Challenges in Retail Business during Transition Period

KOMPAS/Lasti Kurnia

Officials check the temperatures of visitors entering Lippomall Puri in Jakarta, Tuesday (3/2/2020).

Retail businesses might be revived during the transition to the new normal. Business innovation is needed to be able to re-exist but without ignoring health protocols.

The relaxation of social restrictions has brought new hope for modern retail operators to gradually restore their business. However, a variety of challenges need to be anticipated with new strategies so that businesses will be able to re-exist and survive.

Just like other industrial sectors, for the last three months, retail businesses and shopping centers in the country have been hit hard by the COVID-19 outbreak. The emergency measures to cope with the spread of the disease have not only affected large retailers but also small retail stores.

Also read: Preventing New Clusters at Shopping Centers

The economic pressure began when large-scale social restrictions (PSBB) were imposed in a number of cities to prevent COVID-19 transmission. The requirement to learn and work from home added to the problem.

As a consequence, many shopping centers and non-food retail stores, such as those selling fashion products, household appliances and consumer goods, suffered heavy losses. Some others even had to temporarily close because their turnover had dropped dramatically. There are 326 shopping centers registered in Jakarta, Bogor, Depok, Tangerang and Bekasi.

Business turnover for retailers, as reported on the katadata website, dropped between 85 percent and 90 percent. Only online marketplaces were still able to generate income.

Kompas/Riza Fathoni

Rows of retail outlets at Plaza Indonesia mall, Central Jakarta, appear quiet after operations were ceased on Thursday (26/3/2020). Nevertheless, food outlets and pharmacies in the mall remain open. A number of malls and retail outlets temporarily closed to curb the spread of the COVID-19 in the Jakarta area.

As for big retailers such as supermarkets, hypermarkets and minimarkets, the turnover had dropped by 50 percent compared to normal days before the COVID-19 outbreak. Generally, revenue came from the sale of food and beverages, as well as basic needs.

The decline in turnover was inseparable from changes in people\'s shopping patterns in shopping centers. The change occurred during Ramadan and Idul Fitri.

Sales traditionally peaked ahead of Idul Fitri, but this year such a trend was no longer seen. The Indonesian Retailers Association (Aprindo) reported that the size of the people’s “shopping baskets” became smaller.

According to Aprindo, previously shoppers spent between Rp 250,000 and Rp 500,000 at supermarkets per visit. At hypermarkets, shoppers can even spend up to Rp 1 million per visit.

This year, the purchases of the shoppers accounted for only between 30 percent and 40 percent of the average figures in previous years. Meaning that consumers only shopped for basic needs, such as rice, sugar, cooking oil, shallots and eggs.

Due to such a condition, retail revenue and profits recorded a sharp decline.

Impulse buying also dropped dramatically. Usually, impulse buying can contribute 40 percent of total transactions under normal conditions. Due to such a condition, retail revenue and profits recorded a sharp decline.

Trade Minister Agus Suparmanto, as quoted by Bisnis.com, said the domestic retail industry had lost at least Rp 12 trillion in potential revenue during the last two months due to the closure of a number of shopping centers following the implementation of the social restrictions since the end of March.

Slow performance

In general, the COVID-19 outbreak has slowed the performance of the retail sector, as seen from a number of surveys. According to data from CEIC, retail sales from January to April grew negatively. In April, retail sales fell by 11.8 percent, while in March, sales declined 4.5 percent.

KOMPAS/PRIYOMBODO

A woman enters Pondok Indah shopping mall, South Jakarta, which was opened to the public following the imposition of large-scale social restrictions on Monday (15/6/2020). Shopping malls in Jakarta are back in operation during the transition period from large-scale social restrictions. The open of shopping malls comes with the application of strict health protocols to prevent the spread of Covid-19.

Meanwhile, Bank Indonesia (BI) also recorded a sharp contraction in retail sales in April mainly due to the new coronavirus outbreak.

According to Retail Sales (SPE) conducted by Bank Indonesia, retail sales dropped by 16.9 percent year-on-year, the largest fall since December, 2008.

Almost all retail sales sharply declined. The highest drops were recorded by fuel sales with a 39 percent fall yoy, cultural and recreational goods with by a 48.5 percent drop yoy and other items, such as clothing with a 68.5 percent fall yoy.

Bank Indonesia also estimates that the Real Sales Index (IPR) in May would fall even deeper. According to Bank Indonesia, the IPR sales in May were estimated to sink by 22.9 percent yoy. The fall in the IPR sales began in March 2020 during which it dropped by 4.5 percent.

In May, the sales of clothing sub-group commodity was predicted to fall by 77.8 percent yoy. While the sales of cultural and recreational goods were estimated to decline by 57.1 percent yoy.

