Ikea to Open Doors to Indonesians in 2014

Francezka Nangoy

Retailer Hero Supermarket will start building Indonesia’s first Ikea store by the end of the year, taking advantage of a growing economy that is lifting more households into middle-income status.

“Operations will start in 2014, and we are starting construction by the end of the year,” Philippe Broianigo, president director of Hero Supermarket, told the Jakarta Globe on Tuesday.

Hero Supermarket signed an agreement with Sweden-based home furnishing retailer Inter Ikea Systems in March for the franchise rights in Indonesia, allowing it to operate Ikea stores from 2014 to 2021 with an option to extend the license and add more stores afterward.

Broianigo said the first Ikea store will be opened in Alam Sutera, a property complex in Tangerang, a city on the outskirts of Jakarta.

Asked if Hero will simultaneously build other Ikea stores, he said that “it’s a long process, there is a lot to consider.”

However, he refused to disclose how much it cost to open an Ikea store, only saying that the first one would involve a big construction project.

Other than Ikea, Broianigo said the company was also building four new Giant hypermarkets that will open this year.

At the end of March, the company operated a total of 550 outlets, including the Giant hypermarket brand, Hero and Giant supermarkets, Starmart convenience stores and Guardian, which sells drugs and beauty products.

Investors supported the company’s plans. Hero’s stock jumped 13 percent to Rp 3,950 in Jakarta trading on Tuesday.

Andrew Argado, a consumer analyst with eTrading Securities, said Ikea had a promising future in Indonesia. He said the retailer would be targeting Indonesia’s growing middle- to upper-income group.

As many as 130 million of the country’s 240 million people were classified as middle class last year, according to the World Bank. Per capita income climbed from $3,000 in 2010 to $3,500 last year, when the economy grew 6.5 percent, the fastest pace since 1996.

“[The Ikea deal] is related to the increasing [household] income and Indonesia’s economic growth that is relatively good compared to other countries in the world,” Andrew explained.

He said that this group of consumers tend to purchase branded items, including Ikea. The outlet’s location in Alam Sutera was also a good choice for Hero, Andrew said, given that Tangerang is home to a large number of middle-income households.

“There is also a lot of property development going on in that area. It would be good for home furnishing retailers like Ikea,” Andrew said.

Hero corporate secretary Vivien Goh said the company will use its own cash and some bank loans to finance the expansion. It is not paying dividends this year so it can use the money as capital, she said.

The company said its cash holdings stood at Rp 95.34 billion ($10 million) at the end of the first quarter.