S.A.C.I. Falabella is one of the largest companies in Chile and the second largest operator of retail chains in Latin America. Under the Falabella name, it operates the largest department store chain in Chile and also such stores in Argentina and Peru, plus hypermarkets (supersized supermarkets) in the latter country. It also operates the HomeStore and Sodimac chains of home furnishings and construction supplies in Chile. Through subsidiaries, Falabella also manufactures textile fabrics and clothing and offers travel agency services. Also through subsidiaries, the company offers banking and financial services, sells insurance, engages in real estate development and related services, and administers shopping centers in Chile.
A Century of Retailing: 1889-1989
The origins of Falabella date back to 1889, the year in which Salvatore Falabella, an Italian immigrant from Genoa, opened, in Santiago, the first large tailor shop in Chile. It eventually became a clothing store for the family. Falabella was incorporated in 1937, when Alberto Solari joined the firm. He added new products and points of sale. Falabella became a department store, with a vast array of home products, in 1958.
Under the left-wing government of President Salvador Allende, in the early 1970s, Falabella was requisitioned by the state, but its loyal employees are said to have kept the designated administrators from entering the premises. Business was so bad, according to Juan Cúneo Salari, who later became vice-president of the firm, that at times the employees passed the hours playing chess in the office "because there was nothing to sell," as he explained to the business magazine Gestión in a 2003 interview. Cúneo credited Jorge Mellafe with rescuing Falabella by planting the idea of extending credit to customers, in spite of inflation running at about 20 percent a month, by negotiating 60-day credits from the company's suppliers. But Falabella was always very much a family business, and it was Cúneo, a nephew and protégé of Solari, who became its general manager. He was responsible for the promulgation of Falabella's CMR credit card in 1980. Cúneo also decided that the firm should move its 70-year-old store from central Santiago to the recently vacated site of the Sears department store in the posh Parque Arauco area. When Solari demurred, Cúneo threatened to resign, impelling Solari to call in his three daughters for advice. They, and Solari's brother Reinaldo, supported the move, which was completed in 1983.
The 1980s saw other major changes after the death of the president--the founder's son Arnaldo--and the retirement of Alberto Solari, Arnaldo's son-in-law. Most members of the Falabella family and related Peragallo family sold their shares. Some 75 percent of the company was acquired by a group composed of Reinaldo Solari Magnasco, Cúneo, Mellafe, Sergio Cardone Solari, and the Lombardi family. Cúneo was the driving force behind the ensuing expansion of the Falabella chain and its diversification into finance, insurance, real estate, and tourism. His management style included promotion within the company and the formation of autonomous management teams. At the beginning of the 1990s the company created an expansion plan composed of four steps: internationalization, potential in the financial area, real estate growth by means of malls, and other retail areas.
Expansion in the 1990s
Falabella, in 1990, took a stake in the Mall Plaza group, which opened Mall Plaza Vespucio, the first of several Santiago shopping centers catering to the middle class. This was the first Chilean mall that incorporated features such as a food court, a play area for children, and the nation's first multiplex cinema. Mall Plaza group later opened six more centers in Chile: Oeste, Tobalaba, and Norte in Santiago; El Trébol in Concepción; and one each in La Serena and Los Angeles, with Falabella holding a half-share in each. By 1996 Falabella had annual sales of some $500 million and 13 stores in Chile. At the end of 1996 there were 22, plus more than one million names in the chain's database, more than any other Chilean retailer. The company also had established the financial services affiliates Serva Ltda. and Venser Ltda.; the real estate firm Aseger, S.A. for Falabella's real estate projects; and the textile firms Italmod S.A. and Mavesa S.A.
The first Falabella store outside of Chile opened in Mendoza, Argentina, in 1993. This was followed by stores in the Argentine cities of Córdoba, Rosario, and San Juan. In 1995 Falabella entered Peru by acquiring 70 percent of Sociedad Andina de Grandes Almeneces (Saga), the nation's only department store chain. This company owned two Saga (formerly Sears, Roebuck & Co.) department stores in Lima. A third, in the center of Lima, was added in 1998 at a cost of $15 million. Inverfal S.A. was established as the subsidiary charged with investments in Argentina and Peru. Falabella also acquired, in 1996, García Hermanos y Cía. La Favorita S.A., an Argentine-based company engaged in buying and selling goods for large stores and offering financial and other services.
Falabella became a publicly traded company in 1996, when it first sold shares on the Bolsa de Comercio de Santiago. The following year it entered a new field of business when it established a partnership with Home Depot Inc., taking a one-third share in its commercial ventures in Chile. Also in 1997, it established a travel agency, Viajes Falabella S.A., and an insurance agency, Seguros Falabella. In 1998 the first two Chilean Home Depot stores opened, and Banco Falabella was established by purchasing the license held by ING Bank Chile. The new bank oriented itself principally to consumer credit in the form of mortgages and auto loans in small offices located within the stores. Falabella began, in 1999, making sales via the Internet in Chile and opened a $30 million department store in Buenos Aires. During the same year it purchased a 20 percent stake in Farmacias Ahumada S.A., the largest drugstore chain in Chile. The associations with Home Depot and Farmacias Ahumada gave CMR cardholders access to credit at these chains. In its turn, Falabella began selling the latter's cosmetics and personal care products in its own stores. The company acquired Textil Viña Ltda. in 1998 with the purpose of making and selling its own clothing. The following year it sold half of the enterprise to the U.S. firm Spring Industries, with which it formed a joint venture to produce textiles for the home for sale in the United States, Chile, Argentina, and Peru.
