Indonesia’s large and relatively young population, coupled with a fast-growing middle class and high levels of consumer confidence, has been a key driver of expansion in retail and e-commerce. Physical retail spaces remain prevalent, with new malls opening across the country in 2019. Despite the sector’s positive performance in recent years, however, it will face headwinds in the short term, with advisory firm International Data Corporation estimating that worldwide growth expectations for retail will be halved in 2020 because of the Covid-19 pandemic. Other challenges include infrastructure issues and slow technology adoption among some demographic groups, especially those living in rural areas.

However, as the country continues its digital transformation, the medium- to long-term outlook of the retail sector looks bright. The burgeoning e-commerce market should help the sector weather the impact of the Covid-19 pandemic, with companies adapting their services and interactions to accommodate customers who are relying on online and mobile offerings as they practise social distancing. Given the popularity of e-commerce and ride-hailing apps, it is expected that tech-based services will expand to meet shifting expectations.


As the largest and most populous country of South-east Asia, Indonesia offers an appealing market for retailers, with a youthful median age of 28.6 years as of 2016. The country recorded an average annual GDP growth rate of around 5.6% between 1970 and 2020, according to the World Bank, substantially decreasing extreme poverty and moving the country to middle-income status. GNI per capita in US dollars, which is calculated using the Atlas method, recorded broadly positive growth in the last decade, rising from $1940 in 2008 to $3580 in 2012, and moderating from $3730 in 2013 to $3400 in 2016. GNI per capita improved in 2017 and 2018, rising to $3530 and $3540, respectively. With these improvements emerged a growing middle class, whose numbers are expanding faster than other demographic groups. As of January 2020 at least one in five Indonesians was economically secure. Middle-class consumption increased by 12% per year between 2002 and 2020, and as of 2020 represented half of total household consumption, according to the World Bank. There is also an aspiring middle class, in which 115m Indonesians are categorised. These progressive demographics have helped the retail and e-commerce perform well, as individuals in the middle class have more disposable income and youth are typically tech-savvy.


Although the e-commerce segment has expanded rapidly in recent years, cash transactions at brick-and-mortar outlets still dominate the retail landscape. “It will take some time until online shopping fully replaces offline shopping,” Hendrik Tio, CEO of, told OBG. “The online segment amounts to around 5-7% of shopping volumes. Especially in rural areas, brick-and-mortar retailers remain very strong.” This percentage has likely increased as more commerce is pushed on line due to the Covid-19 pandemic.

Despite this, the e-commerce market quadrupled in size between 2015 and 2019, expanding by about 49% per year over the period to $40bn, according to the “e-Conomy South-east Asia 2019” report from Google, Singapore-based investment firm Temasek and consultancy Bain. The country’s internet economy is projected to reach $130bn by 2025, with e-commerce, ride-hailing apps and the adoption of digital payments leading the expansion. Investment in the segment reached $4bn in both 2018 and 2019, with local unicorns Bukalapak, Gojek, Tokopedia and Traveloka holding successful funding rounds.

Jakarta is the economic and retail centre of the country. The opening of three new malls in 2019 brought the capital’s total retail space to 7.5m sq metres by the end of the fourth quarter, an increase of 1.9% from the same period of the previous year, according to a January 2020 report from real estate firm Colliers International. Almost 70% of this space was leased, with rents projected to increase by 5.5% per year between 2018 and 2023 with the anticipated opening of new high-end malls. Occupancy rates in Jakarta were on the decline, falling by 3.8% over the course of 2019 to reach 79.8%, with increased supply cited as the cause of dampened figures. At the time of the survey, it was forecast that an additional 1m sq metres of retail space would be added to the capital’s supply between 2020 and 2023, at an increase of approximately 3.3% per year. Indeed, there were six malls under development in the greater Jakarta area at the end of 2019. However, it remains to be seen whether the economic considerations surrounding the Covid-19 pandemic will slow this projected growth.

Evolving demographics are changing how Indonesia’s retailers do business. “Big retailers are experimenting with smaller stores, and millennials seem to be the driving force behind such changes,” Colliers wrote in its report. The firm cited the growing popularity of pop-up shops as an example of “digital gone offline” business opportunities that are being fuelled by these younger customers.

Meanwhile, convenience stores have shown promising growth. One of Indonesia’s leading convenience store brands, Alfamart, increased its domestic presence by around 20% from 8500 domestic stores in 2013 to 10,300 stores in 2019. Its rival, Indomaret, also grew the number of stores it operates in the country, which more than doubled over the same period, from 8100 stores to 16,900.


