The retail market in Indonesia has always had a strong luxury component. It is a country with many elites and super-wealthy, and global brands have been there to cater to them. What is happening now is altogether different and potentially more promising. The lower-upper and the upper-middle sections of the wealth spectrum are growing as the country quickly advances, while the middle class is becoming increasingly brand conscious.

The result has been a boom at the high end that is both broad and deep, making Indonesia a prime target for international retailers.

MILLIONS & BILLIONS: There has been an almost complete reversal of sentiment in the span of just a few years. Since Harvey Nichols abruptly abandoned the market in late 2010, awareness has been building — slowly at first, and then in a mad rush — that Indonesia is the place to be, and investments are flowing in. Most of the major luxury brands have a presence in Jakarta: Hermès, Fendi, Mont Blanc, Max Mara, Gucci, Chanel, Dior and Louis Vuitton, with the latter two, notably, operating directly in the country rather than through franchises.

Part of the reason for this proliferation of international brands is simply demand and growth in the number of high-net-worth individuals in the country. Indonesia has 32 billionaires (more than Japan), according to Forbes magazine, and Swiss banking group Julius Baer predicts that Indonesia will produce another 100,000 millionaires or so over the next few years. As a result of the commodities boom, foreign direct investment and government spending, Indonesians are becoming wealthier.

MIDDLE BASE: However, it seems that the recent entrance of high-end global companies into the local market is based on more than just the expectations of the super-rich. It is also a matter of the rise in the Indonesian middle and upper-middle classes.

Their numbers are increasing rapidly as well, and at the same time, their taste and sophistication are advancing fast. The internet and social media boom throughout the nation keeps them up to date with the latest trends globally.

Discount airlines have in a way also played a role in the education of local consumers. Indonesians will happily travel to Bangkok or Singapore to shop for the day, so they become quite well aware of what is going on in the region’s fashion capitals. “The booming middle class is the driving force behind growth in the sector,” Irwan Danny Mussry, president and CEO of Time International, told OBG.

Not surprisingly, consumers in Indonesia have come to know many brands, the differences between them and the status labels confer. Like most Asian consumers, they tend to go right for the high end — outside Japan, bargain basements chic has yet to catch on in the region. Consumers from the middle-class office worker to the wealthiest businessperson are unlikely to compromise.

“Indonesians are very brand minded,” Lucy Suyanto, the director and chief financial officer of Plaza Indonesia, told OBG.

THE RIGHT PRICE: The retailers have matured as well. It was once common practice to charge a high premium for items sold in Jakarta. The overriding assumption was that the customer did not know any better or was not bothered by being overcharged. However, to reach a larger cross section of the high end, global brands have started to price at international levels, so there is no longer an incentive to go to Singapore or get relatives in the West to bring a brand-name item with them when they return.

While the performance at the middle to upper-middle range malls has been stable to weak, with occupancy rates of about 85% and prices steady, super-high-end establishments have done well.

Plaza Indonesia, the country’s most upscale mall, says renewal rental rates are going up 50-100% (though that is up from three to five years ago, depending on the lease), and that the mall has no available space. Some long-term tenants are being moved to higher floors to make way for global brands seeking space on the ground floor. “It’s a happy problem for us,” Suyanto said. “We are running out of space.”

The larger question for luxury retailers in Indonesia is how far the market reaches, and whether there is depth to the trend.

In China, luxury brands were able to succeed in the provinces. Chengdu, a city in western China not known for its sophistication but with a good deal of wealth, has a mall with Jean Paul Gaultier, Marc Jacobs, Missoni, Prada and Valentino outlets. The city also has Louis Vuitton and Cartier shops. It is not clear yet whether those sorts of establishments will work in even the larger of Indonesia’s second-tier cities. The issue is less a matter of money and more one of style and taste.

“There many rich people in Surabaya,” Adrian Joezer, an analyst at Mandiri Securities, told OBG, “but their habits are different. They are more price-conscious and relaxed.”

AFFORDABLE INDULGENCE: The right level for cities and provinces outside the capital may ultimately be somewhat below the very high end. While there will always be a small, but profitable market for the most expensive brands, real growth may come from what one retailer calls “affordable indulgence”. Products that have a strong brand name but are priced so that a successful young office worker can afford them — like Coach and Zara — are likely to capture the key economic shift in the country: the rise of the working young middle-class consumer.

The Central Park mall, which carries these brands and which is also anchored by the likes of Marks & Spencer, is probably about the right match. This is the level being targeted by local companies like Kanmo Retail Group. “What’s on the high street in the UK, that will work,” Hitesh Bharwani, group managing director at Kanmo, told OBG.

The sustainability of the very high end is not guaranteed. Much is predicated on the commodities boom and the flood of foreign investment, and both are constantly in question, especially as Chinese economic growth slows and as the economies of the West dip back into recession. Social pressure and political intervention may also weigh on high-end retail. Jakarta’s last two governors halted the building of malls, and open displays of prosperity may not be tolerated for very long in a country where over 40% of the population lives on less than $2 a day.

UNCHARTED TERRITORY: However, most threatening to the growth of high-end retail in Indonesia may be the consumers themselves.

Shoppers are without doubt becoming much more sophisticated, which is leading to higher sales as buyers demand better-quality products. But as Indonesian consumers become more sophisticated, they could very well become more critical of the brands, products and marketing strategies that have worked so well in recent years.

These critiques may be the difference between Indonesia and China. Indonesia is a much more open country with better flows of information, and consumers may therefore be in a better position to resist the shopping mania that has consumed much of China’s population. Indeed, brand fatigue could set in and disrupt current trends. While the market has far more substance now, Indonesian retailers may still be vulnerable to economic weakness or a change in consumers’ preferences, priorities or sentiment.