The Falabella group announced that it is evaluating the closure of some stores of its department store division in Chile, Peru and Colombia, which -said the conglomerate- is part of a “constant review process” of its operations. The plan comes amid the boom in internet sales, which has significantly reduced the profitability of some direct customer service stores, and the expected drop in consumption in Chile and the region.
The information was revealed by Corporate General Manager of Falabella Retail, Francisco Irarrázaval, at the Investor Day held by the company in New York last week.
“Within this constant review process, we estimate that in the next five years we are going to reduce our department stores by 5% to 10% as part of a gradual processwhich does not consider massive closures,” the company said.
As of June this year, the firm operated 46 multi-stores in Chile, 31 in Peru and 27 in Colombia, being one of its main businesses, along with its other divisions, such as the Sodimac hardware area, the bank and the Mall Plaza operator.
At the beginning of last year, the company finalized the closure of all its department stores in Argentina. After 28 years, it had 10 stores, but the crisis in the neighboring country and the drop in consumption led the company to close this subsidiary and the financial services branch, keeping its Sodimac division.
In the second quarter, the profits of the Falabella group fell 52% year-on-year, to $65,121 million (US$71 million), which was attributed to the increase in expenses linked to currency changes and inflation.
Challenges and risks
The battery of transformations that the group is carrying out (which includes important investments for expansions and remodeling of premises, as well as disbursements to enhance technology and logistics) was one of the areas that most caught the attention of the Falabella Day attendees done last week.
“What caught my attention the most were two main things: the broad portfolio of actions being taken to improve profitability in the different segments and channels, and the commitment to improve gross Ebitda by 200 basis points by the fourth quarter of 2023even if the external headwinds continue,” explained Antonio Hernández, Latin America Consumer senior analyst at Barclays.
Are the changes that the company is introducing enough to face the strong competition in the retail due to the rise of e-commerce? “In our opinion, they are enough to offset the online and offline competition, although industry headwinds persist for all players,” the analyst said.
Felipe Molina, from the variable income area of Security, had a similar look. “The process of transformation and consolidation of a physical-digital ecosystem is positive for the company in a scenario in which the online channel has become increasingly relevant, especially considering its greater growth potential, which is why we believe that the incorporation of various businesses to an integrated platform could position Falabella in a good way in the face of greater competition in the channel,” he said.
Regarding the biggest risks he sees for the company, Hernández was categorical: “A weak consumer environment, high inflation and the weakness of the exchange rate.”
In Molina’s opinion, the main challenge facing the company in the future is how quickly it will be able to materialize its transformations. “In addition to the high exposure it has to segments that are more sensitive to the economic cycle and less defensive in nature, which implies a challenge in protecting margins against periods of slowdown in consumption,” he said.
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