It is a regular day in Tanah Abang market, the largest wholesale clothing market in Southeast Asia, thousands of customers squeeze into packed 4-square-meter shops sprawled across multiple buildings, eager to buy their Idul Fitri outfits. But storekeepers are not as excited.
Sales have been weaker than in previous years, with storekeepers saying this is the “worst Ramadhan” season in at least the past five years. The fasting month that precedes the Idul Fitri festivities, in the country with the world’s largest Muslim population, is normally the time of year when revenues peak.
“I can even take naps because the store is so deserted,” said one storekeeper among many at Tanah Abang Blok A when asked about sales.
Consumer spending accounts for 56 percent of the country’s economy and its decline will add to issues regarding economic growth, which has slowed to the lowest level in almost six years amid weak government spending and sluggish exports.
Bahana Securities economist Fakhrul Fulvian said June’s 0.54 percent monthly inflation, which was lower than the consensus market prediction, was a “reflection of weak demand on the ground” as the core consumer prices index (CPI) remained “flattish” on an annual basis.
Bank Indonesia’s (BI) consumer survey has shown downward trends in all indexes so far this year, with the “consumer expectations” index slipping to near the pessimistic level at 100.3 in June. Indexes above the 100 mark show consumer optimism and below 100 show a pessimistic outlook.
“This is a signal, an alarm bell, that growth in the second quarter will not be much different from the previous quarter. The government must prioritize restoring the people’s confidence and purchasing power,” said Latif Adam, an economist at the Indonesian Institute of Sciences (LIPI).
Policymakers’ recent rules that have eased the luxury-goods tax, taxable income and down-payment requirements for mortgages, auto and motorcycle loans should help stoke purchasing power, but the management of food stocks remains the most important, according to Latif.
“Right now there are problems in people’s purchasing power. Several policies such as the fuel price and electricity price increase have distorted consumers’ perceptions of the economy,” Latif added.
As Indonesians adjusted to new market-driven prices for the popular RON 88 Premium-brand gasoline, which has been more expensive than ever since last October, they have also been hit by higher, recently floated, electricity prices, partly as a result of the weaker rupiah, which has slumped about 7 percent so far this year, among the region’s worst performing currencies.
“With the higher US dollar, the cost of goods sold rises, and sellers are in a dilemma with only two options; selling at the old prices for volume, or at the new prices with fewer buyers,” said Adnan Rio, who owns shops at Tanah Abang and supplies other retail centers in Jakarta, describing the poor business climate.
Sales of cars, motorcycles and cement — which are the main indicators of domestic consumption – had contracted 16.6 percent, 24.7 percent and 3.8 percent, respectively, so far this year up to May, compared with the same period a year earlier, data compiled by Bank Mandiri shows.
“All [retail and domestic consumption] indicators point to a slowdown,” said Bank Mandiri economist Andry Asmoro.
Same-store sales growth at Ramayana, which represents the low to medium retail segment, and Ace Hardware, in the medium segment, respectively dropped 6.3 percent and 5.9 percent cumulatively up to April and May.
“The consumption of goods classified as secondary needs […] are decreasing and we are quite worried about Ramadhan and Idul Fitri this time,” said Triyono Prijosoesilo, chairman of the Association of Indonesian Soft Drink Producers (Asrim).
A lot of businesses that deal directly with customers have put a brake on expansion this year. Consumer goods giant Indofood Sukses Makmur and publicly listed taxi operator Blue Bird Group slashed capital expenditure (capex), while rival taxi operator Express Transindo Utama will not be buying any new vehicles this year.
As businesses feel the pinch of the domestic economic slowdown, Apin Tailor in Mayestik in South Jakarta, which makes suits for businesspeople and public officials, has also been hit. Halfway through the year, orders stood at less than 200, while in previous years they could reach 400 to 600.
“It has never been this bad. Normally in a day, at least one or two customers will come. But nowadays I can go two to three days without seeing any customers at all,” said Siswanto, who has minded the store for five years.
Nearly 50,000 factory workers in the labor-intensive footwear and textile industries had been laid off as of the end of May this year.
“Normally, we produce a lot ahead of Idul Fitri as demand rises. But, now we are stopping operations because stocks are piling up in warehouses,” said Eddy Widjanarko, chairman of the Indonesian Footwear Association (Aprisindo).
In Tanah Abang, storekeeper Yanti, 36, is nervous about her bonus this year, as her store’s revenues were cut by a third to around Rp 30 million (US$2,245) per month from Rp 80 to Rp 90 million previously.