Lotte Shopping Co. (023530), South Korea’s largest department store operator, plans to open four shopping malls in Indonesia by 2018 to tap growing consumer spending in a nation where half the population is younger than 30.

PT Lotte Shopping Avenue Indonesia will build two in Jakarta in the next three years, with the others in the country’s second-biggest city, Surabaya, and in Medan on Sumatra island, President Director Suh Chang Suk said in an interview in the capital on June 6. There is a lot more potential for malls in the world’s fourth-largest population, Suk said.

A growing middle class is increasingly attracting retail and consumer manufacturing companies to Southeast Asia’s largest economy, replacing natural resources as the key prospective industry for overseas money, Mahendra Siregar, Indonesia’s investment chief, said in April. Ikea, the world’s largest furniture retailer, plans to open a store this year.

“For the retail industry it’s great because the population of the young generation is big,” Suk said.

Lotte Shopping, which gets most of its revenue from South Korea, rose 3.1 percent to close at 300,000 won in Seoul, heading for the biggest gain in eight months. The Jakarta Consumer Goods Index has risen 14 percent this year, after being the best performer among nine industry groups on the benchmark index in 2013.

By 2020, the number of middle-class and affluent Indonesians may almost double to 141 million from 74 million in 2012, according to a 2013 report by Boston Consulting Group.

Household spending grew 5.6 percent in the January-March quarter, helping to offset slowing exports and investment that caused economic growth to weaken to the slowest in more than four years. Demand for imports is driving persistent trade and current-account deficits that are weighing on the rupiah.

Consumers Optimistic

An April retail sales survey by Bank Indonesia rose 27.8 percent from a year ago. A Mayconsumer confidence index by the central bank rose to 116.9 in May from 113.9 in April, with Indonesians more optimistic on the economy for the next six months. Minimum wages in Jakarta rose 11 percent this year, after a 44 percent jump last year.

“Raising minimum wages will increase domestic consumption, which is good for the retail industry,” said Suk, adding raises needed to be gradual.

Lotte, which also has department stores in China and Russia, will face competition in Jakarta from existing luxury malls such as Plaza Indonesia, Senayan City and Pacific Place, Suk said. Lotte will try to establish a different concept by combining fashion with art and culture for its malls, he said. A growing Asian and global attraction for South Korean culture and music has been dubbed the “Korean Wave.”

Urban Transport

South Korean companies have also put money into autos, steel, tire and petrochemical manufacturing in Indonesia. There is a pipeline for global foreign investment of about $80 billion, the investment coordinating board’s Siregar said on April 16. The main challenges for companies are a lack of infrastructure and the need to improve the ease of doing business, said Siregar, who visited South Korea in April to drum up interest.

Japan’s Aeon Co. Ltd. plans to open five malls in Indonesia in three years, Nikkei reported last month.

Traffic Congestion

Suk said the main problem for mall operators is traffic jams and a need for improved urban public transport, which would make it easier for people to get to stores and create a more dynamic economy. Worsening congestion on Indonesia’s roads has turned into a source of growth for minimarkets, whose share of grocery sales rose almost fivefold to 24.8 percent in the 10 years through 2012, Nielsen data show.

President Susilo Bambang Yudhoyono, who has to step down this year after two terms, planned to overhaul infrastructure across Indonesia’s 17,000 islands, yet progress has been slow. The leading presidential candidate, Joko Widodo, and his challenger for the July 9 election, Prabowo Subianto, have both pledged more road building.

Widodo’s policy platform includes easing the issuance of business permits, while Prabowo wants to create two million jobs a year and lift economic growth to 9 or 10 percent to spur incomes as the population rises.

“I don’t have any difficulty or worry about the election, as the candidates have a good plan to develop Indonesia,” Suk said.

Source Bloomberg