2005 Dec Issue
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Catch the new wave Philips enhances your image statement
‘Warehouse Retail Scheme in Singapore breaks new ground
Shopping scene in Singapore launches operation spruce-up
Matahari charts new growth and business expansion
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Matahari charts new growth and business expansion


It has been a tremendous year of growth and development for PT Matahari Putra Prima Tbk, Indonesia's leading multi-format retailer. All its store formats have performed well in the first nine months of the year despite increasing competition and escalating oil prices, reports Yoki Wong ...

On October 31, PT Matahari Putra Prima Tbk, better known as Matahari, announced its 9M05 (first nine months of 2005) financial results: Total sales for the period increased by 22.2% year-on-year to Rp4.5 trillion (US$448.34 million) with a net earning increase of 176.3% to Rp142 billion.

It has been a time of growth, powered by the company's two key divisions - Matahari Department Stores (MDS) and Matahari Supermarkets (MSM), which has taken the company's third business unit, TimeZone, under its wing.

Announcing the company's 9M05 performance, Benjamin Mailool, president director and CEO of Matahari, expressed his delight and confidence in the company's ongoing improvements. "The wave of new stores set up by both MDS and MSM in the past 18 months has been the fastest and most aggressive expansion plan [of any retailer] in the country," he points out.

"The solid growth of our quarterly net earnings is the result of the combined endeavour of all our staff to bring the company performance in line with its strategic direction for years to come," Mailool adds.

Indeed, Matahari's achievements have not gone unnoticed in the region's retail arena. The company has won the prestigious Gold Award (Indonesia) in the Retail Asia Pacific Top 500 Awards for two consecutive years. Matahari was selected from the 500-company ranking (covering 14 Asia- Pacific economies), compiled by global research company Euromonitor International.

Being recognised by the industry as Indonesia's top retailer twice in a row confirms that Matahari is making all the right moves to maintain its position as the dominant player in the country.

MSM - the sweet taste of profitability
The key growth driver contributing the lion's share to the group's dynamic growth is MSM's hypermarket operation. The hypermarket's year-on-year turnover growth of 775%, with the generation of strong earnings before interest, tax, depreciation and amortisation (EBITDA), is attributed to its "aggressive expansion and strategic planning" in the past 18 months.

Two years ago, MSM CEO Noel Trinder had anticipated there would be a shift in shopping behaviour towards a preference for the modern hypermarket rather than the traditional supermarket. The management team then conceptualised 'Hypermart', a compact hypermarket format, and embarked on an aggressive roll-out of these stores with their highly visible and recognisable yellow 'h' icon on a blue background.

Matahari is reaping the first fruit of this successful venture as Trinder makes good his promise - to turn the lossmaking supermarkets division around to become profitable by year-end. MSM has reported earnings before interest and tax (EBIT) of nearly 2% for the third quarter and a year-to-date EBIT of 0.5% - a clear indication the tide has turned for the division.

"This is the first time that the supermarket division has tasted profitability in the group's 47-year history," says Trinder.

The MSM chief is justifiably proud of the division's achievements to date. Revenues generated by the new hypermarket business in 18 months are bigger than the total supermarket sales that took the company 20 years to build.

MSM is now rolling out its secondgeneration Hypermarts - still compact in size but with big improvements on visual merchandising, assortment and emphasis on strategic categories such as health-and-beauty counters, electronics and fresh foods.

MSM's other store formats have also performed well. Boston Pharmacy continued to strengthen its position with sales-performance growth of between 35% and 40% year to date (January-September 2005) and net profit increase of 148%, reports Trinder.

Its discount-store format, Cut Price, has also proved to be a success, with psm sales per month averaging between Rp1.5 million and Rp2 million. "It has achieved its profit objective," declares Trinder.

MSM's original supermarket format store is undergoing a major face-lift to keep up with the times. The modernisation programme has been rolled out with four of the old stores being transformed while a brand-new supermarket store opened in Pekan Baru in October this year.

