Duty free s Star rises in Indonesia

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1 May 2007 INTERVIEW John Halim Duty free s Star rises in Indonesia After a decade of stagnation, investors are returning to Indonesia spelling good news for duty free retailers such as Fortune Star Duty Free. President and Director John Halim talks to Hui Min Neo about retailing, recovery and the role of the company s new partner, DFZ Capital. If the rapid pace of real estate development is an indication of investor sentiment in Indonesia, then the good times could be returning. In Jakarta alone hotel group Ritz-Carlton will open an all-suite hotel in July, a 3,300sq m dance club said to be the largest in Southeast Asia is under construction, and numerous new shopping malls are springing up around the city. The signs of recovery are all too welcome. Crisis after crisis has beset Indonesia in the past few years; first there was the regional financial crisis in 1997, then the Bali bombings of In 2003 the region was hit by the SARS epidemic, and the country also bore the brunt of the terrible tsunami of December 2004 which swept away countless lives and homes. And in 2005 another round of bombs in Bali shook investor confidence again. Even over the past two more stable years the fear of further disasters has not abated. Talk of an imminent bird flu epidemic continues on and off; and most recently serious floods brought the capital to a standstill in February this year. All of these problems hit duty free hard, but it too is showing signs of renewed life. John Halim, who is President and Director of PT Fortune Star Duty Free, says his business at Jakarta Soekarno-Hatta Airport is picking up again. He estimates that total duty free sales at Jakarta split across several retailers, including Fortune Star could even hit US$100 million in sales in 2007, way ahead of the average of some US$60 million in recent years. Halim is quick to praise suppliers for helping retailers during the tough times. Many gave us long-term credit. Of course there were others which refused credit, but some even said we could pay when you have the money, he recalls. And, as the 19-year veteran of the The Moodie Report 113

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3 May 2007 INTERVIEW John Halim A new era begins: stocks are updated at the Fortune Star confectionery store at Jakarta Airport following the deal between the retailer and DFZ Capital business adds, Of course you don t develop that kind of relationship in one day. At the worst point of the various crises the value of Halim s business fell to just 10% of its mid-1990s high. Today it has recovered to about 60% of what it used to be, and Halim said it could hit 80% once the major brands return. Business is back to what it was about ten years ago. Over the past decade we ve been stagnating; we had to find some financial means to get back up. If the political situation remains stable, then the business will go on growing, he says. The recovery mirrors an improving consumer sentiment on the local market, too. During the financial crisis nobody was buying expensive wine. Nowadays it s coming back, and you can t sell cheap wine here any more, he adds. The average spend per head among purchasing passengers is about US$75 today, he says. Visitors from the Gulf states, who buy mainly fragrances, are emerging as a key group of arriving customers. If the political situation remains stable, the business will keep on growing Over the past two years he has been seeking a business partner to give him the financial backing that would allow his operation to flourish. After intensive talks he announced a deal with Filipino company Regent Asia Philippines in August But less than two months after the announcement the deal fell apart, with recriminations on both sides. Halim says his company lost some US$600,000 in the process. With that deal off, Halim had to find another partner fast, or else risk losing a hopedfor extension to his concession at Soekarno-Hatta. After that we had to be very careful. If anything similar happened again we would have been finished, he says. Dark horse Halim says he discussed the opportunity with a number of leading international retailers, but it was a dark horse in the running, DFZ Capital, which finally sealed the deal. The Malaysian company formerly known as Sriwani Holdings already operates several duty free stores across Malaysia (see page 119). But other nationalities are important too: South Koreans account for 40% of departing customers, Taiwanese and Japanese 20% each, and a mixture of Chinese and other nationalities make up the remainder. But despite the optimistic business environment, the effects of crisis after crisis had hit Halim s business hard. Halim says his new partners are serious and enthusiastic. They came in on time. They agreed a deal straightaway, and sent 16 people here to talk. Once they had decided, they proceeded immediately with the due diligence, he says. In fact it took all of three weeks to work through the management agreement that DFZ now operates for Halim s company. The Moodie Report 115

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5 May 2007 INTERVIEW John Halim Under the deal DFZ Capital manages all finances as well as full operation of the stores. On our part, we will help them to sort out logistics issues such as vehicles, warehouses, space and licences. We provide them with a service, and explain Indonesian rules and regulations to them, says Halim, adding that while DFZ will finance 100% of the joint venture, both parties will share the profits. DFZ Capital has worked hard. Even though its first month in operation was hampered by the floods, by the time The Moodie Report visited in February, over 100 new brands had been added to the stores. Older stock was also being cleared in order to fill the shelves with the latest products. But beyond running the four stores two in Arrivals and two in Departures at Soekarno-Hatta Airport, the joint venture is planning to expand in other Indonesian markets; and one obvious option is Bintan Island. DFZ already operates a ferry terminal in Johor Bahru, Malaysia, a base from which many tourists set out to visit the Indonesian island. On the rebound: as consumer confidence returns to Jakarta, consumers no longer buy cheap wines they are seeking more exclusive brands Bali is another possibility, says Halim. And back at Fortune Star s Jakarta base studies are under way into the viability of opening a downtown duty free store. Halim reveals that the company is looking at spaces of about 1,000sq m in two or three of the new downtown shopping centres. We are pushing to change the law to allow returning residents to spend up to US$1,000 each. If the law is changed downtown duty free could become big business. And expatriates can also buy, he notes. In addition, tightened security measures in European and American airports to limit gels and liquids carried in cabin baggage could also spell an opportunity for the downtown duty free business. Travellers can buy downtown at duty free prices and pack the products into their luggage to be checked in, so as to get round the liquid ban problem, says Halim. After 19 years in the business, and with DFZ Capital in the driving seat, Halim says he is hoping to slow down. But delve a little deeper and it is clear that he s as energetic as ever. Halim has been elected to the Vice Chairmanship of the Association of Indonesian Duty Free Shops. He has grand plans for the association to create an accreditation function, whereby only businesses recommended by the association would be allowed to operate in the country. It will also push for downtown duty free shopping to be open to expatriates living in Indonesia as well as returning Indonesians. He is also involved in developing domestic businesses. He recently developed so-called Camus Cognac karaoke lounges with the exclusive Ritz-Carlton hotel, with fittings and accessories supplied by Camus. In return its brand name is emblazoned throughout the lounges. Karaoke packages sold to clients include Camus XO and VSOP. Halim says this arrangement boosted the business seven-fold. He may be diversifying, but Halim s heart remains in duty free and he s enthusiastic about the prospects for the market in Indonesia. Traffic is now back to where it was before the financial crisis, he says. There was a big jump in traffic in the past year. The government is allowing individual states the autonomy to develop their infrastructure. And investments are rolling in. That s good news for the country and for duty free. The Moodie Report 117

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