Retail sales improved during the fourth quarter of 2019, with the real sales index (RSI) expanding to 1.5%, up from the 1.4% seen in the third quarter. According to Bank Indonesia (BI), the country’s central bank, this was due to an increase in the sale of food, beverages, tobacco, spare parts, accessories and household items. By February 2020 the RSI fell to -0.8% year-on-year (y-o-y), with retailers bracing for an RSI of -5.4% in March and a decline of sales in all commodities, led by clothing (-45.9% y-o-y), cultural and recreational goods (-16.8% y-o-y), information and communication equipment (-10.5% y-o-y), and automotive fuel (-8.1% y-o-y). This was at least in part attributed to the Covid-19 pandemic, and its disruption to supply and demand.

Consumer Confidence

The impact of the crisis was also reflected in falling consumer confidence. According to BI, while the consumer confidence index (CCI) remained positive in March 2020, optimism moderated. The CCI that month was 113.8, down from 117.7 in February and 126.4 in December 2019, but above the 100-point threshold for optimism. The CCI fell across nearly all spending and age categories, with the sharpest geographic declines seen in Denpasar (down 15.3 points), Palembang (down 13.3 points) and Manado (down 8.4 points).

BI’s consumer economic condition index fell 2.2 points between February and March 2020 to 103.3 because of concerns about job availability and conditions for buying durable goods. Over the same period, the consumer expectation index fell by 5.5 points to 124.3, again because of employment concerns. Unsurprisingly, the job availability index was negative, at 86.0 in March 2020, down from 90.1 in February. Respondents from all educational backgrounds – especially post-graduates – were less optimistic about their employment prospects.

Even as consumers were concerned about the future, consumption continued to comprise a dominant portion of household expenditure. In March 2020, 69% of household income was allotted to consumption, followed by savings (18.6%) and loan repayments (12.4%). These allocations have remained relatively steady in recent years, with consumption accounting for 66.8% of household income in January 2019, while savings accounted for 20.2% and loan repayments accounted for 13%.


The food and beverage (F&B) segment is an important contributor to the overall retail sector and is targeted for future growth. The authorities aim to reduce the country’s dependence on the import of agricultural and other F&B products as part of plans to become a regional export leader. Indeed, Indonesia is targeting becoming one of the topfive F&B exporters globally by 2030. Plans include increasing productivity by improving technology, supporting small and medium-sized enterprises through improved access to capital and technology, and innovating packaged food production.

Online grocery is among the fastest-growing segments across South-east Asia. In Indonesia the total value of online spending on food and personal care products increased by 30% in 2018, reaching almost $1.5bn. The growth in online grocery sales has contributed to emergence of “supersites”, including regional players Lazada and Shopee, which have operations in Indonesia, as well as domestic firms such as Tokopedia, which secured $1.5bn in investment from China’s online marketplace Alibaba, Japan’s SoftBank and Temasek in January 2020.

While there has been strong growth in online grocery sales, the segment is expected to account for less than 3% of the country’s total grocery spending, according to a July 2019 report from non-profit research and training organisation IGD Asia. The figure, however, is consistent across all South-east Asian markets, with the exception of Singapore. These figures look set to increase, with more people shopping from home due to Covid-19 restrictions.


Indonesia is a particularly attractive market for e-commerce, with a population that averages 3.9 hours per person per day on mobile internet, more than the South-east Asian average of 3.6 hours per day, according to a 2017 joint research publication by Google and Temasek. Highlighting the market’s strength, both figures are significantly higher than the average in China (three hours per day), the US (two hours per day), the UK (1.8 hours per day) and Japan (one hour per day). An estimated 171.2m Indonesians, or almost two-thirds of the population, were internet users at the beginning of 2019, according to a survey by the Indonesian Internet Service Providers Association.

While the market is in the early stages of development, exposure to the internet has facilitated a level of comfort with online transactions. Around 90% of internet users in the country aged 16 to 64 years have purchased goods and/or services online, according to a 2019 report from GlobalWebIndex. The research found that Indonesians spent $20.3bn online in 2018, up 20% from a year earlier. The most popular online products were consumer goods such as fashion, electronics and groceries, which accounted for $9.5bn, closely followed by online travel purchases, which reached $9.4bn. Despite the potential for growth, however, challenges remain.

One significant barrier is the difficulty and high cost of transporting goods around the archipelago, which comprises over 17,000 islands, with many areas not yet connected by a reliable transport infrastructure network. Payment systems is also a challenge, even as the number of credit card users jumped by 60% between 2015 and 2020 to 15m. Around 70% of e-commerce transactions are done via bank transfers, whereas 15% are completed with credit cards. There can also be bottlenecks in the supply chain and long dwell times at ports. However, the government’s prioritisation of infrastructure development should help alleviate these strains in the future (see Transport & Infrastructure chapter).

