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*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Chile to visit Paris Department Stores’ and Falabella’s flagships, located respectively in the Alto Las Condes center and in the Parque Arauco mall.

Chile is considered one of South America’s most prosperous nations, in terms of competitiveness and income per capita. Before the pandemic, with consistent GDP growth of around 3% to 4% annually, the country enjoyed economic diversification across sectors like mining, agriculture, manufacturing, services and tourism. The nation's stable institutions, market-oriented policies, extensive trade agreements, and high global competitiveness rankings attracted foreign investment.

The COVID-19 pandemic had a profound impact on Chile, affecting various aspects of society, the economy, and public health. The country witnessed a significant number of confirmed cases and fatalities, placing immense strain on the healthcare system. To curb the spread of the virus, strict measures such as lockdowns, travel restrictions, and social distancing were implemented. Being one of the leading countries in terms of vaccinating its population as early as December 2020, combined with the massive adoption of digital technologies and telecommuting, Chile was able to weather the crisis earlier than other countries, and this showed in Falabella’s numbers, then a member of IADS. While GDP shrank by -5.8% in 2020, it grew +23% in 2021, exceeding the previous record of 2018. While normalization took place in 2022, this led to an extraordinary expansion for retailers, both in nominal and in terms of e-commerce growth, a channel already well implemented in the country.

Falabella opened in great fanfare its newest flagship store in November 2021 (our report here) and it was hailed as a perfect integration of omnichannel practices into a physical store. The IADS took the opportunity of a visit to the region to go and review the store, and to compare it with its competitor’s neighbouring flagship store, Paris.*

History and background: Cencosud and Falabella, two multifaceted and similar giants

Almacenes Paris (Cencosud)

Almacenes Paris, a former member of the IADS (2000-2005) was established in Santiago in 1900 by José María Couso as Mueblería París. The store originally carried Italian merchandise copied from French models, and evolved into selling copies made by local artisans, before expanding into home (rugs, tapestries, mattresses, bed furnishing) and accessories (glassware, china, porcelain, cutlery and bathroom supplies). Fashion came later and the business was sold to Antonio Gálmez in 1910. The company changed its name to Almacenes Paris in 1950.

Almacenes Paris started to branch out from Santiago city centre by opening in the metropolitan area (Providencia) in 1983, in spite of a poor national economic context. It then continued expansion through a mix of opportunistic moves (the bankruptcy of Brazilian department store company Muricy in Chile in 1990, after 19 years of operations, allowed Paris to acquire their Parque Arauco and Mall Plaza Vespucio stores, both in the metropolitan region of Santiago ) and pure expansion (Plaza Oeste in 1994 and the first store outside Santiago in Concepcion in 1996), reaching a total of 7 department stores (each of a surface comprised between 8,000 and 15,000 sqm) by 1996, second to Falabella in terms of store number, and addressing middle-class customers.

It went public that same year and immediately engaged in diversification: real estate (by taking shares in Plaza del Trebol and Plaza Oeste existing malls, but also in new projects in Puente Alto and La Serena ones), speciality stores (by acquiring Tecnopolis, a chain of computer stores). It also doubled down on financial services: Almacenes Paris was the first retail company to introduce a credit card, Tarjeta Paris, in 1970, in Chile, and boasted 1.3m credit cards by 1998. They also kept on investing on a new venture, Paris Express, a virtual store enabling customers to purchase online, in 1999. By 2002 Paris was selling a third of its merchandise online.

The retail chain also kept expanding: 3 new stores were built, soon completed by the 1999 acquisition of failed Chilean operations of JCPenney (which had entered in 1994), allowing Paris to reap its Alto Las Condes mall store and to reach a total of 14 stores by 2000. A new corporate headquarters tower (Torre Paris in Providencia district) and 3 more stores allowed the chain to reach a total of 150,000 sqm of retail space disseminated in 16 stores in 2002. However, analysts worried that the company was falling behind its rivals Falabella and Ripley, which led to a corporate reorganisation into 4 subsidiaries: retail, industry, real estate and financial services. The leading source of income, however, was not coming from retail activity, but credit (75% of the group’s total sales were financed by its own credit cards).

As the retail division kept on lagging behind its rivals, the Gálmez family sold 52.4% of its shares to a group of various investors in August 2004, who implemented a turnaround plan. However, the country was shocked to learn that Cencosud, the largest retailer in Chile and Argentina with Jumbo and Santa Isabel hypermarket chains, made a surprise offer and was able to purchase 72.67% of the company in February 2005. As a consequence, Paris was no longer a public company and became a subsidiary of Cencosud.

