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Matahari Department Store pursues
new growth opportunities
Matahari Department Store (MDS), one of the three strategic business units of the Matahari Group, is gearing up for new challenges and growth opportunities. June Lim finds out more in this exclusive interview with MDS’ senior management executives.
After staging a successful come back, Matahari Department Store (MDS) is embarking on an aggressive expansion programme that will consolidate its position as the biggest retailer in Indonesia. MDS will open 10 new stores this year followed by a further eight to 10 next year. Also on the cards are speciality stores targeting the burgeoning youth market, as well as overseas expansion.
Says MDS CEO Pete Huffstetler: We are excited about our progress and we are optimistic about the potential of our organisation. We have a team that is committed and knows what needs to be in place to be successful.
MDS has made a remarkable turnaround following the complete overhaul of PT Matahari Putra Prima Tbks retail operation into three strategic business units department store, supermarket/ hypermarket and family entertainment centre.
MDS has registered improvements in all key areas to chalk up a sales growth of 9.3% in financial year 2004, well ahead of the 2.9% recorded by comparable stores. It has also managed to reduce its costs through tighter control. Expense as a percentage of sales decreased from 24.3% in 2003 to 23.7% last year.
Our earnings before interest and tax (EBIT) grew by 18.1% in 2004 over the year before, which was the highest EBIT growth in department-store performance internationally, Huffstetler adds.
When Huffstetler joined the company after clocking over 20 years of experience in North American retailing, MDS was dogged by flagging sales and falling revenues. But he saw its latent potential. It was like a gift a company which in the past had good growth and good customer perception, was positioned properly in the market and had the foundation of private labels. We refined it, put more science behind it and matched the brand to the customer.
MDS positioning in the Indonesian retail market at that time gave Huffstetler added confidence. MDS was positioned in the middle-market segment and was the only player. We recognised this was good from the standpoint of the economy. It gave us confidence to grow the business its sales and profitability. This assumption has panned out.
With a new team at its helm, MDS then buckled down to the task of ensuring that its stores would provide the best quality, value, assortment and service among all department stores in Indonesia. The team accorded immediate attention to merchandising, particularly apparel, as it accounted for almost three-quarters of MDS sales, with the rest of the sales coming from cosmetics (9%), shoes (8%) and household products (8%).
When we visited the stores, we saw that the merchandise was bad in terms of quality and fabrics, recalls Christian Kurnia, director, head of merchandising & marketing.
We went through the complete process of evaluating suppliers and their quality control, capability and ability to deliver to us, adds Danny Crayton, senior vice-president and chief merchant.
We worked on the colours and textures, and we worked with third parties to improve the merchandise quality, Kurnia says.
Some 10% of the suppliers who failed to make the cut had their contracts terminated by MDS.
Particular attention is also paid to its private-label business, comprising brands such as Arrow, Nevada and St Ives for adults, Kids2Kids and Aerokids for children, and Pipiniko for tiny tots. House brands provide us with a unique advantage the ability to deliver value and exclusivity, says Huffstetler.
MDS has to ensure that its racks are always stocked with the latest in fashion wear. In the past, a trend starting in Europe would reach other parts of the world six months to a year later, says Huffstetler. Today, with the growing influence of TV in shaping consumer taste, MDS response must be almost instantaneous if it is to be successful in capturing the vitally important youth market.
The company has beefed up its inhouse merchandising team and engaged the services of international trend specialists. The result? MDS was just weeks behind US retailers in introducing the colour pink last year the colour was available in US stores in spring and MDS had it in April.
MDS was also ahead of the competition in introducing black-and-white, green, stripes and short skirts last year, making it the trend setter in Indonesia. Last year, we were dominant in the youth market. We are doing excellently, declares Crayton.
Private brands, which now account for 40% of MDS apparel sales, are being expanded.
The look and feel of MDS stores have been enhanced to complement improvements in their merchandise. With 77 outlets in 38 cities across 24 provinces in this far-flung archipelago, the challenge for MDS continues. It is difficult to maintain a consistent standard, Sunny Setiawan, director of store operations, concedes.
The companys visual-merchandising team has developed easy-to-follow manuals, which include the general guidelines for good store display.
Above all, a human-resource policy has been instituted for MDS 13,000- strong workforce.
We have established an objective appraisal system that is quantifiable. We analyse each position, and the kind of personnel and level of competence it requires, discloses Markus K Hidajat, human resource and general administration director.
Initially, there was resistance to the approach, as the appraisal system had led to the early retirement or retrenchment of 2,000 staff over the past three years. But MDS staff have since come to accept the evaluation process as fair.
The new system has further gained favour when the company introduced the policy of rewarding good performance with pay increases that are higher than in the past and with promotion for star performers.
The changes at MDS have gone down well with its customers. In a recent MDS survey, where customers were asked to rate the company on a score of one to five for a number of key areas, including store ambience, cleanliness, cashiering and service, MDS was given an average score of four.
For Huffstetler, the best is yet to come as MDS expands to capitalise on significant opportunities in its home market and beyond. New stores using the tried and tested format are opening this year across the country in Solo, Batam, Pontianak, Cibubur, Malang, Depok, Pekanbaru, Makasar and Medan. MDS is already present in some of these cities.
Ketut Budi Wijaya, director of PT Matahari Putra Prima Tbk, who is constantly on the lookout for suitable sites, says demographics and per capita income are two factors in determining a suitable store location. We can add another outlet in Denpasar, Bali, where three stores [currently serve] a population of 600,000, while Sumatra, with 1.2 million people, can only accommodate two stores, he points out.
MDS is also building on the youth market, which accounts for a significant 40% of sales at its department stores, by introducing speciality stores using the same value-for-money concept that has worked so well for the company. First off the block is Kids2Kids, which offers casual wear for children aged between six months and 10 years.
A T-shirt at Kids2Kids often costs less than half of what parents would have to pay for one with a US label such as OshKosh, says Ruby Charles, COOKids2Kids. No wonder Kids2Kids has generated a loyal following since its first store opened in Mal Kelapa Gading. And, with children growing so fast, some parents even visit the store every few weeks.
Six 150sqm Kids2Kids stores will be launched this year to retail clothing before steadily expanding their merchandise to include footwear, bags, caps and toys. As the existing malls are fullytenanted, we are looking at new malls in Central and East Java, Jogjakarta, Solo and Surabaya, says Charles.
Having built up its position as Indonesias foremost retailer, MDS is now primed to go overseas.
After 18 months of planning, it will be opening its first store in Shenzhen, China, in September. Located at Long Ping Road East Commercial Building at Longgang Xu Town Street, the 8,000sqm store will mark the start of MDS strong push into the country.
By next year, it plans to open two more outlets in China and expects to open 20 stores over four to five years in major Chinese cities.
MDS believes its concept to provide quality and value for the middle market will prove equally successful in China. When we look at China, we see a void in the mid-market. There is nothing in between the high end and the hypermarkets, says Huffstetler. Customers in the country understand and appreciate value.
MDS will feature the same product mix here, although the brands, which will be sourced principally from China for the Chinese market, will be different. The company has budgeted for US$2 million to set up its first China outlet and sourcing office in Shenzhen. The sourcing office will procure for its stores in China and Indonesia.
MDS began sourcing from China last year for footwear. Footwear production in Indonesia is falling because of quality issues. We can get better quality and price from China, says Crayton.
China products currently account for just 3% of MDS entire Indonesian procurement programme but the figure is expected to rise. If we can buy from Indonesia, we will but we must be competitive, Huffstetler asserts.