Expert Opinions on 7-Eleven´s Bankruptcy

Wednesday, 28 June 2017 , 09:00:00 WIB - Economy

A customer is seen at a 7-eleven store in Kebayoran Baru, Jakarta, Friday (23/6). (ANTARA)

JAKARTA, GRES.NEWS –7-Eleven (Sevel) has gone bankrupt in Indonesia. The parent company, PT Modern Internasional (MDRN), has announced all 7-eleven stores will close as of 30 June 2017.

Indonesian Chamber of Commerce and Industry (Kadin) Chairman, Rosan P Roeslani, views that 7-Eleven’s bankruptcy was not caused by Indonesia’s currently sluggish retail sector. He blames the store’s costly business concept that invites customers to hangout at its stores. Said concept has led to operational costs that exceed revenues.

"I think, Sevel’s business model is inaccurate. It led to margins of just 1-3 percent. Customers should leave as fast as they enter, instead of allowing them to hangout for hours while they only bought one cola drink. The lease to provide the space would be expensive," Rosan said, Jakarta, Monday (26/6).

Rosan compared Sevel’s concept with other retail stores. "Alfamart and Indomart stores, for instance, are small and efficient. People go in and out, volume of (customers visiting the stores, red) is large, (at Sevel stores), the margins are small, fixed costs are large and people are hanging out at the place, so the business wouldn’t be profitable," he said.

He doesn’t believe that an internal issue is behind Sevel’s crisis in Indonesia. "The concept was unclear from the beginning," he said.

Meanwhile, Indonesia’s retail sector did not contribute much to the bankruptcy. In fact, the country’s retail sector is growing the fastest across the globe. "Our retails sector is growing. Although, my friends (in the retail sector) said sales usually grow by 50 percent in Ramadan, but this year the figure only grew 10-15 percent. The retail sector is growing, just not as high as it used to," he said.

Nonetheless, Rosan acknowledges that Sevel’s business model has inspired minimarket entrepreneurs. Lowson, Family Mart, Indomaret Poin have ‘mimicked’ the model.

However, Indonesians still have low spending power. "The customers would hangout for a long time. Unfortunately, the long time they spend is not offset with the money they spent," he said.

GOVERNMENT TO BLAME? – Some blame the government, who issued a regulation in April 2015 that forbids minimarkets to sell alcoholic drinks.

"It (the regulation) has resulted to a drop in sales. They (Sevel) lost its competitive advantage since then. The company was not prepared for such ban," said Hariyadi Sukamdani, Chairman, Indonesian Entrepreneurs Association (Apindo), Jakarta, Monday (26/6).

Universitas Indonesia business academic and practitioner Rhenald Kasali is in agreement that the government has failed to support Sevel’s business concept. Sevel’s concept pampers young customers who wants to gather and socialize at the sidelines of their business activities.

"Sevel fell into difficult times because of bureaucrats and regulators who do not understand business models. Supermarkets are competing through business models," he said.

According to Rhenald, the government is giving the impression that it is focused on saving existing retail stores. When Sevel arrived in Indonesia, for instance, the Minister of Trade demanded clarification whether the company is running a retail store or a restaurant. Then there’s the ban on selling alcoholic drinks. "This led to the impression," he said.

Rhenald also pointed out to how the government dealt with the conflict between app-based taxi services and conventional taxi companies.

"We all saw how they protected conventional taxi companies. At least that was the impression. Regulators are stuck in following regulations issued a long time ago. Yet, industry’s evolve," he said.

PHENOMENAL - Sevel was phenomenal in Indonesia. The company arrived in 2009. PT MSI opened the first store in Bulungan, Jakarta, bringing with it the'Food Store Destination' concept. The concept helped it post the highest sales of derivative products, such as snacks, drinks and cigarette, giving other minimarkets a difficult time.

Meanwhile, the Minister of Industry Airliangga Hartarto said internal problems was actually behind Sevel’s bankruptcy. He denies that the ban on selling alcoholic beverages behind the company’s demise.

"Based on information we obtained, the market had nothing to do with it. There was an internal issue," Airlangga said, Jakarta, Monday (26/6).

He admits that the retail market has been on a decline, but the decline has not been severe enough to cause retail stores to go bankrupt. "There will always be correction in the market. Maybe it was time for the market to adapt again. Sometimes a market turns into a bubble. Bubbles can burst. The government has noticed this. We have been observing the developments," he said.

Meanwhile, elect Jakarta Vice Governor, Sandiaga Uno, said the bankruptcy of Sevel is a lesson for other retail entrepreneurs. Meanwhile, the central government and regional governments must stop issuing overlapping regulations.

"We need to introspect about the regulations. There are overlapping regulations between the central government and regional governments. Sevel’s business model may have been attracting visits, but it has not been generating strong income in the Jakarta market," he said, Jakarta, Monday (26/6). (dtc)