There is a very strong emphasis on branding, visual merchandising, lighting and cleanliness in the new and remodelled supermarkets, creating a more comfortable and conducive environment for the consumer, explains Trinder.

The merchandise assortment has been redefined to cater for target consumers, he points out. Fresh produce, dairy and frozen assortment have been enhanced; so too the RTE (ready-to-eat) segment. RTE may form only 4%-5% of total sales but its profit margins are more than 30%.

The non-food category, which traditionally accounted for less than 5% of merchandise assortment, has been revamped and since doubled in the newformat stores.

MSM has also introduced over-thecounter merchandise as part of the health-and-beauty counters in the new supermarket. This has proved to be popular with shoppers, Trinder says.

In keeping with its vision to become the number one multi-format retailer in Indonesia, MSM has also launched a new convenience-store format. Called the Matahari Express, the stores (measuring between 50sqm and 60sqm in size) are focused on snacks, drinks, ice-cream, cigarettes, magazines and services such as laundry.

This year, MSM has opened 13 hypermarkets and one supermarket, as well as converted three old supermarkets into Cut Price discount stores and three Marketplace supermarkets into Hypermarts. By year-end, Matahari will have 17 Hypermarts in operation.

MSM expects to close the year on a very positive note. " We expect to finish the year with 70% growth in sales," says Trinder. He reveals that October sales grew by 108% over the same month last year while net businessunit profit for the month was more than 2%.

He attributes MSM's financial achievements to "a combination of rapid expansion and a strategy that is being implemented to precision".

Overall, MSM is expected to end the year accounting for 42% of the total business within the Matahari group, compared with 34% last year. For 2006, Trinder is targeting MSM (including the TimeZone division) to represent 52% of Matahari's total business. Plans are in place to open 10 Hypermarts, one or two supermarkets, five Cut Price discount stores and another 12-15 Boston Pharmacy stores.

However, the high oil prices will continue to impact the retail industry as consumers tighten spending. "We expect consumption to shrink 5% and have built this into our budget and forecast for next year - our sales-target growth (net of the correction of 5% reduction in consumer spending) for 2006 is above 70%," says Trinder.

He maintains that the division's biggest challenge continues to be manpower - staff recruitment is an ongoing exercise as the company continues to open more new stores. This year, MSM has recruited 4,000 new employees, and will require another 4,000-5,000 employees next year.

"There is a significant increase in investment in manpower recruitment, training, development and placement. But we have our training programmes in place to develop 'multi-skilling' abilities in the staff, and the capability to cater for training of new and existing staff," he says.

Another challenge that MSM is tackling is merchandise inventory and shrinkage control. While shrinkage has already been substantially reduced, there is still room for improvement and the division is investing on new technology to improve the ordering procedure, which is expected to reduce shrinkage by a further 20%-25% next year.

Also on MSM's agenda for the year ahead is improving overall operations to increase manpower productivity by 15%-20% as well as placing more emphasis on food safety, hygiene and cleanliness in the stores.

Looking ahead, Trinder says: "Our growth strategy is working. It took us 12 months between 2004 and 2005 to put our business plan in place, and the transformation has begun. We have already secured sites for our new stores for 2006 and 2007. "

MSM is being re-energised; the whole business is mobilised; management and staff are inspired by the early success and direction of the company. By 2010, we would have transformed MSM into a world-class, multi-format retailer that is profitable and growing."

MDS - surpassing target
Matahari Department Stores (MDS), which is the acknowledged pioneer of department stores in Indonesia, is also reporting a year of rapid growth and expansion. Comments Pete Huffstetler, president
and CEO of MDS: "This year, we have not only made but also surpassed our budget and target.

" Profit growth is a little better than expected. We are very happy that, for three years in a row, we have doubledigit EBIT growth. We are confident we will hit 10% EBIT for the year."

It has been a whirlwind year of setting up new stores across the Indonesian archipelago. MDS also made corporate history in October by opening its first overseas department store - in populous China.

This year, MDS has opened seven brand-new department stores across the country this year and will launch three more by year-end. It has also expanded its children's stores with the addition of four new Kids 2 Kids outlets .

