Indonesia’s Luxury Goods Market During the Pandemic

by | Jan 12, 2021 | Market Research | 0 comments

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Indonesia is the biggest economy in Southeast Asia, the country’s GDP reached USD 1,119 trillion in 2019 (World Bank, 2020). Currently, Indonesia holds a demographic advantage, where most of its population are the youth of working age. The middle-upper class household is also growing significantly during these past few years. Over 52 million of the population are now economically secure in the country (World Bank, 2020). As the fastest growing economy in the region, Indonesia offers many great opportunities for industry players, including in the luxury goods industry.  

The luxurious goods industry in Indonesia experienced positive trends over the years, mainly driven by the increasing number of wealthy Indonesians. Luxury goods are unessential, yet highly desirable and usually associated with status and self-worth. 37% of Indonesian consumers state that they occasionally purchase luxury products to treat themselves (IFCCI, 2019). 

Most Indonesian are limiting their spending during the Covid-19 pandemic. A survey shows that Indonesians are being more mindful about their spending, prioritizing essential needs, and cheaper products with greater values (McKinsey&Co., 2019). Meanwhile, luxury goods are deemed unnecessary and expensive. How badly did the Covid-19 pandemic affect the industry in Indonesia? Keep reading to find out an overview of the luxury goods market in Indonesia.

Luxury Fashion & Small Leather Goods

Opportunities

The luxury fashion industry has been experiencing rapid growth these past years. The Indonesian luxury fashion segment’s revenue is projected to reach USD 576 million in 2021, increasing 17.1% year-on-year (YoY) from 2020. The revenue is expected to grow annually, with a CAGR of 6.3% in the period of 2021-2025 (Statista, 2021). 

The most revenue is generated from the luxury apparel segment, with a projected market volume of USD 357 million, increasing 19.3% YoY (with a 6.5% CAGR 2021-2025). While the luxury footwear market revenue is projected to value at USD 218 million, increasing 13.6% YoY (with a CAGR 6.0% 2021-2025).   

Meanwhile, the luxury leather goods segment’s revenue is projected to reach USD 493 million, increasing 13.6% YoY (with a 6.7% CAGR 2021-2025). In 2019, women’s luxury bags and small leather goods accounted for the most sales in this segment. France brand, Louis Vuitton, continues to lead the sales of luxury leather goods while brands like Gucci and Saint Laurent attract younger customers more (Euromonitor, 2020).  

Challenges

The biggest challenge for luxury fashion and small leather goods in Indonesia is that the advertisement landscape is extremely limited due to the country’s island geography and unequal city development structures. There is an absence of luxury retail real estate developments in major cities outside Jakarta. For instance, shopping malls are a crucial part of Indonesian shopping culture and only high-end shopping malls can showcase luxury brands. Moreover, political intervention and social pressure may hinder the growth of high-end retail as open displays of prosperity may not be tolerated as 9.4% of the country’s population still live below the poverty line (World Bank, 2020). 

Prominent Player

In the luxury fashion and small leather goods industry in Indonesia, international brands are still dominating the market. Luxury brand groups such as LVMH and Kering with brands like Chanel and Hermès are still leading the market. However, many domestic brands are already in the industry and gain popularity among Indonesians. The brands are such as BIYAN, Sebastian Gunawan, Tex Saverio, and Sapto Djojokartiko.    

Luxury Personal-Care and Cosmetics Products

Opportunities

During the pandemic, Indonesians’ concern for personal health and well-being increases. Personal care products, specifically, skincare, have now become essential for most Indonesian, especially women. While in the past, skincare was considered a luxury, it has become a lifestyle due to growing urbanization (Global Data, 2020). They are willing to spend more on good-quality personal care products. Some even see it as an investment, paying more for a high-quality skin firming cream to keep the skin young when they are older (Wibowo, 2020). The market’s growth is mainly driven by skincare products, hair care products, and makeup (Indonesia Investment, 2017).    