Cencosud today is the largest retail company in Chile and the third largest in Latin America behind Companhia Brasileira de Distribuição and the Mexican Walmart de México y Centroamérica. It operates 3 supermarket brands (249 units), the Easy home improvement specialty chain (37 stores), 35 shopping centres, and the Cencosud Card (2.5m users in 2015) in addition to 49 department stores in the country for a total of 286,000 sqm of retail space (Cencosud also operates in the rest of the region, but Paris remains limited to Chile).

The department store company offers a mix of private labels (Alaniz, Attimo, Greenfield, among others), with international brands distributed in exclusivity (Brooks Brothers, Lacoste..) presented in brand corners, and is the third largest department store business in the country, behind Falabella and Ripley.

Falabella

A former member of the IADS (2006-2022), Falabella was founded in 1889 by Salvatore Falabella as a tailor shop in Santiago. Operations started to expand in 1937 when Alberto Solari joined, incorporating new products, opening new points of sales and revising the business model as a whole, until becoming a true department store in 1958 including home goods.

They opened their first store outside of Santiago in 1962 in Concepcion, however business development was slowed by the political and economic context of the country. Following suit in Almacenes Paris’ footsteps, Falabella launched its own credit card in 1980, called CMR Falabella. In the 80s, Arnaldo Falabella, the son of the founder, passed away, and Alberto Solari retired, leaving room for new management under the helm of Juan Cuneo Solari, his nephew. He led a group of investors and purchased 75% of the company, marking the beginning of diversification into finance, insurance, real estate and tourism.

Falabella took stakes in the Mall Plaza group, which opened 7 malls (Plaza Vespucio, Oeste, Talaba, Norde Santiago, El Trebol in Concepcion, La Serena and Los Angeles). By 1996 Falabella was operating 22 stores and had started international expansion in Argentina and Peru, when it became public the same year. Similarly, to Paris, expansion accelerated in various retail activities (through partnerships with Home Depot and a national drugstore chain), travels and insurance, and the launch of Banco Falabella.

They also jumped the Internet bandwagon by launching e-commerce activities in 1999, adding the final touch to a whole ecosystem where customers were able to find products from Falabella’s various divisions in many different places and stores, and financed by the retailer group. As a consequence, it held 43% of department stores market share in 2001. Expansion accelerated: the group extended its reach on the DYI market by purchasing Sodimac, the market leader, among others. The expansion was financed through capital increases, leading to the practical disappearance of the remaining family members on the map of significant shareholders. At that time, just like at Almacenes Paris, half of the company’s profit was coming from credit card operations.

The Falabella group today is present in Peru, Chile and Colombia (both Paris and Falabella took the opportunity of the Covid-19 pandemic to exit Argentina). Its activities encompass department stores, hypermarkets (Tottus, 72 units), DYI (Sodimac, 85 stores in Chile), real estate (in malls), banking (Banco Falabella), a travel and insurance company, a credit card service (7.2m active customers), as well as an Internet and mobile service provider company. In 2022 there are 47 department stores in Chile, of which 19 are in the Santiago metropolitan region.

Interestingly, the department store division has been renamed ‘omnichannel retail’ in 2021 after it was decided that www.falabella.com (launched as early as 1999) would integrate e-commerce and marketplace services in a division separate from the physical department store operations.

Similarities

Both groups started online operations quite early, and often earlier than their international counterparts. Through a mix of in-house developments and external acquisitions, they both completed their digital capabilities in terms of product distribution, logistics and payment capabilities. As a consequence, both are able to offer a real ecosystem to their customers, similar to the Asian “super-apps”, but different in terms of how the various components are articulated and presented to customers (to respect privacy rules which, in Chile, are in line with the rest of the Western world).

Another similarity is linked to the fact that the metropolitan area of Santiago is saturated with department stores. As a consequence, growth came from services, such as travel and insurance first, but rapidly, banking appeared as the most interesting way to capture customers in the developing ecosystems. The financial strength of retail groups is extremely important: in 1998, 21% of all Chilean customer credit came from Falabella, Almacenes Paris and Ripley, representing 2% of the country’s GDP (this represented by then 10m credit owners out of 14m total population by then). They have then largely contributed to the progress of debit card, credit card and digital wallet ownership in the country.

