Post-election Retail Sales
Customers mill around outside checkout lanes at a retail outlet on Oct. 21, 2018 in Jakarta. Retail sales recorded negative growth of 6 percent in the third quarter of 2018, compared to 10 percent in the same quarter the previous year.
Data on first-quarter retail sales is not yet available. Even so, the existing data can still be used because growth in the retail sector cannot be separated from the shopping and savings cycle, especially during national holidays and extended holidays.
This cycle will likely change in the second quarter because the Idul Fitri holiday fell between June and July in 2014 and 2018. During the second quarter in 2014, 2015, 2016 and 2017, the large and small retailers recorded a sharp decline in sales growth from the previous quarter of respectively 4.64 percent, 2.76 percent, 3.80 percent and 3. 46 percent.
This indicates that the buying pattern for high-volume shopping generally occurs during the first quarter. The sales volume of online retailers is still too small to influence the buying cycle, and there has also been a shifting trend in buying behavior to premium products. The availability of retail franchises like Indomaret and Alfamart almost everywhere has enabled lower-middle income customers to purchase daily necessities in smaller volumes.
Despite being a competitor to large retailers in daily necessities, the presence of these convenience store franchises has not altered the buying cycle. A change occurred in Quarter 2 of 2017, during which the large and small retailers showed were relatively weak sales performances compared to the previous quarter.
However, the hotel and restaurant subsectors saw solid growth during this period. It seems that people’s expectations for better conditions and extended holidays/cuti bersama (collective leave) have contributed to an increase in leisure spending, but have not greatly affected retail sales.
In terms of gross domestic product (GDP), the highest growth from 2014 to Quarter 2 in 2018 occurred in the food and beverage industry at around 8 percent (year-on-year), excepting growth in 2014 of 10 percent.
In contrast, the textile and garment industry almost always experienced a slowdown in the second quarter. Electronics and optical products have a pattern similar to textile and garments, except in 2017. Electronics and optical products industry generally records its highest growth in the fourth quarter.
Sales growth in big-ticket items takes time, as consumers tend to accumulate savings and wait for big discounts. This pattern was seen in textiles and garments only in 2017 and 2018. In conclusion, consumers with enough savings and purchasing power bought these products at least once a year over the past two years, and mostly in the fourth quarter.
Consumer spending behavior on non-durable goods can be extrapolated from GDP consumption data. In 2014-2018, except in 2018, the highest growth in spending on clothing and footwear was recorded in the second quarter. The spending peak in hotels and restaurants is more difficult to predict, as it depends on the season and the length of holiday periods.
The cycle always shifts from one quarter to another each year. Spending in home appliances/durable goods and leisure are generally complementary in nature. Current expectations for increased future income are relatively low, so consumers generally reduce spending in home appliances so they can spend more on leisure (travel and culinary). This creates potential disruption to the retail sector. Conversely, if future prospects are good, consumers will increase spending in both leisure and household appliances.
Consumer expectations
Bank Indonesia’s (BI) consumer confidence survey can be used to project future expectations. The March 2019 survey provides a checklist of what might happen in the retail sector in the first quarter and thereafter. Between January and March 2019, the Consumer Confidence Index (IKK) fell slightly from 125.5 to 125.1. Even though it remains within the optimistic range, the data shows that consumers remain cautious about spending.
The 2019 election appears to have caused people to be more conservative in their spending habits, as seen in consumer buying behavior for durable goods, such as televisions, computers and cellular telephones, which declined slightly in March 2019 (March 2019 BI IKK Survey) compared to the previous quarter. However, the survey also illustrated that consumer expectations for an increase in future income remained high.
As reflected by this writer’s own observances (anecdotal evidence), middle-class restaurants remained full during lunch services in large cities like Jakarta, Medan, Surabaya, as well as in mid-sized cities such as Bandung, Yogyakarta, Solo, and even Purwokerto, Tegal, Kutoarjo, Madiun and Banyuwangi.
The combination of expectations for future income increases and conservative spending will likely create large savings in the coming months, which can be used for retail spending beyond food and beverages.
The buying cycle above indicates that the consumption trend – which is still affected by the higher savings and the peaceful election – is likely to push back the peak of the buying cycle to June and July.
Ari Kuncoro, Professor and Dean, Economics and Business School, University of Indonesia