The luxury cosmetics and fragrances market will see an increase in revenue. The segment’s revenue was valued at USD 611 million in 2020 and is projected to increase by 14.1% YoY to USD 697 million by 2021 (Statista, 2021). The market is expected to grow annually by 7.2% (CAGR 2021-2025). The segment’s largest market will be luxury cosmetics, with a market volume of USD 311 million in 2021.    

Challenges

Indonesia’s luxury personal-care and cosmetics product market is still flooded with fake and illegal goods. For instance, BPOM Regulation No. 13 of 2015 exempts imported cosmetic products from compulsory verification. As a result, based on post-market supervision by BPOM in 2017, there were 491, 667 pieces of illegal local cosmetics and 756,495 pieces of illegally imported cosmetics in the country. It is also reported that among the fake products, 11,457 pieces of local cosmetics and 5,900 pieces of imported cosmetics contain hazardous ingredients with a market value of more than IDR 20.5 million (GBG Indonesia, 2018). 

Prominent Player

Many international brands have been dominating the Indonesian luxury personal-care and cosmetics industry. Existing players such as SK-II, Estèe Lauder, Lancome, and LaMer have recorded continuous growth over the years (Euromonitor, 2020). Estee Lauder, for instance, projected strong growth and expected sales rose between 7% to 8% in fiscal 2020 after robust demand across the Asia-Pacific region that has a 23% sales increase (WSJ, 2019). The company is confident that the growing middle class, especially emerging markets, such as Indonesia are the main growth driver. 

Luxury Cars

Opportunities

The luxury cars segment in Indonesia will experience slight growth this year. The revenue of the market is projected to reach USD 154 million in 2021, increasing 5.3% YoY from USD 146 million in 2020. In 2019, the Government of Indonesia announced that the luxury tax for some types of premium and luxury cars would be reduced. The new tax system will also be based on fuel consumption and carbon emissions, rather than its engine capacity.       

There is one factor that can explain the increase in luxury car sales in Indonesia. Indonesians defined car ownership as their social status. Nielsen global survey in 2014 concluded that 67% of car owners in Indonesia perceive owning the vehicle as an important symbol of success and 93% of Indonesian that is not a car owner perceive not having the vehicle as an embarrassment. 

Challenges

Indonesia’s big cities such as Jakarta have one of the worst traffic in the world with 3.8 million car congestion. Other Indonesian provinces also seem to be following the same development trajectory. This situation may reduce the willingness of Indonesians to buy luxury cars.

Moreover, Indonesia still needs significant infrastructure development in roads and toll roads. According to the United Nations Economic and Social Commission for Asia and the Pacific, Indonesia still lacks protection from roadside objects, unsafe condition of overloaded heavy vehicles, and absence of warning and speed limit signage. 

Prominent Player

International brands are still dominating the luxury cars industry in Indonesia, mainly due to their long-standing presence. In 2018, the market was led by Mercedes-Benz, while BMW was more popular among the youths (Euromonitor, 2020). Mercedes-Benz recorded 3,344 units sold in 2019. Meanwhile, BMW recorded 2,943 units sold in 2019, mainly driven by the strong demand for various SUV models (Cars&Crowns, 2020). Due to the poor road around the country, SUVs are gaining more popularity because it is more practical. However, sedans are still considered more luxurious and prestigious among Indonesians.

Luxury Watches and Jewelry

Opportunities 

Although the financial impacts of COVID-19 have made consumers spend less on non-essential products, jewelry still recorded positive growth in Indonesia. The luxury jewelry segment is projected to reach US$ 234 million in 2021 and is expected to grow annually by 5.4% from 2021 to 2025. In terms of total population figures, it is estimated that per person in Indonesia will generate US$ 0.8 in 2021 (Statista, 2020). In 2019, Indonesia is ranked 9th as a jewelry exporter with a 4% market share in the global arena (Wibawaningsih, 2019). The main export destinations include the United Arab Emirates, Switzerland, the United States, Hong Kong, and Singapore.

