What: Chilean bricks-and-mortar retailer Falabella purchases Latin America online retailer Linio for US $137 million.
Why it matters: Online sales in Latin America will double to US $118 billion by 2021 and Falabella is preparing to be a major player, using its physical stores to key advantage.
Chilean bricks-and-mortar retailer Falabella is determined to be a major e-commerce player, and will likely use its physical stores to key advantage as it ramps up to compete with Amazon and MercadoLibre for online sales in Latin America. That’s how industry and regional experts explain Falabella’s recently announced purchase of online retailer Linio for US $137 million.
The word analysts keep repeating is “omnichannel.”
Omnichannel refers to the ability of bricks-and-mortar retailers to offer in-store pickup of goods ordered online.
It could become a key competitive edge for Falabella.
“This is congruent with a trend we are seeing of retailers getting smarter about e-commerce,” Lindsay Lehr, a senior director at the consultancy Americas Market Intelligence tells Portada.
One of the big stumbling blocks to e-commerce in Latin America is the inability of people to receive packages in their homes, which is why omnichannel purchasing is increasingly important, Lehr said.
The word analysts keep repeating is ‘omnichannel’.
Leveraging Stores to Boost Online Sales
Headquartered in Santiago, Falabella operates department stores, supermarkets, home improvement centers, malls and financial services in Argentina, Brazil, Chile, Colombia, Peru and Uruguay.
With the Linio purchase, Falabella’s online footprint expands to cover Mexico, Colombia, Venezuela, Ecuador and Panama.
The acquisition boosts Falabella to the #2 e-commerce spot in its home markets and begins the process of positioning it to take on MercadoLibre and the expansion of Amazon (Amazon Mexico’s Guillermo Rivera recently joined Portada’s Council System) in the region, Lehr says.
“They are getting prepared for what’s ahead.”
Betting on E-commerce
“The company is betting on e-commerce,” analyst and retailing expert Jorge Lizan tells Portada.
Even though online sales now only make up 14-15 percent of its business, Falabella is spending 80 percent of its development budget on the online channel.
Falabella will mine Linio’s database and leverage its e-tailing expertise to position Falabella to take on MercadoLibre and Amazon, Lizan says.
“Linio is very small. They didn’t acquire Linio for the size of the company or to be a big part of Falabella’s business. What Falabella is looking for in this acquisition is to get the infrastructure and expertise,” Lizan says.
Falabella will mine Linio’s database and leverage its e-tailing expertise to position Falabella to take on MercadoLibre and Amazon.
Getting ready to face Amazon
The Linio purchase is about protecting future market share from online competitors MercadoLibre, Amazon, Wal-Mart, and even Alibaba.
MercadoLibre is the undisputed leader in e-commerce in Latin America.
Wal-Mart is heavily invested in online sales in Mexico and Central America, according to Lizan.
Growing Digital to Offer More Products
With the permission of its shareholders, Falabella plans to raise US $800 million in capital to ramp up its efforts to go digital in Latin America.
“This increase in capital will allow us to accelerate our digitalization and grow regional services for our clients, offering our products across a diversity of channels,” President of SACI Falabella Carlo Solari said in an announcement of the Linio purchase.
“With this acquisition, the company advances its goal of being a leader in electronic commerce in the region,” said Falabella’s general manager Gaston Bottazzini.
Expanding product lines online
The Linio purchase gives Falabella something more than just an online presence. Online translates into the capability to offer customers a broader selection of products beyond the brands Falabella sells in its physical stores.
“They can have limitless numbers of brands which is something they can’t do in their bricks and mortar stores,” Lizan tells Portada.
Moreover, Falabella wants their stores to become fulfillment centers for online sales.
“The name of the game is omnichannel and will increasingly be in the future. Falabella’s brick and mortar presence will definitely give it an edge vs. MercadoLibre,” Lizan comments.
The name of the game is omnichannel and will increasingly be in the future.
Seeing a big online future
E-commerce in Latin America is expected to grow by 19% in the next five years – well above the global average of 11%.
Online sales in Latin America will double to $118 billion by 2021. And according to Lizan, retailing in Latin America is still under developed and under penetrated.
Falabella has the largest retail customer database in the industry; dominates its markets in key offerings such as grocery, home improvement and home and décor; and recently announced a partnership with IKEA in Chile, Colombia and Peru.
From 36,000 feet, the Linio purchase is “very small,” Lizan said. But the advantages on the ground are strategic.
“It’s a benefit for Falabella to have an e-tailer in their portfolio because they will learn from them and the learning curve will be shorter.”
“It is a very strong statement by Falabella.”