Commercial apocalypse. Why is Falabella only leaving Argentina?

Falabella delivered a sale mandate to Columbus bank to find a buyer for his business in Argentina Source: Archive

When confirming the search for a buyer and the closure of four stores in Argentina, the Chilean chain Falabella explained that the pandemic had accelerated “the process of digitization of retail and has affected its results.” The phenomenon is not new and in the United States it even already has a good name marketinero: the retail apocalypse. The idea, shared by businessmen and analysts, is that traditional commerce and physical stores have their days numbered against the advance of the giants of the e-commerce, as Amazon en EE.UU. The Mercado Libre, in Argentina and much of the region. However, when Falabella’s numbers are analyzed, it is discovered that the local scenario shows very marked differences with the subsidiaries of other countries, which explains that at least in this case It is a cabotage apocalypse, which does not cross Argentine borders.

Today Falabella has direct operations in Chile, Peru, Colombia, Brazil, Uruguay, Mexico and Argentina. Its businesses are mainly based on the so-called traditional retail: department stores (with the Falabella brand), homecenters (Sodimac) and supermarkets (with the Tottus chain that operates only in Chile and Peru).

The quarantines, which to different degrees were experienced or are experienced in each market, hit its business very hard and the company announced a few weeks ago that in the second quarter of this year its sales had fallen by 24.7% in dollars, despite because e-commerce came to represent 37% of its income. In terms of results, the balance was worse and the quarter ended with losses of US $ 157 million.

Within this less than encouraging panorama, Argentina’s performance was the worst. The quarterly turnover of the Argentine subsidiary did not reach US $ 100 million and represents less than 5% of the company’s income. And in the main businesses where the group participates, the results were clearly negative. Falabella stores in Argentina had a turnover of US $ 28 million, with a drop in dollars of 62.1%, while Sodimac fared slightly better, with sales of US $ 14 million and a year-on-year decrease of 57.7 percent .

To these negative numbers there is also an operational issue. To stop the outflow of dollars, the Argentine government decided to tighten the importing stocks, making it difficult for importing companies to access the dollar at the official exchange rate. Falabella’s main business, department stores, basically works with imported merchandise, that the company negotiates globally and then distributes it among its different subsidiaries in Chile, Colombia, Brazil and the rest of the region.

Local knowledge

Falabella landed in the country in 1993, with the opening of a first store in Mendoza and from the interior it expanded until it reached Buenos Aires. In more than 25 years, the company was able to successfully overcome all kinds of obstacles, including the 2001 crisis. At a global level, it also has an Argentine CEO, the former McKinsey, Gastón Bottazzini.

Falabella’s business depends to a great extent on imports, which today are very complicated in Argentina Source: Archive

However, the experience and knowledge of the market were not enough. Your local business has long since ceased to be attractive, with few sales and negative results, to which it is added that now it became increasingly difficult to carry on from day to day.

“The operation of a department store like Falabella is very complicated, which will also be more difficult to find a buyer for it. If you stay with a supermarket today, you have the entire supplier network armed. On the other hand, whoever wants to buy from Falabella goes to having to develop an entire supply network in an increasingly closed economy “, explained the director of another multinational retail company with local operations.

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