Falabella to expand supermarkets in Chile and Peru

Date : 19 February 2021

Oliver Butterworth

Retail Analyst

Chilean retail group Falabella aims to open 11 new supermarkets in 2021. This will consist of four Tottus stores in Chile and seven supermarkets in Peru, across its Tottus and Hiperbodega banners.

The business will also invest US$243m in optimising its store network, which spans across supermarkets, shopping centres, and home improvement stores.

Heavy investment in 2021

Falabella’s CEO Gastón Bottazzini recently announced plans to invest US$796m in its Latin American operations in 2021. It previously signed a franchise agreement with Ikea in 2018 and 44% of this investment will be allocated to developing Ikea stores in Chile, Colombia, and Peru.  

Other areas of investment include:

  • consolidating its physical and digital ecosystems
  • strengthening technology and logistics for ecommerce
  • opening new distribution centres
  • opening seven Sodimac home improvement stores
  • opening one new Falabella department store in Peru.

Departure from Argentina imminent

In 2020, Falabella announced it was evaluating the profitability of its business in Argentina and was looking for a strategic partner. It entered Argentina in the 1990’s and grew to ten department stores. On Monday 8 February, it announced it was closing stores to focus more on ecommerce. It has since closed three stores (in San Juan, Córdoba, and Mendoza), which adds to the four closures it made in 2020.

Falabella continues to operate three stores (as well as its online business in Argentina), but we expect these to close later this year. 

Foreign businesses exiting Argentina  

Foreign investment in Argentina has been hindered by its instable economy and high inflation. In the last six months we have seen several foreign businesses exit the market, while others have scaled back their operations. This has impacted the food and grocery sector:

  • in November 2020, Walmart announced its exit from the market
  • Spanish grocery delivery business Glovo exited the market, selling its operations to PedidosYa
  • French manufacturer Danone announced it was reviewing its investments in the market and made reductions to headcount.

Strengthening ecommerce

Falabella is investing US$443m in technology and logistics, with aims to:

  • create a unique and consolidated online platform
  • grow its online assortment and increase the number of vendors on its Marketplace
  • shorten delivery times to within 48 hours of placing an order
  • implement new and improved functionalities on its app
  • simplify the online shopping experience.  

Our view

The conditions brought about by the Covid-19 pandemic led to an unforeseen spike in online sales. This is undoubtedly the driving force behind Falabella accelerating its digital transformation. Investing in this area feels like a sensible move in order to retain sales and to continue driving traffic on its digital platforms. However, it is hard to ignore the competition it faces from local marketplace expert MercadoLibre. It will be crucial that Falabella can provide a comparable or better online shopping experience that its competitor.