Wal-Mart To Do Battle With Indonesian Giant; U.S. Marketer Localizing Its Message To Cut Into Booming Retail Business

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When Wal-Mart Stores opens its first store in Jakarta this August, it will face its greatest international challenge. Retail leader Wal-Mart, with a U.S. ad budget of $141 million, will encounter an Indonesian clone-PT Matahari Putra Prima-and one of Asia's most competitive markets.

Indonesia boasts 198 million consumers, the fourth largest population in the world, and an emerging middle class of 18 million. Ego-driven and brand conscious, Indonesia's upwardly mobile shoppers demand service and ultra-modern surroundings. Besides Matahari, rivals include foreign newcomers to the country's booming retail business, which grew by 48% last year.

A TURF WAR

Aiming at Matahari, Wal-Mart has positioned its new 183,000-square-foot outlet next to its look-alike in Lippo Village. This mall, Southeast Asia's largest, includes an amusement park, a U.S.-style food court, and stores including J.C. Penney Co., Body Shop and Marks & Spencer. Wal-Mart also will confront Matahari later this year in Jakarta's Mega Mall. By 1998, seven more Wal-Marts will open in Jakarta.

"We see Matahari as a formidable competitor," said Bob L. Martin, Wal-Mart international president-CEO. "We are going to come in with the best value."

The ad campaign, handled by Jakarta-based Pintak Corporate Communications, will introduce Wal-Mart's everyday-low-price, one-stop shopping concept to Indonesians. Recycling a U.S. symbol from the '70s, Wal-Mart will plaster a smiley face on promotional hand-outs, newspaper inserts, outdoor boards and circulars mailed to every city household.

TAILORED TO SUIT

"We use a local agency because we want to localize our message," Mr. Martin said. "We are trying to be sensitive to local cultures."

Tailoring its marketing, Wal-Mart will primarily carry Indonesian-made products. It recently held a two-day fair in Jakarta to forge closer links with 110 Indonesian suppliers, which currently contribute less than 1% of the chain's total items.

"We want to stop them now, before they get too big," said Herman Darmawan, director of merchandising and son of Matahari's founder. He plans to "step up" a $15 million ad budget, handled by Kraesindo, a former in-house a-gency whose clients include Philip Morris Cos. and Sheraton.

A campaign pitches Matahari as the store Indonesians can count on, in :30- and :60- TV spots, newspaper inserts and magazine fashion promotions. Matahari's name recognition is 98% nationwide.

The marketing battle pits Wal-Mart's giant $83 billion in global sales against Matahari's comparatively small $1 billion, but a figure that represents 40% of Indonesia's department store sales. It opened 20 stores throughout the archipelago in 1995 and plans eight more this year. Over the past three years, Matahari revenues have grown an average of 40% annually with profit margins of 6%.

`CRUSHED BY THE STAMPEDE'

"Conventional wisdom has it that Matahari will be crushed by the stampede," said Peter Hales-worth, retailing analyst at Asia Equity. "But that ignores Matahari's intimate knowledge of local conditions." He noted most of Matahari's new stores will be in the less competitive provincial cities, where 70% of the population lives.

A PRICE WAR CASUALTY?

The biggest challenge for Matahari is surviving a price war.

"Wal-Mart must play fair," said President Hari Darmawan, who founded Matahari 38 years ago. "That is the Indonesian way. Indonesians do not try to put one another out of business. It is just not done."

BOYCOTT THREATENED

When Wal-Mart launched two stores in China this month, local retailers, fearing cutthroat discounts, threatened to boycott suppliers to the U.S. retailer.

Preparing for battle, Mr. Darmawan has spent half of his career abroad, observing and copying highly regarded retailers like Nordstrom, Japan's Ito-Yokado and even Wal-Mart. Matahari's colorful, spacious stores and efficient operations reflect the research.

While Matahari learns from overseas retailers, Wal-Mart has been studying the Asian market. Wal-Mart recently ended an 18-month experiment in Hong Kong and found that, for Asian shoppers, bigger is better. Wal-Mart's new stores in southern China are super-sized.

Wal-Mart, which operates 256 stores in Canada and Latin America, sees growth next in Asia. Mr. Martin forecasts that Asian business will account for 50% of overall sales growth and 25% of earnings increases by 2001.

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