Revenge spending is trumping inflation in Indonesia

Bloomberg

Revenge spending is trumping inflation as Indonesians snap up batik clothes, footwear, and cosmetics post-pandemic, according to one of the nation’s biggest department store operators.
Office and party wear — including the nation’s traditional batik attire typically used for formal occasions — are flying off the shelves as more Indonesians go out again, said PT Matahari Department Store Chief Executive Officer Terry O’Connor. Suitcases are also a hot item as travel restrictions ease.
While higher consumer prices are forcing households to plan fewer shopping trips and prioritise basics, they are still willing to spend extra on special items that they held off from buying during the pandemic.
“It gives you a sense of the mood of the public,” O’Connor said in an interview. “It’s a little bit tight in terms of spending power but when I do spend, I’m gonna make sure it’s something that I feel good about.”
That makes it a handy barometer for the health of Southeast Asia’s biggest economy, where consumption accounts for over half of domestic output. Private spending in the nation with the world’s fourth-largest population proved resilient despite fuel price hikes, powering third-quarter growth to its fastest pace in more than a year.
The 10% minimum wage increase in January should help offset inflationary pressures that are likely to persist through early 2023. It will be a timely “shot in the arm” for consumers ahead of the Eid holiday season, which accounts for roughly a third of Matahari’s annual trading, O’Connor said.
“The key will be to open as many of our new stores before the holidays” in April.
“Once inflationary pressures subside — and I seriously think it will in 2023 — Indonesia will have its post-Covid time in the sun,” O’Connor said.
Matahari is keeping relatively stable margins by negotiating with suppliers and increasing prices by single digits on private labels, while maintaining costs of “more sensitive” goods like household and back-to-school products unchanged.
While revenue and profit are still below pre-pandemic levels as of September, Matahari is in its “growth phase” and will add 12 to 15 stores in 2023 after opening 10 this year.
Matahari plans to maintain capital spending at 400 billion to 500 billion rupiah ($25 million to $32 million) next year, with a third each going to old stores, new stores and digital.
Its nascent online platform contributes just 3% of revenue so far; Matahari aims to grow this share to 13%-15% by 2026.