On the other hand, luxury watches are very popular among Indonesia’s upper middle classes such as public figures, athletes, celebrities, and are sought after by collectors as it offers high market value in the future.  Revenue for luxury watches in Indonesia is expected to reach US$ 308 million in 2021 that is projected to grow annually by 7% from 2021 to 2025. Moreover, to population figures, it is estimated that each Indonesian will generate revenues of US$ 1.12 in 2021 (Statista, 2020).

Challenges

The luxury jewelry market in Indonesia is still considered a highly fragmented category, with players only holding very small value shares as 50% to 80% of their products they sell return to them in a short period. One of the biggest challenges in the segment is a lack of standardization of gold content. The current national gold standardization, SNI for gold goods (SNI 8880: 2020) is only a guideline and not mandatory. It is estimated that the majority of gold jewelry circulated across the nation contain less gold than their manufacturers claim (Heryanto, 2020). 

To the market for luxury watches, Indonesia is a late-bloomer. Compared to its neighboring country, Singapore, Indonesia still has low active watch retailers with few selections (The Jakarta Post, 2020). Moreover, the weakening of IDR against USD and the additional costs for importing luxurious goods, and the financial impact of COVID-19, mean that luxury watches are likely to be negatively impacted even further. 

Prominent Player

The main driver of growth in luxury jewelry in Indonesia was the rising number of local luxury jewelers, such as Rockologist , From, and Clarissa kwok (Euromonitor, 2020). Meanwhile, leading foreign jewelry brands are Tiffany & Co. and Bulgari.  On the other hand, the leading retailer for Indonesia’s luxury watches is The Time Place with Rolex and Cartier as the most famous brands (timeinternational, 2020). 

How the Pandemic Affected the Market

The pandemic has affected many industries, including the luxury goods industry. Globally, the luxury goods market was forecasted to contract by 35% to 39% in 2020 (McKinsey&Co., 2020). Sales have plummeted in this segment leading to an estimated sales drop from 25% to 45% in 2020 and massive uncertainty for luxury brands to rebound (BCG, 2020). 

In Indonesia, the National Disaster Management Agency (BNPB) together with the Directorate General of Customs and Excise (DJBC) of the Ministry of Finance, have created a joint Standard Operational Procedure to accelerate import of goods that include Value Added Tax (PPN) and/or Sales Tax on Luxury Goods (PPNBM). 

Future Market Prospect in Indonesia  

The luxury goods’ overall revenue is projected to reach USD 2,362 million in 2021, growing annually with a 6.6% CAGR (2021-2025). The market’s largest segment will be luxury cosmetics and fragrances (Statista, 2021).  

The key demographic force in the Indonesian market is the growing numbers of high net worth individuals that are affluent and brand-savvy professionals with an estimated annual income of USD4,188 (BCG, 2020). Furthermore, Indonesia’s increasing celebrity culture and social media awareness has made consumers highly engaged in investing in their appearance, which should benefit luxury goods, such as high-end fashion, leather goods, luxurious skincare, expensive perfumes, sports cars, fine jewelry, and luxury timepieces. 

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The Indonesian luxury goods market has been projected to grow in the future. However, the coronavirus pandemic has affected the market, just like other industries in the world. While Indonesian customers are limiting their spending to only essential goods, luxurious goods saw a decrease in sales. Nevertheless, the market is projected to increase slightly in 2021 and will have a steady growth in the future years.     

Entering Indonesia’s Luxury Goods’ Market

Due to the diverse economic landscape and infrastructure challenges in the sector, investors will need a deep knowledge of the Indonesian luxury goods market before committing. Thus, a local partner with expertise in market entry solutions is what your company needs. 

Bright Indonesia offers services such as Market Insight Research, Business Partnership Engagement, and Management and Strategy Consulting that will provide your company with opportunities and obstacles in entering the Indonesian luxury good’s market through extensive in-depth research, help your company secure agreement with future partners through local representation, and assist your company to obtain expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).

For more information, email to info@brightindonesia.net.

This article is co-written with Gianina Amira Zahra

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