Exploring Indonesia's D2C Fashion Landscape

Actionable Insights

• Indonesia's fashion industry is on the rise.

• There is ample room for growth driven by rising incomes and more women joining the labor force.

• Notable trends include growing Muslim fashion, and 'House of Brands' concept.

Industry Background

Fashion Industry Enjoys Structural Growth Drivers - Rising Incomes, Government Support For Greater Female Labor Participation, Push Towards Premiumization

Indonesia's fashion industry has been growing and numerous homegrown brands have emerged to cater to blossoming demand. Yet there is ample room for growth; at an estimated USD 9.3 billion in 2022, Indonesia's fashion market is just fraction of the size of mature fashion markets in Asia such as Japan (USD 54.4 billion) and South Korea (USD 37 billion) despite both countries being considerably smaller than Indonesia in terms of population (at about 277 million, Indonesia's population is more than double that of Japan's 124 million and more than five times bigger than South Korea's nearly 52 million).

With Indonesia's income gap with Japan and South Korea being quite large, it may take some time to narrow.

There are nevertheless several growth drivers to propel Indonesia's fashion market going forward. Indonesia's population is growing (expected to increase to as much as 320 million by 2045, about a 15% increase), and consumer incomes are rising in Southeast Asia's largest economy. The country is expected to regain its status as an upper middle income country after briefly losing the status in 2021.

Moreover, female labor fore participation in the country has been on the rise albeit at a snail's pace (reaching 56% as of 2019, from about 53% in 2000 and 52% in 1990). With the Indonesian government making efforts to encourage women to join the workforce (including rolling out training programs to help women find jobs and implementing measures to narrow the gender pay gap), Indonesia's fashion market could benefit.

Growth projections are robust with fashion revenues expected to exceed USD 10 billion by 2025 representing a CAGR of 4.2% during the 2022-2025 period.

Rising incomes could drive a shift towards premiumization and thereby propel Indonesia's fashion market as consumers, driven by rising disposable incomes have a greater capacity to spend on higher value, branded goods.

Trends

Muslim Fashion Seeing Rapid Growth

With more than 87% of Indonesia's population being Muslim, Indonesia is home to the world's largest Muslim population which opens a tremendous market opportunity for Muslim fashion which has seen vibrant growth in the country. Indonesia's exports of Muslim clothing rose 12.5% YoY to USD 4.7 billion in 2021, compared to USD 4.2 billion in 2020 making Indonesia the 13th biggest Muslim clothing exporter in the world according to data from Statistics Indonesia (BPS). There is plenty of room for growth with the Indonesian government aiming to make Indonesia the global hub for Muslim fashion by 2024.

Thrasio-Style Roll-Up Business Model And 'House Of Brands' Concept Taking Off

In a trend that is already playing out in India's D2C beauty and personal care space, Indonesia's D2C fashion landscape is seeing the rise of brand roll-ups or brand aggregators (a business model that involves acquiring a portfolio of promising D2C brands and providing them with the necessary infrastructure to help them scale, and ultimately building a 'House of Brands').

In June 2022, homegrown D2C fashion startup BERRYBENKA's holding company rebranded themselves into 'Grow Commerce' to reflect their switch from a D2C fashion brand, to an eCommerce rollup holding and developing a collection of brands. Singapore-headquartered brand aggregator Hypefast whose brand portfolio includes Indonesian fashion brand Nona and kids clothing brand Soleram, raised USD 19 million in a Series A funding round led by venture capital firm Monk's Hill Ventures.

Competitor Landscape

Hijup

Homegrown Brand Flying High On Growing Demand For Modest Wear From Indonesia's Sizable Muslim Population

Founded in 2011, Hijup is one of Indonesia's most distinguished homegrown modest wear players. Apart from their own modest wear brands spanning a broad spectrum of categories from daily modest wear, kid swear and active wear, Hijub has also long functioned as an online marketplace platform for modest wear brands.

Although the company faced several obstacles during the pandemic, they survived and have continued to grow with the company's strategy leaning on three main pillars to drive future growth:

1. Marketplace

2. Social media agency services for modest wear brands

3. Hijup Growth Fund, a USD 7 million fund launched in August 2021, which offers capital to promising local modest wear brands

Saturdays

Filling Unmet Market Need, Homegrown Eyewear Brand Bags Series A Funding From Round Led By Singaporean Venture Capital Fund Altara Ventures

About half of Indonesia's population require vision correction however of the third with the means to afford the necessary prescription glasses, the choice is between high-priced offerings from Western brands, or fake, poor quality products. Founded in 2016, Saturdays moved to fill the gap, leveraging technology to reduce costs, enabling them to deliver fashionable and high quality eye wear at affordable prices to scores of Indonesians. Using quality materials such as Japanese titanium and Italian acetate, Saturday's products are designed in-house to suit Asian consumers. Saturday also goes a notch further in terms of customer experience with the company's offline store network offering free coffee to customers waiting for their glasses.

Armed with an undisclosed amount of funding from their Series A funding round in April 2022, Saturdays plans to use the funds to accelerate expansion across Indonesia, strengthen its omni-channel platform and further invest in product development.

Saturdays's Series A funding round was led by Singapore-headquartered, Southeast-Asia focused venture capital fund Altara Ventures whose portfolio includes healthcare startups a notable one of which is American AI-powered diagnostics software startup Senseye which helps makes diagnoses through the eyes using just a smartphone.

Lin Worldwide Take:

Although no information on strategic collaborations have been provided, Saturdays could potentially explore integrating Senseye's technology into Saturdays' app to offer consumers AI-powered diagnostics or vision care services. This is similar to a strategy employed by American eye wear retailer Warby Parker, whose iPhone app offers vision testing for users the results of which are used to automatically update prescriptions for contact lenses and glasses, saving consumers time.

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