari is proceeding with caution and taking its time to study the market. “What works in Jakarta may not work in another market,” says Mailool. “The first store is critical. We must have the right formula, as it will set the format and direction.”

It will indeed be a landmark move for the Indonesian retail conglomerate. Set up by retail veteran Hari Darmawan with a single store in 1958, Matahari is best known today for its successful department-store business, commanding a 70% share of the group’s business.

“Inevitably, the core competence ofMatahari is in fashion, and we have built up a very strong private-label business in the process. This gives us more confidence to take the operation abroad,”explains Mailool. The group intends to focus on expanding in the home market and building a firm foundation in China.

However, while Matahari continues to hone its expertise in department store operations, it is also making rapid headway in its food-retailing division. In fact, a transformation is taking place that will position MSM as Indonesia’s top food and related retailer in terms of market share within five years. Mailool sees enormous opportunity to expand its food-retailing business as more urban shoppers are choosing to buy fresh food at supermarkets rather than at the traditional wet market. This gradual move from traditional to modern retailing augurs well for the supermarket segment. Modern retailing, which accounts for 20% of the country’s total retailing, is expected to increase to 28% by 2008. The whole retail market will grow by 10%-15%, with modern retailing growing much faster.

“There are a lot of opportunities yet to be tapped in the home market,” says Mailool. The growing market size will enable MSM to introduce different store formats to cater for different consumer groups.

MSM has been repositioned as a multi-format retailer, with operations in supermarket, hypermarket, discount and other supporting formats such aspharmacies and bakeries.

For the immediate future, MSM will concentrate on building its presence across Indonesia. The company will focus particularly on the hypermarket format, which is the fastest growing, says Mailool. It launched its Hypermart, the brand name for its compact hypermarket format, this year and the first four stores have had an excellent takeoff, he adds.

Indeed, Mailool and his team have reason to be optimistic and confident about the future of Matahari. What are the factors in its favour? It is a well-established, multi-format nationwide retailer with a trusted, some might even say iconic, name. It is already Indonesia’s largest retailer with a current intrinsic value of more than Rp5 trillion (US$580 million), a large
base of assets valued in excess of Rp3.7 trillion and strong cash flow.

Its portfolio of department stores, supermarkets, hypermarkets and soft discount stores serves a fast-growing market — the emerging middle-class, the largest segment of the nation’s population of 206 million (based on 2000 official statistics). It pioneered the customer-loyalty-card programme in Jakarta and today has more than four million members in its Matahari Club Card (MCC) programme.

Matahari has built a strong networkof more than 6,000 long-standing vendors and has solid relations with various financial institutions. Last month, for instance, it announced a strategic alliance with Bank Negara Indonesia (BNI), one of the country’s largest consumer banks, which enables it to leverage BNI’s customer base of 6.5 million.

Mailool reiterates that Matahari, which is part of the powerful high-profile Lippo conglomerate, is run by an independent management. It can leverage the Lippo name at shareholder level on critical issues such as banking, insurance, real estate and customer-database mining. Multipolar, an IT-services provider controlled through Lippo’s Hong Kongbased company, AcrossAsia Ltd (AAL), has recently become the majority shareholder in Matahari. Both Lippo and AAL believe there will be much synergy in enhancing loyalty programmes, joint promotions and cross-selling.

The external factors are also encouraging. Indonesia’s inflation rate has declined steadily in the past three years, from a high 12.6% in December 2001 and 13.3% in April 2002 to 5.1% in December 2003. For the first half of this year, the economy reported an inflation rate of 3.3%, with 6.5% expected for the full year.

The economy is seen to be stabilising and consumer confidence has returned following the landslide victory in the September 20 election of President Susilo Bambang Yuhdhoyono, the country’s first directly-elected head of state. Indonesia’s GDP for the third quarter of this year showed a 5% increase, spurred on by growth in domestic consumption, according to market analysts.

All these factors point to rapid growth ahead. Matahari registered a 2003 bottom-line growth of 11%-12% over 2002 while top-line growth was 17%-18%. For 2004, the group is expecting a top-line growth of between 10% and 12%. This will result in full year revenues of between Rp5.6 trillion and Rp5.7 trillion for 2004, up from Rp5.06 trillion in 2003. “We expect a double-digit percentage growth for the next five years,” says Mailool.

Beyond the physical expansion of its stores and brands, Matahari wants to be recognised for the advanced technologies in its operations infrastructure and process. As Mailool says: “Our mission is to dominate Indonesia’s modern retail market with global best practices and innovative retail formats, and become the store of choice for customers in the middle to middle-upper segment.”

