Gloomy predictions for sales trends in 2017 send cold shivers throughout the Indonesian luxury market. This comes in spite of a one-year-old revoked luxury goods sales tax aimed at attracting the purchasing power of the Indonesian luxury consumer.
Rather than seeing its upper class spending domestic money on Louis Vuitton bags abroad, the Ministry of Finance eliminated several taxes in 2015 to help boost value growth on the Indonesian luxury market.
However, the positive impact everyone was holding their breath for failed to deliver to those high expectations.
On account of the government’s tax amnesty, international luxury players have invested their hopes and marketing efforts on Jakarta soil. However, the forecasts for 2017 don’t even mention those longed for downpours of sales.
According to a recently-released report by FT Confidential Research, a market research service from the Financial Times, the drought will continue on the Indonesian luxury market.
A Push For Posh – The Ups and Downs of the Indonesian Luxury Market
Leading Players in the Indonesian Luxury Market
In 2015, international analysts and leading economists raved optimistic about a growth within the Indonesian luxury goods sector. The international fashion houses that reigned over the market at the time were brands such as Louis Vuitton and Hermes.
President Joko Widodo praised the constant increase of household incomes and purchasing power. The doors to up-scale brands were opening, even if ever so slightly, and new luxury entrants were queuing to get a prime spot on the boutique lane.
FT Confidential Research report into the Indonesian Luxury Market shows that a slow rupiah and a weak trend in discretionary spending caused by slower gross domestic product growth will continue to drag on sales.
Sustaining the slower pace of spending trends going back to 2013, the luxury industry seems to turn retro. Back then, Indonesia had been highly impacted by the US Fed’s decision to end its $85 billion bond-buying quantitative easing program. That put a lot of pressure on the rupiah, with sales dropping to a historic low of 13.6 percent in what was called the Indonesian taper-tantrum.
In the present circumstances, brands such as Hermes, Chanel, and Mercedes-Benz will be expected to take the hardest hit.
FT Confidential Research Survey Results
Crunching down data such as government records on revenue, Household Income, Future Consumer Borrowing, and Discretionary Spending indices, the report draws to one conclusion. The Indonesian luxury market has been registering record lows in the second quarter of 2016.
Luxury brands target their marketing efforts at the Indonesian urban consumer. However, consumer sentiment index, the psychological underpinning of spending trends, has fared worse this year compared to 2015.
According to FTCR, the Discretionary Spending Index fell from an optimistic peak of 85.3 in 2015 by almost ten percent in the second quarter of 2016.
Where Should the Indonesian Luxury Market Look for a Medicine?
When the elite falls short of high expectations, turn to the middle class. The FTCR proposes luxury brands pull their marketing ropes around the not so affluent, but highly influential and aspirational middle class.
In a survey done by FTCR, more than half of the 27.7% of Indonesians who aimed at buying luxury goods in the near future were part of the middle-income group. This is defined by incomes up to $22,900.00 a year.
Luxury car brands such as Mercedes-Benz and the Lexus both assessed the purchasing power of the Indonesian middle class. And they considered marketing sports utility vehicles at affordable prices.
In the end, despite the ups-and-downs of the rupiah and a consumer sentiment presently bordering on the negative, the Indonesian luxury market continues to attract the big names of the industry on this Southeast Asian nation made up of thousands of little islands.