Fashion retailer PT Ramayana Lestari Sentosa (RALS) says that increased cost of living has dampened the positive effects of the minimum wage hikes among customers, affecting last quarterâs company earnings
ashion retailer PT Ramayana Lestari Sentosa (RALS) says that increased cost of living has dampened the positive effects of the minimum wage hikes among customers, affecting last quarter's company earnings.
Ramayana, a low-middle segment retailer, saw sales revenues rise 0.37 percent year-on-year to Rp 1.08 trillion (US$112.50 million) in the first quarter of 2013, while total profits rose 5.5 percent to Rp 41.8 billion.
Setyadi Surya, spokesman for the retailer, said that revenues rose slightly in the first quarter because the cost of living rise undid the benefits of the rise in minimum wage.
Indonesia saw a cross-region minimum wage increase of 30 percent on average at the start of the year.
'Our customers' minimum wage may have gone up but their other expenses, such as food, transportation and rent, rose too and has hence, absorbed much of the wage rise,' he said.
Ramayana finance director Suryanto added that the cost of living rise has rendered it impossible for the retailer to increase its prices in a bid to bolster sales revenue.
'A slight increase in prices will send our customers packing,' he said.
'We are now focusing on pushing up our profit margins instead of driving up sales revenues. We are planning to do this by reducing the number of store discounts and promotions we conduct,' he noted.
He added that profit margin in the first quarter was already 2 percent above margins in the same period last year. The retailer's gross profit margin was around 25.5 percent in 2012.
'However, we are targeting revenues to increase revenues by 8.5 percent this year,' he said, adding that the retailer aimed to open between six and eight new stores in 2013. 'These store openings will contribute between Rp 300 and Rp 400 billion to our revenues this year,' he said.
He added that by the end of the first semester, the retailer would open five new stores, three of which would located outside Jakarta and Greater Jakarta.
'We are planning to open the remaining three stores in the third quarter of the year and if possible, in time for Lebaran season,' he further said.
He added that the retailer had spent roughly Rp 150 billion of its Rp 400 billion capital expenditure budget to fund business activities in the first quarter alone.
'We spent part of the funds on down payments for two plots of land in Sumedang and Depok in West Java, on which we will build stores,' he said.
He added that this year, stores outside Java would remain the company's primary sales contributor, given that 44.5 percent of its stores were located outside Java.
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