Tighter times forecast for luxury market
Written by Writer on Wednesday, November 12th, 2008
Tighter times forecast for luxury market
Mustaqim Adamrah and Olivia Dameria , The Jakarta Post , Jakarta | Tue, 11/11/2008 10:59 AM | Business
Being single and fairly loaded won’t be a guarantee that a big-spender like Jamie, an executive for a foreign-based financial giant in Jakarta, will be able to easily spend away his Rp 80 million (US$7,200) monthly income next year on palatial purchases.
As business in the financial sector becomes overshadowed by the global downturn, Jamie prefers to keep his spending tight in anticipation of rainy days ahead, including making provision in case his main worry should happen, that he could end up losing his job.
Jamie is an example on how middle and upper-income Jakarta executives are now cutting spending and investing more wisely to safeguard themselves from the impact of the global economic downturn which it is forecast may hit Indonesia harder early next year.
Italy-based global up-market fashion and accessory giant Prada Group has forecast a slowdown in demand worldwide, including in Indonesia, as people’s purchasing power declines and those having extra money prefer spending it more prudently.
“Sales are likely to slow down next year. But we have strategies to maintain our growth. We will make innovations every six months,” Prada Asia Pacific Ltd. chief executive officer Sebastian Suhl told The Jakarta Post recently.
However, Suhl refused to forecast any sales projections for Indonesia, merely stating that the company would seek to find more untapped opportunities.
Prada owns two stores and one Miu Miu store in the country. Miu Miu is another brand of Prada. Suhl said Prada had no plan to add more stores in Indonesia next year.
The company booked 1.67 billion euro ($2.2 billion) in sales last year.
Slowing demand for luxury items has also been forecast by PT Mabua Harley-Davidson, the sole authorized distributor in Indonesia of the famous United States iron horse.
“We’ll try to maintain our sales next year despite a projected significant drop,” said Mabua marketing general manager Irvino Edwardly, adding the company had not set any growth target yet for next year.
He said sales in the luxury motorcycle sector had gradually declined to 30 units in July, 27 units in August and only 10 units as of Sept. 25 as banks were afraid of giving loans for purchasing the vehicle because of increased fears that they could become non-performing.
“Around 40 percent of our sales are financed by loans. Banks are limiting their channeling of loans for consumption. High interest rates have also discouraged customers from buying the motorcycle,” said Irvino.
“A lot of our customers prefer to rent the motorcycle now rather than to buy it,” he added.
Mabua sold 343 Harley Davidson motor-bikes last year. The company sold around 260 units during the first nine months of this year with a price tag of between Rp 195 million (US$18,400) and Rp 640 million.
Next year’s general elections would also contribute to the slowdown as most of the Harley-Davidson two-wheeler buyers were business owners who were now being more careful in spending their money due to political uncertainties.
Despite the gloomy outlook, Mabua plans to open one new dealership in Medan, North Sumatra and one new showroom in Surabaya, East Java.
Currently, Mabua has eight dealers and showrooms, including five in Jakarta, one in Semarang (Central Java), one in Surabaya (East Java) and one in Bali, according to Irvino.
Another icon of luxury spending in Indonesia is golfing equipment, with several golf stores already reporting a decline in sales.
Raja Golf’s store in Blok M area in South Jakarta recorded a sales drop due to the weakening of the rupiah against the U.S. dollar, which sent the prices of its items upwards.
“Our sales have dropped 10 percent since early October,” Raja Golf manager Setiawan said, adding however that it was too early to forecast the volume of business for next year as the downturn has only just started.
Golf House in Taman Anggrek shopping mall in West Jakarta said, however, that they could still maintain monthly sales of around Rp 400 million despite the recent financial turmoil, according to store manager Aswadi.
Indonesia, Southeast Asia’s largest economy, recently felt the impact from the global financial crisis when there were wild fluctuations on the stock market in early October and a slump followed by fluctuations in the exchange rate for the rupiah.
The Indonesian Chamber of Commerce and Industry (Kadin) has forecast that the country will feel the full blow of the downturn starting in the first quarter of next year as manufacturing orders and commodity prices will fall.
However, optimism still runs high among some business players who conclude that if the government manages to maintain the level of people’s purchasing power, then this could continue to be the country’s main driver of economic growth, as has been the case since the 1997 Asian financial crisis.
“I believe the high-end retailer business will remain stable next year as our customers have lots of money and most of them are unaffected by the global crisis,” said publicly listed retailer PT Mitra Adiperkasa, senior marketing manager Widiyana Sudirman.
“Our sales have declined very slightly. There will only be a minor impact on the business, but it will rebound positively as soon as the crisis is over,” said Widiyana, who specializes in managing Harvey Nichols upmarket department store.
She said Harvey Nichols — which sells brands of, among others Salvatore Ferragamo, MaxMara, Loewe and Chloe — had no specific strategies to anticipate the impact of the crisis.
Harvey Nichols Group chief executive officer Joseph Wan previously said the British luxury fashion retailer had set initially modest targets given a possibly weakening economy.
According to Wan, official statistics indicated there were at least 3,500 wealthy households in Indonesia having assets worth more than $100 million, with 70 percent of them living in Jakarta. (fmb)
Figure on Indonesia’s wealthy people
Year—Number of high net worth individuals (HNWI)*
2005—17,200
2006—20,000 (third place after Singapore and India)
2007—23,000 (fifth place after India, China, Brazil and South Korea)
* Capgemini and Merril Lynch define HNWI as a person with assets worth over US$1 million. Assets, such as residences and cars, were not counted for this survey.
Source: Capgemini and Merril Lynch