Entering the 21st Century
In a poor year for business, 2001, Falabella excelled, and it was voted company of the year by the Chilean business magazine Capital. It maintained its position as the largest department store chain in the nation, with 43 percent of the market. The five Argentine stores registered gains in sales in spite of the severe recession that gripped that country and a general unfamiliarity with department stores. In Peru, where Falabella now had ten stores, the company was seeking to expand to the nation's northern part. Falabella acquired the two-thirds of Inverfal S.A.--its real estate development arm--that it had not previously held. The number of CMR cardholders reached 3.7 million, and the card gained access to McDonald's and the Copec chain of gas stations. (Its popularity rested on lower monthly payment credit cards than the ones issued by banks.) Before the end of the year Falabella bought out Home Depot's two-thirds interest in the Chilean home furnishings and construction equipment chain for $54.4 million, also assuming its debts. The annual revenues of this five-unit chain, which was renamed HomeStore, had reached $120 million, but it was losing money. To pay for the acquisition and further expansion of its department stores, Falabella successfully floated $100 million worth of bonds.
Falabella's bet on HomeStore paid off immediately, as the chain reversed three years of losses under the Home Depot name. The parent company saw this chain as the vehicle it lacked to continue growing in retail sales and made plans to invest about $70 million each year for the construction of new outlets. But, with only a few existing stores, HomeStore's share of the $4 billion-a-year Chilean retail market in this field was much smaller than that of the leader, Sodimac S.A., with 51 stores in Chile (and six in Colombia). After extended negotiations, Falabella, in 2003, purchased Sodimac by issuing to its owners new shares of its stock valued at $550 million for 80 percent of the company and paying cash for the remainder. The result was that three sisters, Liliana, María Luisa, and María Teresa Solari Falabella, retained 39 percent of Falabella, compared with 54 percent before. Reinaldo Solari, their uncle, emerged with 12.8 percent, Cúneo with 12.6 percent, and Cardone with 2.4 percent. The Del Río family, owners of Sodimac (and of Genoese origin, like the Falabellas and Solaris) received 22.4 percent, and other shareholders, 10.8 percent.
The negotiations, over a nine-month period, that led to this merger were long and tedious. In the final weeks, the families involved practically disappeared from the social map. An accord not only had to satisfy the families but also meet legal norms and take into account the interests of minority shareholders, some of them administrators for pension funds. Much time was spent before arriving at a valuation of CLP 730 (about $1.23) per Falabella share of stock. During the closing sessions the parties remained in conference until three and even five in the morning. After the pact was confirmed, the parties spoke enthusiastically about extending Falabella's reach, possibly as far as Brazil and Mexico, and, after Mexico, even to the United States.
Pablo Turner González, the hyperenergetic general manager of Falabella, caused a stir when he left the company in 2004, after 21 years, to join its closest rival in the department store field, Almacenes Paris Comercial S.A. There was speculation that under the new ownership structure, this longtime Falabella executive had to accept certain restrictions that displeased him. He was succeeded by Juan Benavides Feliú, the general manager of the credit card subsidiary, which was accounting for more than half of the parent company's profits. (Substantially more than half of Falabella's department store customers were paying for their purchases with the CMR credit card.)
Falabella had net sales of CLP 1.06 trillion ($1.79 billion) and net income of CLP 98.41 billion ($165.72 million) in 2003. Department store merchandise included a number of private labels, such as Recco (for appliances), University Club, Basement, Sybilla, Vamp, and Doo Australia. A shoe line was added in 2003. In Chile, the company had 29 Falabella stores and 57 Sodimac and HomeStores. There were five Falabella department stores in Argentina and ten company-owned stores in Peru, including two Tottus hypermarkets opened in Lima during 2002-03. There were seven Sodimacs in Colombia. Falabella had a half-share in six commercial centers (including one in Santiago and one in Los Angeles that opened in 2003) and held 50 percent of the Mall Plaza group, the largest operator of such centers in Chile. Banco Falabella, whose services included mortgage and auto loans, had 40 branches inside and outside the department stores and 5 percent of the consumer banking market in Chile. Viajes Falabella, the Chilean leader in individual travel, had 29 offices. The Falabella web site included an Internet service provider, Falabella Free. S.A.C.I Falabella had a stock market valuation of $4.65 billion in mid-2004, almost three times its valuation when it entered the stock market in 1996.
Principal Subsidiaries: Aseger S.A. (50%); Banco Falabella; CMR Falabella S.A.; Falabella Uruguay S.A.; Home Trading S.A.; Inverfal S.A.; Italmod S.A. (50%); Mavesa S.A.; S.A.C.I. Falabella Argentina Islas Cayman (Cayman Islands); Serva Ltda.; Venser Ltda.
Principal Divisions: Banco Falabella; CMR; Department Stores; Falabella Argentina; Falabella Peru; Home Improvement.
Principal Competitors: Almacenes Paris Comercial S.A.; Cencosud S.A.; Comercial Eccsa S.A.; Distribuidos & Servicios D&S S.A.; Parque Arauco S.A.
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