Today, Falabella and Cencosud’s banking services are ranking high in a country where 74% of the population (19,4m people in 2022) have a bank account (vs. 49% in the region). This financial evolution helped Falabella and Almacenes Paris to develop large customer databases early, which in turn explains why they were able to enter the e-commerce and digital world early.

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Visiting the Almacenes Paris store in Alto Las Condes

The Alto Las Condes 231,000-sqm-wide mall is a medium to high-positioned mall, catering for the needs of the posh Las Condes neighbourhood (which may be why the mall is surprisingly not accessible by public transportation). While there are Falabella and Ripley units in the mall, the highlight is for sure the 4-floor Paris store, which used to be a JC Penney store  and is now a flagship for the company, headquartered in the mall itself.

The ground floor is dedicated to a strange mix of categories, as it presents fragrances, women’s shoes, kidswear and toys, as well as lingerie. Transitions from categories to categories are harsh and immediate, this is a feature that is also common to Falabella, and product universes are often simply juxtaposed next to each other.

The first floor is dedicated to women’s fashion. The floor is mostly dedicated to private labels (another common feature with Falabella), with a concept store section including brands such as Hoss Entropia (a Spanish brand) and more anonymous labels such as Tienda de Carolina or Club Mol. Overall, it is obvious that there is a glass ceiling in terms of price point but also in the types of styles presented to Chilean customers. The purpose is more to sell garment than pure fashion, and international brands are hardly visible apart from names such as Springfield, Allsaints or Esprit.

Interestingly, sustainability is a very visible and outspoken topic, through various aspects:

-    Some ceiling decors that remind the ones at Galeries Lafayette Re-Store,

-    A vintage shop-in-shop, well merchandised and fully integrated in the omnichannel processes (customers have the possibility to return products within 24 hours from home after purchase, and access more second-hand products online, through an infinite aisle accessible with a QR code),

-    A denim recycling point, “Foster”.

In spite of the product offer not being very fashionable, customers can customize their purchases at a “Paris lab”.

The second floor is dedicated to men’s fashion, and tech, which is literally next to the sport section. Tech brands are heavily branded but tend to be more seamlessly intricated in the RTW environment than the categories on the ground floor. The floor is designed with a category approach in mind rather than lifestyle: everything is available (RTW, shoes, underwear, accessories) in dedicated spaces next to each other, and poorly transitioned. The sport section, near the Tech category, also presents women’s products.

The third floor is dedicated to home & décor, as well as services and a gourmet section. The scenic effort is more visible here, in order to help customers project themselves with the displayed products. The travel agency is located in the middle of the tableware section, and white goods are presented in front of the sofas and other home furniture rather than being connected next to the kitchen and home accessories section.

Overall, the store has an impression of being mostly dedicated to selling private labels, in a rather straightforward approach that still relies on a category approach rather than thinking in terms of universes. Two elements were however noteworthy: the sustainable communication as already mentioned, but also and more importantly the omnipresent omnichannel capabilities across the store:

-    On all floors, customers have access to barcode readers that allow them to get price information about the product they are scanning thanks to their loyalty card,

-    Other readers also allow reviewing the points left and the available credit limit on the store card. Those readers encourage the use of the Paris app, luring customers with specific and tailor-made promotions only available on their own app.

-    Most of those readers are available in zones also presenting banking services allowing customers to draw cash, manage bank accounts, and use other services.

-    Tactile screens give more product options to customers, especially in the Home & Décor section.

-    When it comes to paying for the purchases, customers have the choice of either walking into the staff cash desks or using the Express cash desk, a self-service check-out where customers have to remove the anti-theft systems by themselves, under the supervision of a distant staff.

-    The Click and collect pick-up space is located on the 3rd floor, either in the customer service section or in the “Retiro express” one if customers have chosen the speedy option.

All in all, the store gave a strong impression of being well equipped and connected in terms of systems, which are all designed to help customers with their purchases.

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Visiting the Falabella Parque Arauco store

The Parque Arauco mall is not especially new, as it opened in 1982, and constantly evolved, through territorial expansion, with for instance the open-air luxury district, which opened in 2013 with the likes of Louis Vuitton and Armani. Falabella entered the mall in 1983 when it purchased the failed Sears department store, and Paris in 1991 when Muricy went bankrupt. Ripley also joined the mall later on. Today, the mall is 110,000 sqm-wide and aims at an international and touristic clientele, even though there is no public transportation connection as the subway connection is only planned in 2027.

