Brand Power

Mitra Adiperkasa is already one of the country’s biggest retailers, and Virendra Prakash Sharma says it can only get much bigger.

PT Mitra Adiperkasa, one of the country’s most successful retailers, got its start 21 years ago as a side business for Boyke Gozali, nephew of tycoon Sjamsul Nursalim (worth an estimated $850 million according to Forbes, rank number 23 on their list of 40 richest Indonesians in 2010). His main interest was property development, and the retailing was only meant to support the core business. Now the tail is wagging the dog, something Boyke never imagined. MAP has grown into a company with Rp 4.7 trillion revenues and a market capitalization of Rp 4.81 trillion. At the end of February, the company operated 870 stores for more than 90 brands in 25 cities throughout Indonesia, including in Sentani and Abepura, both in Papua, the easternmost province. It’s not unusual for MAP to absorb 30% of a mall’s retail space, giving it unique market power to negotiate with mall owners.

Virendra Prakash Sharma, vice president director of MAP, has been with the company for 21 years and has been the point man on most of that growth (Boyke declined to be interviewed for this article). After Boyke built Plaza Indonesia, in 1990, he recruited Sharma, now 52, to build the company. “That was the idea when I was recruited from India to come and start this company on day one. I was the president director and Susiana Latif was the chief financial officer up until today,” says Sharma, who is known as VP. At the time, he had spent 13 years as a banker at UCO Bank in India.

His first assignment was to manage Sports Station, MAP’s first store. Sharma made it a success, and so opened more Sports Stations in locations unconnected to Boyke. “He let us make retailing a separate business, while he stayed in the property business,” says Sharma. When Blok M Plaza opened, Sharma set up a Sports Station there, followed by locations in Surabaya and Bali. Within five years, Sharma had set up forty stores, then proceeded to roughly double store numbers every two years: 85 by 1997, 175 by 1999 and 343 by 2001. Only in 2003 did he break stride, still hitting 416, a rise of 21%. Growth remains impressive, last year revenues rose 15% and profits rose 23% to Rp 201 billion. MAP’s target for this year is 20% growth in both sales and profit.

To reach the target, Sharma plans to be more aggressive in expanding its stores and brands. The company allocates Rp 350 billion for capital expenditure, all from internal cash flow and not including investments for new department stores. The company plans to acquire or expand more brands such as clothing retailers Stradivarius, Bershka, H.E. by Mango and Wallis, as well as shoe retailer Payless. The first Stradivarius store in Indonesia opened last month (March 12, 2011) in Plaza Indonesia, which is still controlled by Nursalim. Payless, which will open this year, gives the company an opportunity to expand regionally to Singapore and Malaysia. Mitra Adiperkasa should open 300 new stores this year: 100 for sporting goods and 40 stores each for Burger King, Domino’s Pizza, Cold Stone Creamery and Starbucks. The remaining 40 stores will be spread between its other brands. A third of new stores this year will be outside Java.

Though MAP likes to add brands to its portfolio, it does not hesitate to drop them as well, even well-known brands. Last year MAP terminated its relationship with shoemaker Salvatore Ferragamo, Giorgio Armani (and Emporio Armani) and, most notably, U.K. retailer Harvey Nichols. The Ferragamo license was acquired by the Para Group, which has been adding more upmarket brands to its existing portfolio that includes Prada, Tod’s, Aigner, Jimmy Choo and Hugo Boss. Owned by billionaire Chairul Tanjung, Para Group is taking a similar strategy to MAP, at least on the high end. Sharma isn’t concerned, saying that MAP is focused on the mid-tier and upper mid-tier brands, not the luxury brands as Para is doing. MAP will continue to cement its status as Indonesia’s brand king through its ability to acquire and manage brands, says Bahana Securities analyst Harry Su. “Mitra Adiperkasa is continually fine-tuning its brand portfolio, which is the right strategy amid an ever-changing retail landscape,” he said in his latest report about the company published in January 11.