Major Players

Some of the country’s best performing start-ups operate in the e-commerce space, emphasising the potential for expansion for both local and international firms. As of November 2019 Indonesia’s five-largest e-commerce players by web traffic were Tokopedia, with 148.5m monthly traffic hits; Shopee Indonesia, with 95.3m hits; Bukalapak, with 95.1m hits; Lazada, with 47.8m hits; and Blibli. com, with 34.2m hits. Apart from Lazada, which is majority-owned by Alibaba, and Singapore-based Shopee, all of the country’s largest e-commerce payers were founded in Indonesia, with the sector set to benefit from rising foreign investment.

Indonesia has seen the emergence of four unicorns – companies valued at more than $1bn –and a decacorn, or a company valued at $10bn or above, as of February 2020 (see Fintech chapter). Of these emerging tech giants, three are operating in e-commerce: Tokopedia, Bukalapak and Traveloka.

“The main reason for Indonesia’s high number of unicorns is its market size,” Esther Samboh, an editor at The Jakarta Post, told OBG. “Another reason is market inefficiencies. Many of these companies have identified a formula that was not working and turned it into a successful business model.” In the cases of many successful start-ups, this has been characterised by a shift away from the gross merchandise volume business model towards a focus on profit and loss, which often includes reducing the percentage discount on products.

After the infusion of funding in early 2020, Tokopedia was valued at between $8bn and $9bn. The company has plans to list in both the US and Indonesia by 2023, having opted for the dual listing due to the relatively small size of the local stock exchange (see Capital Markets chapter). Bukalapak reached a valuation of $2.5bn after receiving a $500,000 capital infusion from Indonesian media group Emtek and South Korea’s Shinhan Financial Group in October 2019. Meanwhile, Traveloka is valued at $3.9bn. The success of these companies means it may be challenging for new players to enter the e-commerce space. “The e-commerce segment has many competitive players,”’s Tio told OBG. “In the current market, Tokopedia, Bukalapak and Shopee are well positioned as the leaders, and as such the vertical market tends to focus on niche segments.”


Recognising the potential of the segment, in 2016 Indonesia announced the e-commerce industry would be removed from the negative investment list, which restricts foreign direct investment in particular sectors. The changes allowed international firms to hold 100% ownership in e-commerce businesses if they invest at least Rp100bn ($7.1m) in the business, or create at least 1000 new jobs for local workers. Investors in e-commerce who spend less than the threshold can establish joint ventures and hold a stake of up to 49%.

The move has helped boost e-commerce and increased government oversight. In December 2019 the government introduced new measures requiring online sellers – estimated at over 10m – to secure government permits in order to sell their products, as well as mandating sellers to store information in local data centres and use domestic domain names. “The development of cloud computing and data centres in Indonesia will allow e-commerce platforms to handle higher volumes of traffic and meet spikes in demand,” Kusumo Martanto, CEO of, told OBG. The measures were mandated under the National E-Commerce Roadmap 2017-19, the government’s first e-commerce framework, that comprises eight pillars including funding, taxation, consumer protection, education and human resources, communication infrastructure, logistics, cybersecurity, and implementing organisations.


In the first quarter of 2020 e-commerce firms reported higher volumes of online sales as customers practised social distancing amid the Covid-19 outbreak. Indeed, in mid-April the Indonesian Retailers Association reported that its members saw a four-fold increase in transactions using apps and other delivery methods since the start of the outbreak. This has caused a shift in how retailers are doing business, with large firms outsourcing to support in-house delivery services and smaller firms partnering with existing delivery services.

The government is taking note of the segment’s relative buoyancy, and is planning tax reforms that include the introduction of taxes on offshore e-commerce platforms to help bridge an expected 10% decline in tax revenues in 2020 due to relief measures aimed at helping businesses manage the coronavirus-related downturn. “Indonesia’s tax base will move towards digital taxation as online transactions have been growing significantly, especially during the Covid-19 pandemic,” Sri Mulyani Indrawati, the minister of finance, told local press in April 2020.

Niche Shopping

Tokopedia and Bukalapak are injecting resources into a segment that was once niche but is becoming increasingly important in Muslim-majority countries: the online halal marketplace. In May 2019 both companies signed a memorandum of understanding to build online halal marketplaces that are served by sharia-compliant financial products. In December 2019 announced it would follow suit, aiming to open a halal marketplace in 2020. Tokopedia launched its halal market in November 2019, while Bukalapak’s service was under development as of April 2020.


Both the traditional and e-commerce retail sector have performed well in recent years, taking advantage of Indonesia’s large and relatively young, tech-savvy population, as well as its growing middle class. Nonetheless, traditional forms of retail continue to dominate the market.

Meanwhile, e-commerce has expanded significantly, with a number of local start-ups obtaining unicorn status by tapping unmet demand for services. The social-distancing measures necessitated by the Covid-19 outbreak are facilitating this growth further, at least in the short to medium term. The effects of the pandemic are accelerating the transformation of the retail sector, and e-commerce will present a way forward as services evolve and customers continue to avoid visiting physical shops.