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eekends at shopping malls, frequent visits to minimarkets, a population of over 250 million people with an emerging middle class and a domestic consumption-driven economy – what is not to love about Indonesia for retailers?

Foreign and domestic retailers have laid out big plans for Indonesia, the largest economy in Southeast Asia, which is ranked the world’s fifth most attractive market for retail investment in AT Kearney’s 2016 Global Retail Development Index. In the previous years, it sat in the top 20.

It is an exciting time to be investing in Indonesia’s retail sector, the report suggests. The country scores high in market size (64.3 out of a 0-100 scale) and low in country risk (38.9) – even lower than top-three China, India and Malaysia. Market saturation (50.2) is okay and urgency to enter the market is quite high (68.9).

The overall score of 55.6 is just less than one point behind Kazakhstan.

“Despite its relatively low retail sales per capita and currency volatility, Indonesia’s huge population and cities make it quite attractive to foreign retailers, which see untapped potential in the country and are investing heavily in new development,” according to the report, which covers 30 developing countries that represent more than half of total global retail sales.

This is reflected by burgeoning foreign retail investments in the country. Dubai-based Lulu opened its first hypermarket in Indonesia earlier this month with an investment plan of US$500 million, covering nine hypermarkets and a warehouse. Meanwhile, Singapore’s Courts, South Korea’s Lotte, Sweddish IKEA and H&M have big plans for their young Indonesian operations.

“Indonesia is identified as a growth market for Courts,” Courts Indonesia CEO Roy Santoso told The Jakarta Post, noting that the company has seen its sales growth double since it opened in 2014.

The company will be opening four stores by March next year to add to its existing five.

Home-grown convenience stores Indomaret and Alfamart have also shown aggressive expansion moves. Indomaret plans to open 1,600 new outlets this year, adding to its existing 12,210 stores, and Alfamart is shooting for six-fold sales growth this year, driven by upgraded online features.

The government’s recent move to fully open up the e-commerce industry to foreign ownership — as long as the business value is more than Rp 100 billion (US$ 7.49 million) — is making the retail sector more attractive.

Local retailers Matahari and Mitra Adi Perkasa have launched “electronic” malls, enabling consumers to shop online. The grocers Happy Fresh and Alfamart are also expanding their online presence.

E-commerce transactions are expected to reach $24.6 billion this year, three times more than what was recorded in 2013, the Indonesian E-commerce Association (idEA) expressed.

Devi Megawati, a 31-year-old housewife from Serpong, Banten, said the presence of online shops enticed her to scroll through the pages almost every day and led her to engage in impulsive shopping. The experience is notably different from the old days before e-commerce when it required time and physical effort to buy things.

An emerging middle class, better purchasing power and declining unemployment in recent years are the main reasons behind this increased appetite for shopping, and this has led to a retail investment spike in Indonesia, said Danareksa Sekuritas analyst Lucky Bayu Purnomo.

May Risti, 19, just started working as a janitor this year, and this means she can afford to spend more money.

“I go to Ramayana [clothing department store] frequently and buy my daily needs at the Indomaret near my house,” she said.
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