KOMPAS/RIZA FATHONI

Traders at ITC Kuningan, South Jakarta wearing face shields, on Monday (06/15/2020). The first day the mall was opened in Jakarta, the mall manager prepared the Covid-19 prevention protocol and traders who resumed activities with a new normal order.

In the first quarter of 2020, the contribution of the wholesale and retail trade sector to the national gross domestic product (GDP) was 10.68 percent, not much different from the previous quarter during the past five years. In total, the household consumption contributed more than 50 percent to GDP over the past five years. In the first quarter of 2020, the contribution of the household consumption to GDP rose to 58.14 percent.

However, in the first quarter, 2020, the household consumption which contributed greatly to the GDP growth, slowed to 2.8 percent (yoy), lower from annual 5 percent growth in the previous quarter. The fall led to the decline in the GDP growth to 2.97 percent yoy in the first quarter. The figure was clearly far lower than the consensus of 4.3 percent yoy recorded by CNBC Indonesia of 4.3 percent (yoy). It indicated a gap of more than 100 basis points.

The sustainability of the retail industry is important given the large contribution of the household consumption to the economy.

The decline in the trade sector in general and the retail business in particular could bring a severe impact on the national economy this year if not solution is taken. The sustainability of the retail industry is important given the large contribution of the household consumption to the economy.

New order

In the midst of such economic conditions, the easing of the social restrictions but with the strict implementation of health protocols can provide fresh air for businesses. The retail business is expected to be able to recover with the gradual opening of economic activities.

The Health Ministry has issued a new health regulation for COVID-19 prevention for service and trade businesses, namely Circular Number HK.02.01 / MENKES / 335/2020, as preparation to enter the phase of a new normal order.

Under the regulation, COVID-19 transmission prevention protocols must be implemented by workplace managers, business players, workers, consumers, and the public involved in the service and trade sectors.

A number of things that must be initiated by management, among others, are cleaning and disinfecting work areas and public areas every four hours an providing adequate and easily accessible hand-washing facilities.

Workers need to understand protective measures against COVID-19. Workers, consumers and businesspeople whose temperatures are above 37.3 degrees Celsius are not allowed to enter outlets. They are also required to wear masks and keep a physical distance to a minimum of 1 meter, minimize contact with customers and prevent crowds of customers.

As for visitors, the new health standard includes maintain a safe distance upon entrance to a mall, which includes limitations for elevator capacity. In addition, transactions must use the cashless system to suppress the physical transfer of money as a medium for spreading viruses.

KOMPAS/ADITYA DIVERANTA

The kiosk joins in Pasar Senen, Central Jakarta, still open even though the manager has begun to apply operational restrictions according to odd-even dates, per Monday (15/6/2020).

The government\'s move certainly provides hope for the retail sector. The reopening of malls and shopping centers could prevent a deeper decline in the retail sector. Visits to shopping centers are expected to grow again and will encourage sales.

New strategy

However, the COVID-19 outbreak also led to changes in consumer behavior, both regarding products purchased and how to purchase. During the implementation of social restrictions, digital transactions increased sharply and the surge is expected to persist.

Digital transactions have grown rapidly because consumers are able to buy their desired items without the hassle of leaving home. With their cellphones and internet credit, consumers can easily search for their daily needs. Consumers do not need to visit stores, which takes up time, energy and transportation costs.

Changes in consumer behavior can have an impact on retailers that only rely on physical stores. The change is quite challenging because over the last few years, a number of major retail companies have been forced to shut down.

In addition, promoting and maintaining consumer loyalty in the digital era is much more difficult than in the past due to shopping alternatives provided by online shops, which offer various products at lower prices.

With such change in shopping trends, businesses in the retail sector can no longer rely solely on old business methods. Businesses need to make breakthroughs and innovate to survive.

The types of goods that are liked and the favored store area must be assessed using technology and followed up by raising supply of goods as well as improving the comfort and cleanliness.

Retail operators need to learn digitization strategies so that their businesses so that they can follow the new shopping tend. Consumer behavior from entering the store to making transactions needs to be studied in detail. The types of goods that are liked and the favored store area must be assessed using technology and followed up by raising supply of goods as well as improving the comfort and cleanliness.

Another strategy that can be taken is to combine offline and online services. At present, a number of modern retail outlets are start is to provide a delivery service for consumers.

On the health and safety side, it is important for modern retail entrepreneurs to think of new breakthroughs in operating their businesses, especially related to health protocols that must be applied, starting from the obligation to wear masks for both visitors and employees, providing a place to wash hands, checking temperatures, to provide hand sanitizing fluids.

Retail operators are expected to be able to maintain sustainability in the midst of the transition period. Of course, they have to continue to understand market conditions, consumers, suppliers, competitors, government policies and follow health protocols.