Indonesia Retailers - Cultural exports as a form of influence

Cultural exports as a form of influence

Exporting influences on other countries

For decades, East Asian popular culture, including K-pop, K-dramas, and anime, has thrived domestically. With the surge of social media, South Korea and Japan have strategically invested in and promoted these industries, amplifying their global reach (Fig. 1). This investment has yielded significant economic benefits (Fig. 4-11); for instance, in 2021, South Korea's content exports reached USD12.4bn (2% of total exports), surpassing major sectors like battery (USD8.6bn) and electric vehicle (USD6.9bn) production. This demonstrates the power of cultural exports as a form of influence (Fig. 12-15), challenging traditional notions tied to manufacturing or military strength. This influence is particularly potent in Indonesia, a nation with exceptionally high social media engagement, directly shaping consumer preferences (Fig. 16-19).

We are seeing an influx of East-Asia countries’ brands coming into Indonesia

The widespread presence of brands such as Uniqlo (Japan), with its 75 Indonesian locations, the ubiquitous Korean Samyang ramen, which is now present in hyper/minimarket across Indonesia, and the recent arrival of China's Pop Mart in Jakarta, exemplifies East Asia's growing influence on Indonesian fashion and food trends. We are also observing the emergence of localized adaptations of Japanese and Korean-themed styles, reflecting the shifting consumer preferences. This evidence strongly suggests that more East Asian brands will target Indonesia's vast 280mn-strong consumer market. This report identifies potential East Asian fashion and food brands poised to enter Indonesia, based on their presence in neighboring countries (Fig. 21), and compares them with Western brands that have previously exited the market (Fig. 22).

Implications for listed Indonesia retailers

Retailers selecting brands for their stores operate similarly to portfolio managers curating investments. Both require careful consideration of consumer acceptance and revenue generation. Just as portfolio managers must be prepared to divest underperforming assets, retailers must be willing to discontinue brands that fail to meet expectations, despite initial rigorous selection. Given the increasing influence of East Asian brands on Indonesian consumers, retailers must be adaptive and seize this opportunity to attract more customers. Failure to adapt risks alienating customers who seek relevance and ultimately, losing market share.

We believe that retailers like Mitra Adiperkasa (MAPI IJ, Buy), including their activewear segment Map Aktif Adiperkasa (MAPA IJ, Buy), are well-positioned to capitalize on the growing popularity of Korean, Japanese, and Chinese brands in Indonesia. MAPI has been actively expanding its portfolio in the sports, beauty, and children's categories by introducing new brands from these countries. Erajaya (ERAA IJ, Buy) also demonstrates its awareness of this trend through its partnership with Asics, Paris Baguette, and its plan to open the first Chagee milk tea shop in Indonesia, a popular chain from China.

As the two prominent players in the fashion and F&B retail landscape, both MAPI and ERAA stand to benefit from this trend, in our view. ERAA may have a slight advantage due to its more focused portfolio in the active lifestyle and F&B sectors (~25 brands). This leaner portfolio could allow ERAA to integrate new brands more seamlessly without the risk of cannibalizing sales of existing brands, unlike MAPI, which manages a larger and more diverse portfolio of over 150 brands. However, MAPI's extensive market reach and established distribution network remain significant strengths. A thorough analysis of factors such as analyzing consumer preference, materials procurement strategy, understanding the captive market, and brand synergy potential will be crucial in determining which brands may do better for the company.

We have Buy calls on:

ERAA, TP IDR570, pegged on a 7.7x 2025F P/E. Currently, the stock trades at 5.3x 2025F P/E.

MAPA, TP IDR1,430, pegged on a 20.6x 2025F P/E. Currently, the stock trades at 11.8x 2025F P/E.

MAPI, TP IDR1,960, pegged on a 15x 2025F P/E. Currently, the stock trades at 12x 2025F P/E.

Fig. 1: Several examples of government support to promote each country’s popular culture

Institution	Type of support	Estimated $ invested
Korea
Ministry of Culture, Sports, and Tourism	1) Funding, grants, and providing platforms for global promotion for K-pop 2) Facilitate large-scale K-pop events. 3) Supported K-pop auditions and competition.	USD310mn (2020)
Korean Film Council	1) Funds film production. 2) Organizes Busan International Film Festival.	USD67mn (2020)
Korean Creative Content Agency	1) Promotes K-drama, animation, and other cultural exports.	USD420mn (2020)
Japan
Agency for Cultural Affairs	1) Grands and international partnership to support anime and manga industry. 2) Host events like Tokyo Anime Award Festival and AnimeJapan	-
Ministry of Economy, Trade, and Industry	1) Introduced Cool Japan Initiative -> promote Japan's pop culture (anime, fashion, food, and music)	USD1.7bn (2020)
Japan Foundation	1) Promote Japanese culture abroad through exhibitions, films, and performance arts.	USD220mn (2021)

Source: Company data, Verdhana research