Tutum Rahanta, Deputy Chairman of the Indonesian Retailers Association (Aprindo), advises operators of department stores in Indonesia to adjust to the changing behavior of consumers in order to stay alive. For example, these operators have to develop an online platform, an online-to-offline system, or come up with stores that are more appealing to the modern consumer.

Rahanta said the modern Indonesian consumer perhaps lost his or her interest in the 'big department store' concept where hundreds or thousands of different products and items are sold in one big physical space. Possibly, the modern Indonesian consumer prefers a smaller store that is specialized in a specific category of products. But more importantly - and in line with rising Internet and smartphone penetration across Indonesia - the modern consumer is increasingly buying things online.

Problematically, many department store operators in Indonesia have already developed an online shop but the consumer prefers to purchase goods online at the big established e-commerce platforms such as Lazada, Tokopedia, Bukalapak, Elevenia and Blibli. Possibly, the consumer puts more trust in these big e-commerce players, while their distribution channels may also be bigger.

Apart from rising competition from the e-commerce industry, bleak retail sales in Indonesia so far this year also form a burden. Based on data from The Nielsen Company, retail sales in Indonesia only grew 3 percent (y/y) in the January-August 2017 period, down from a 10 percent annual growth pace reported in the same period one year earlier.

In September 2017 Indonesian listed retailer Matahari Department Store announced that it would close two department stores in Jakarta as sales at both these stores were disappointing. However, at the same time the company said it would add department stores in other parts of Indonesia as the company remains optimistic about the prospects of the department store sector in Indonesia. Matahari Department Store, part of the Lippo Group, operated 155 stores across Indonesia per June 2017. It plans to add 6 to 8 new stores in 2017.

Meanwhile, its rival Mitra Adiperkasa announced it will close all of its remaining Lotus Department Store outlets as the store chain fails to contribute positively to the corporate earnings of the listed company. Mitra Adiperkasa is currently restructuring its department store business segment in an effort to reduce the company's operational costs. Fetty Kwartati, Head of Corporate Communication at Mitra Adiperkasa, emphasized that the closing of Lotus does not mean Mitra Adiperkasa will focus less on its department store business segment. It is only part of the company's restructuring strategy in order to boost the overall performance of its department store business segment.

Indonesian Finance Minister Sri Mulyani Indrawati added that the closing of (physical) retail stores in Indonesia is actually not a sign of weak consumer purchasing power. This is evident when looking at tax revenue stemming from the country's retail sales. Up to September 2017 there was an increase in tax revenue realization from this sector. Hence, it seems to indicate that there is indeed a shift from physical shopping to online shopping that is increasingly putting pressure on physical retail stores.