By the end of 2010, PT Satya Mulia Gema Gemilang controls 58.83% shareholding in MAPI and public shareholders own 51.17% stake. According to a recent data from Actual Data, companies data provider, Satya Mulia controlled by PT Mitralestari Adiperkasa (99.99%) and Juliani Gozali owned 0.01%. In their IPO prospectus, previously the minority stakes are belong to Boyke Gozali. He was MAPI’s Vice President Commissioner. Satya Mulia is also a 24.83% stake holder in PT Polychem Indonesia Tbk (stock code in IDX: ADMG), a polyester products maker. Polychem is also 28.91% owned by Indonesia’s largest tire maker PT Gajah Tunggal Tbk (GJTL).

MAP has taken the lead in several categories. It is the country’s largest operator of department stores, with 30 of them, surpassing Metro with six stores. It is the number one sporting goods retailer, with Planet Sports, Sports Station and Athlete’s Foot. It is a major player in food and beverage, and has room to grow. “We are not number one in the food and beverage (F&B) business yet, but we are number one in terms collective F&B. There may be 112 outlets of Mc Donalds while we have only 18 Burger King. There are more than 200 outlets for Pizza Hut and we only have 15 Domino’s Pizza. The Philippines has close to 200 Starbucks while we don’t even have 100 [92 in February 2011]. But Indonesia is a big country and its middle class is getting bigger, so we have tremendous potential,” says Sharma, a fan of Starbucks coffee, veggy food from Burger King and Domino’s Pizza, and Massimo Duti, one of the fashion brands that Mitra Adiperkasa acquired. He thinks Massimo’s products fits his tall and slim body structure. Both picture in this article showing him with Massimo suite and denim jacket.

How big? Average income has doubled in the past five years to $2,350 per annum last year, and is expected to hit $3,400 this year. The country boasts some 25 million middle-income consumers, defined as earning at least $4,500 per annum, a figure that is expected to more than double by 2015 to 52 million, according to a recent Deutsche Bank report. The number of middle-income consumers in the country is now almost equivalent to the entire 28 million population of Malaysia.

Sharma says retailing is all about people. That is literally and they take it as corporate philosophy stands for People centered approach, Empowerment, Originality, Principles, Loyalty, and Earnings. Many of this top managers have been with him for decades. Mid-level staff are given extensive training including going abroad to study, such as Spain or Hong Kong. “We spend a lot of money on training,” says Sharma. The trick is to sniff out which brands are going to be important, and which are saleable in Indonesia. The company conducts regular customer surveys and hires mystery shoppers. MAP also works with credit card providers such as Bank Central Asia and HSBC to offer discounts and attract them to the stores. This strategy proves to be more effective rather than place advertising in television, which is less suitable for their target of costumers.

To cut costs, MAP has its own garment maker PT Mitra Garindo to produce branded products such as Reebok, OshKosh B’Gosh and Mattel’s Barbie. Even though Sharma claimed the unit is relatively small, it managed to export the products to Europe and America. He did not elaborate about the production quantity. Some of the principal brands actually have their own local factory, including Starbucks which also exporting a lot more than what the company is importing from them. Lydia Suwandi, analyst Danareksa Sekuritas, believed more stores have been able to reach the principal’s quota. This allowing the company to source goods and materials locally, and thus saving on freight cost in the F&B division for stores like Starbucks or Burger King. The goal is to source as much product locally to cut time and import costs. With the abundant business opportunity, Sharma believes that Jakarta could develop itself as a shopping destination for tourists, much as Singapore, Hong Kong and other Asian cities have done. He would like to see Indonesia reduce its local duties and taxes as well to encourage Indonesians to do more shopping. “I think Indonesian consumers are very savvy and brand conscious, and want value for money,” he says. “If we provide them what they want here, they will shop here.”

Another type of shopper, investors, have been buying plenty of MAP shares. The stock has risen 323% from Rp 690 to close at Rp 2,900 over the twelve months to April 15. With the price, the stock price to earning ratio (P/E) level are 23.94 times. The share price has gain nearly quadruple than the Jakarta Composite Index gain which only 7% compare to 27% for the last 90 days, according to a today’s data from Financial Times. Sharma thinks investors now appreciate the true value of the company, but he remains modest, saying the company is still very small. He believes the sky is the limit as Indonesia is a big country with a big emerging middle class.

* This story appears in April 2011 issue of Forbes Indonesia magazine. The grey highlight is additional for the blog.