Falabella relocated its Parque de Arauco store in the mall in 2021 to a new and larger location, on 25,000 sqm and 4 floors, which makes it the largest of its kind in South America. The store was hailed as an omnichannel proof of concept for Falabella when it opened, as it is equipped with the latest available tech and systems.

The ground floor is dedicated to men’s and tech. The overall impression is the omnipresence of a specific design, which gives the store more identity than the Paris one in Alto Las Condes. However, the surprising and sometimes brutal lack of transition between categories is also very present here, as they are simply juxtaposed and not designed to merge into each other, in the framework of a customer journey.

The men’s section is quite extensive and includes a mix of private labels and mid-market international brands such as Dockers, Polo or Lacoste in RTW, Clark’s or Aldo in shoes, Levi’s and Nike in denim and sportswear. It is all about customer experience: sport attire can be customized, and outfits can be made to measure in the formalwear section.

The electronic section includes a gaming zone, obviously aimed at the younger generation, but surprisingly located very near the store pop-up activation section, which was dedicated at the time of the visit to Carolina Herrera (women’s offer). As a consequence, the commercial animation felt a bit disconnected in this specific location.

The whole store has a backbone of automatic staircases framed with giant screens, on which seasonal animations and promotional messages are displayed. As a consequence, moving from floor to floor feels very dynamic and energetic.

The second floor is dedicated to women’s cosmetics and accessories. The staircase brings customers immediately next to a café as each floor has a F&B offering in the customer landing one. Here also, the zoning feels surprising, with shoes in front of lingerie and next to cosmetics (the cosmetic one feels very luxurious thanks to the use of heavy lighting and low-rise display furniture). The accessories section feels busy in terms of product density with a mix of private labels and brands such as Bimba y Lola. Here again, there is a feeling of a glass ceiling in terms of maximum price point and brand type offered to customers.

The third floor is dedicated to women’s fashion. Brands are presented in lightly decorated shop-in-shops, which makes them slightly more attractive than in the men’s section. The circulation plan is a bit more complex as the space is also dotted with small lounge spaces mixing RTW and accessories, with dedicated cash desks suggesting they are operated in concessions.

Significant spaces are allocated to international mass brands (Mango, Maison 123) and Falabella’s private labels: Sybilla, University, Basement. A personal shopper service is located just next to the fitting rooms, and in the case of Sybilla, the space is so large that it has its own cash desk (both staffed and self-check-out).

Across the floor, many messages related to sustainability are made extremely visible and insist on Falabella’s various commitments.

The fourth floor is dedicated to Home & Décor, and kids. In the kids section, an ice cream zone and a Samsung store make the connection with the home section.

In the home section, next to the heavily branded and decorated electro-domestic section, a virtual showroom displays on a huge screen any piece of furniture selected on an Ipad and allows customers to see its full-size rendering. Once visualized, the product can be sent to the customer’s shopping cart.

Just like at Paris, omnichannel capabilities are everywhere:

-    Screens allow customers to browse the website (which raises questions in terms of internal organization and incentives as instore and online operations are operated by 2 different business units),

-    QR codes on tags allow to have access to in-store ordering, asking for help or advice. However, those services are accessible via a Wifi system that cannot be used without a Chilean PIN number, which is not possible for a tourist,

-    The click & collect space, in the Men’s space, is beautifully executed and has been designed to make the potential waiting time painless,

-    All Falabella services, including banking, insurance and other, are available on dedicated machines across the store.

Here also, the store feels modern, well-equipped and fully integrated into a real omnichannel ecosystem placing the customer at the centre of the model.

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Going further: the job is done?

*Overall, the technology demonstration and its full integration in stores are impressive at both retailers. While the Falabella store is newer, and therefore its design is more modern, when it came to the range of services made available to customers, both Falabella and Paris felt on par.

However… in both cases, the selection made available in-store, both in terms of price point, types of products and brands, was relatively uninspiring and felt mundane. While Chile is a relatively closed country with specific states, it is nonetheless a fact that the younger generation is more connected everywhere in the world and more aware of the trends. For that reason, it felt very hard to imagine that both stores were able to draw a younger crowd, and during both visits, the clientele felt rather middle-aged, with a middle-class income, and not really looking for something fancy.

In addition, the product and brand offering felt very similar from one store to another, even though there were many private labels presented. One may only wonder if, while Chile is more advanced than others in terms of omnichannel capabilities, it is not lagging behind in terms of product assortment and desirability, a key feature to remain competitive in front of large pure players and disruptors such as Shein, all looking for such new rich markets.*

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Credits: IADS (Selvane Mohandas du Ménil)