“We embrace new technology for both ends of our operation,” he says. Matahari has implemented the Oracle platform for accounting and financeoperations, as well as Retek’s Merchandising System, Price Management and Store Inventory Management solutions.

Mailool says he is “open, keen and enthusiastic” towards any international engagement that will enhance the group’s development, and ensure the transfer of skills and knowledge. For instance, the group has signed a five-year contract with Exel to manage its distribution and transport network. The agreement covers the automation and management of Matahari’s 60,000sqm distribution centre in Jakarta.

Mailool also cites affiliations with international organisations which offer networking opportunities. For instance, MSM is a member of the IGA (International Grocers Alliance), a global alliance of more than 4,000 independent supermarket retailers, while MDS is a member of the prestigious IGDS (Intercontinental Group of Department Stores), a trade organisation for leading department-store retailers.

In Indonesia, Matahari has a successful joint venture with LAI Games International of Australia in running TimeZone, a chain of family-entertainment centres with an R&D centre and a games-manufacturing facility that produces and sells games stations worldwide.

As for new ventures, Mailool says that the company is open to exploring any business that is complementary to its core business and is constantly looking out for new ventures.

For this, says Terence Choo, director of business development, the company is actively pursuing business opportunities and strategic partnerships that will contribute to its continued growth. According to Mailool, ventures launched this year include Hypermart and Matahari Marketplace (a gourmet food store) through MSM and Make New Friends through TimeZone.

Matahari is also looking to roll out a network of mobile-phone stores through MDS. “Mobile phones are hotselling items today, with people buying phones as a fashion statement. We can immediately roll out between 150 and 200 such stores. That’s the kind of synergy we are talking about — to maximise and leverage our core business for brand synergy and with less risk,” explains Mailool.

As with other retailers, one of the fundamental challenges that Matahari faces is rental cost. “Real estate is the biggest concern for us,” says Mailool. He explains: “During the 1997 crisis, we fixed the exchange rate for the rental payment at Rp3,500 per US dollar, thus minimising the huge swing in the rupiah-US dollar rate, which could affect the overall rental
payment (rental was then contracted at US dollar rate).

“Since the average market rate of exchange has recently stabilised at the Rp9,000 level, there is pressure from landlords to raise the fixed exchangerate from Rp3,500 to Rp6,000, but the pressure is on to reach the prevailing market rate which could affect the overall rental cost structure. This is why we prefer the alternative to buy the premises if the price and location are right.”

Approximately 70% of Matahari’s retail space is rented (pre-paid longterm and some monthly payments) with the remaining owned by the group. Unlike smaller shops, big tenants like Matahari have the privilege of negotiating both the rental rate and itsfixed exchange rate if the contract is in US dollars. However, most new leases are negotiated in Indonesian currency.

While the right location is crucial to the success of a retail business, Mailool says another major challenge is change; and retailing, being a lifestyle industry, is constantly changing and evolving.

“The big challenge is to monitor and anticipate change — changes in the demographics that impact buying power, changes in competition, changes in consumer trends worldwide and changes at home.

“If we can keep up with consumers, we can serve their most demanding needs. If we cannot accommodate their demands, we may lose our customers who will shop elsewhere,” says Mailool.

The ability to anticipate change in fashion and lifestyle trends will help to move merchandise off the shelves. For this reason, Matahari has set up an inhouse design team this year. “With inhouse design capability and production, our response time to changes in fashion trends is faster. The latest styles, whether in Hong Kong, Paris or New York, will reach our stores within a month,” says Mailool.

Matahari prides itself on being a truly local nationwide player. Mailool believes that he and his team are geared up for both new and existing competition. “We have put in place institutionalised systems to avoid heavy reliance on individuals, while a plural management concept gives full accountability.” At the heart of Matahari’s operation is its staff force, which stands at 15,000 and will grow from strength to strength as new stores open. The company has an intensive ongoing training programme for all levels — from product knowledge and customer-service training for frontline staff to management training.

In fact, its Certified Development Program (CDP) initiative is proving to be a successful tool in developing future leaders to support its aggressive expansion plans. Mailool sums up the company’s corporate culture in one word: “Empowerment.” He says: “It involves more than telling our employees how to treat the customer right. We have got to give our employees the authority and tools to decide on the right way to treat the customer.”

The customer and the employee — a right connection. This, in essence, is the key to Matahari’s future success.



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