Online clothes shopping has become a massive industry in many parts of the world. Online fashion startups in Indonesia, though, haven’t fared so well, partly because of the impact of COVID-19. Many Indonesia startups have begun to shutter operations in the wake of the pandemic and their inability to scale to the same degree as other eCommerce retail groups. With the retail in Indonesia sector becoming less successful, how is the industry expected to grow?
The pandemic has caused a global economic downturn. According to a recent McKinsey & Company report, since April 2020, Indonesia is now expecting that the GDP growth for the country will drop from 5.3% to 2.4%. With such a change in growth numbers, eCommerce retailers will need to adopt new habits and pivot their business plans to stay afloat during the new ‘normal’ of online retail.
Widespread shutdowns threaten the industry
Many companies have been affected by lower sales during the pandemic. A Bank Indonesia survey found that retail sales dropped by over 18% in the 2nd quarter of the year, but they are hopeful of some growth in the remainder of the year as the economy starts to open up again. Though some retailers are reporting manageable losses, not all businesses have been as lucky. The fashion eCommerce startup Sorabel couldn’t withstand the crisis and has now closed down operations due to a lack of cash reserves. Their website still appears operational, but many reports indicate that the liquidation process has begun. Fashion eCommerce firm, Berrybenka, is rumoured to be in talks with the failed online operation to acquire their platform.
We look at the changing Indonesian economy as the market evolves and responds to changes.
Blanja, another big name in the Indonesia fashion startup scene, also announced that they are no longer in business and that all consumers should empty their Blanja Wallet by September 30 2020. The company was originally a joint venture between eBay and the telecommunications company Telkom.
Is COVID the only driving factor?
It is easy to put the blame on the virus for the closing of retail ventures in recent months, however, when looking at the whole story a much bleaker picture is painted for the state of fashion eTail in Indonesia. Since 2013, 17 of the 24 failed eCommerce businesses in Indonesia were fashion startups. The problem isn’t exactly clear. In a report published by Research and Markets, forecasts for the industry were generous. It found that the compound annual growth rate for the online retail industry would be 23.8% from 2017 through to 2022.
According to a conflicting report published in Statista, the annual growth projected for retail sales in Indonesia is likely to continue to decline at similarly modest rates as it has been since 2017. It is forecasting that it expects sales to reduce by 1.7%, 2.2%, and 2.5% from 2019 through to 2022 respectively. This conflicting data leads to the conclusion that the pandemic may have little if anything to do with the level of online retail sales in the region.
Physical stores have also suffered
It isn’t just online sales that have taken a hit due to the economic downfall caused by the COVID-19 pandemic. Physical retailers have also felt the effects of fewer consumers. The Japanese retailer UNIQLO had to close the doors of all its Indonesia locations in the wake of the pandemic. The halt in operations wasn’t enough to make a significant downturn in sales, and the retail conglomerate bounced back mid-June according to reports in Business World.
The pandemic has not been the only cause for store closures in the region in recent years. In 2017, Vans Indonesia closed all stores due to bankruptcy according to a Kompas news report.
The whole world has felt the impact of COVID-19, and the global economy suffered from the rapid rise in case numbers. Closures, both mandatory and optional, took place in different countries. In Indonesia, many retailers chose to close their doors amid the pandemic to abide by the country’s physical distancing laws. Now that things have returned to somewhat normality, there may be a glimmer of hope in sight for the online fashion startups in Indonesia who are hoping to stay afloat during these uncertain times.
Indonesia startups would fare far better in the new retail world by adjusting to the times and adapting to their target audiences’ needs. Many retailers across the board have made up for low sales and the lack of consumers by introducing face masks into their repertoire. This level of expansion in available items has led to increased sales for many retailers, such as Biyan and Sejauh Mata Memandang. Retail in Indonesia will have to adapt to survive the new sink-or-swim mentality and to determine their success following the reset of the economy in the post-COVID-19 pandemic world.
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