Store expansion aside, MDS is making some significant changes to its operations, all geared to enhance the shopper's in-store experience. These include store make-overs and intensive frontline staff training.

Says Huffstetler: "If you don't have your house in order, you cannot serve your customers well. For three years, we have gone through the process of reexamining and re-evaluating all aspects of our business - from inventory to tenant consignment, and from management down to the training of rank-andfile staff. We have spent three years dissecting ourselves and putting everything back in place. We are in a better position to grow at a faster pace in 2006 and beyond."

For 2006, MDS' goal is to continue to expand its store numbers, with firm plans to open between eight and 10 department stores.

MDS commands 28% of total department-store business in Indonesia, and expects to double its size and sales to Rp8 trillion by 2009.

"Our marketing has changed significantly. In the past, we concentrated on price but we have shifted our focus and our marketing campaign today reaches out to consumers in new ways - newness in fashion, better quality and better assortment," says Huffstetler.

There is also greater emphasis on customer service. Frontline employees undergo a grooming programme where in-house BAs (beauty advisors) train them in the art of make-up and deportment.

MDS has signed a two-year contract with SQI (Service Quality Institute) to implement a comprehensive customer training programme. SQI conducted a customer study to understand the Matahari shopper's expectations from the service perspective, and created a programme for the frontline staff based on the study.

The frontline staff are put through the basics of good-service etiquette such as greeting the customer, finding out what the customer wants, providing information on the product and, finally, closing a sale.

SQI is following up with a mysteryshopper programme to monitor the performance of individual employees, and those found lacking are sent back to the classroom for further training.

While MDS has invested much time and effort on upgrading its in-store service, its primary focus will always be on the product, says Huffstetler. "It's all about what you sell and you can't change that," he reasons. After all, if the store does not have the product that the customer wants, the best of service will not lead to a sale.

As buyers have become more sophisticated in their fashion sense, MDS as a whole has become more attuned to what customers want - adapting the latest trends to suit the Indonesian market, says Huffstetler.

The best endorsement a retailer can get is when its products move off the racks. This was the case for MDS during this year's pre-Lebaran festive season during the fasting month of Ramadhan and the Lebaran holiday season. Lebaran is celebrated at the end of the fasting period. The entire season stretched over 45 days from October to early November on the Muslim calendar this year. This is also the peak selling season for retailers in Indonesia, generating 40% of total annual revenues for MDS.

Despite the ongoing fuel crisis - fuel prices in Indonesia have increased between 40% and 126% - MDS performed above expectations during Lebaran. "We had very, very strong results, surpassing our own targets," confirms Sunny Setiawan, MDS' director of store operations.

Its private labels offering traditional Muslim costumes and accessories, which did particularly well, were sold out during the season, she adds.

The advertising & promotion campaign is strategic during the Lebaran season, says Purnomo Utoyo, strategic planning director of MDS. "We put out a very strong message - announcing to our customers that there would be 'no price increase' despite high fuel prices."

As a result, MDS recorded close to double-digit growth in sales during the Lebaran, compared with the same period last year, says Utoyo.

While aggressive marketing works well as a promotional tool, Huffstetler believes in creating stores that provide a point of differentiation to generate yearround customer traffic. "We aim to enhance 'the experience' in the store with service to touch customers in a way that reinforces their expectations of the store," he explains.

MDS has captured a 28% share of total department-store business in Indonesia and is on target to grow to between 32% and 35% in a four-year period.

"When you look at retail sustainability, there are two key measurements: same-store growth and ROI (return on investment)," says Huffstetler. MDS is expected to finish the year with a comparable store growth of 5% this year and again for 2006. "

This is very respectable both by Asian and international standards," the MDS chief points out. "Our return on assets growth this year is 29% while return on net assets is 89%, which is a staggering achievement," he adds.

MDS is committed to growing its department-store business in Indonesia and beyond in the long term. Says Huffstetler: "Anybody can grow a business but the question is whether one can sustain that growth in the long run. MDS has the right to grow because we have built a solid foundation to sustain this growth into the future."


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