CEO Falabella - Oliver Wyman
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RETAIL JOURNAL INTERVIEW
GASTON BOTTAZZINI
Falabella CEO
© Oliver Wyman 1RETAIL JOURNAL INTERVIEW
Falabella is a diversified food and non-food retail comfortable with us continuing operations in our
organization, operating in major Latin American distribution centers.
economies. How has COVID-19 affected retail in
Latin America? Have you seen customer needs And the final challenge was to find a way to shift all
evolve? Has the effect been across-the-board, or of our efforts to a demand that was moving away
has it varied by segment and country for you? from the stores to the digital channels.
How has food versus non-food been affected?
Those were the four major areas of impact.
The impact has been very different by market, and Initially, most of our stores were closed, which
also by the sequence of events. But there are some meant that the volume of home deliveries really
common denominators: First is the effort that exploded. So while until six months ago, home
we’ve had to make to keep operations going. And delivery was something we mostly did internally
given that we operate in very different segments with our resources — our own distribution
ACCELERATING
— from food to home improvement, electronics, centers and contracts with independent transport
and fashion — we’ve seen each of these segments companies — we now had to adapt ourselves to
ADAPTATION AT
got impacted differently. Second, there was a work with third-party logistics companies to carry
permanent focus on how to maximize innovation out this operation.
PANDEMIC PACE
while minimizing the level of risk for our team.
To circle back on the split between food and
Initially, we focused on securing supply: Our main non-food business: In Europe, we saw a major
concern in February was not whether we would be difference in the impact of COVID-19 on the
able to operate, but whether our supply chain from economics of grocers and non-grocers. Grocers
Gaston Bottazzini is Chief Executive China would be interrupted throughout the year. actually did very well, once the issue of the supply
Officer at Falabella S.A., one of the chain was settled. We saw a shift towards major
largest South American omnichannel Another area of focus was to ensure liquidity in all “shopping mission” shops, rather than everyday
our operations. We prioritized this when it became convenience stores. Within weeks, a new model
retailers. Jim Bacos, a senior partner
clear that this coronavirus was a global pandemic had emerged for in-store shopping that seemed
with Oliver Wyman, sat down with him
and not something that would remain within Asia, to work.
to discuss the impact of COVID-19 on as was the case with previous coronaviruses.
Falabella and the economies where it On the other hand, non-food consumer electronics,
operates — and which lessons Gaston The third area of focus was how to implement the DIY and fashion in particular were hit with
has learned from it. right safety protocols so that the authorities felt downturns of 90 percent and many non-food
© Oliver Wyman 2RETAIL JOURNAL INTERVIEW
retailers were forced to close for long periods. Was And finally, home improvement, where we Department stores is where we were impacted the
that mirrored in Latin America? command a high market share, was a line most in terms of margins, because demand shifted
of business that did extremely well. People to electronics and away from fashion.
Again, it was an evolving story. For food, we had a allocated more of their incomes to improving and
shift in channels, not a decrease in demand. Quite renovating their homes, partly because they‘re There was the increased cost of delivery, which
the contrary, sales in general were above prior years, spending more time in them, which made them placed major pressure on margins. This meant we
as consumers no longer had the alternative of going more aware of the wear and tear that’s happened saw stable sales, but our results and margins were
out to restaurants. over time. The combination of seeing the issues greatly affected.
and having a lot of time at home to take care
As for non-food segments, it’s hard to generalize. of them created substantial demand for home Did you cover a lot of the increased online volume
Fashion was hit very hard and continues to struggle. improvement. So that‘s one sector where we saw through third-party logistics (3PL) providers?
People reverted to basics, such as underwear and online demand and home-improvement needs
shoes, and felt less comfortable buying higher- creating activity in our stores. We had to increase capacity fast. So to supplement
ticket fashion items online, such as dresses or our delivery capabilities, we had to integrate two
fashionable shirts. What happened to the share of online purchases or three major 3PLs in the countries where we
in your businesses — did it explode? operate. That will shape our thinking on direct-to-
In electronics, the demand contracted initially, consumer logistics going forward, allowing us to
but then expanded due to home-office needs, To generalize, online sales represented about mix our own solution and 3PLs.
entertainment and communications. In this 12 percent of total sales in the previous year. This
segment, good online channels sustained increased to almost 40 percent in the second And if we look at the food side: was that home
themselves very well. However, if your business was quarter of 2020. So in terms of sales, the online delivery or was that mostly click-and-collect?
very dependent on physical stores, it didn‘t do well channel almost completely replaced the offline
because people were uncomfortable going into channels. That led to a major explosion in home Food — which was both click-and-collect and
stores and interacting with other people. delivery volumes. home delivery — is the one segment where stores
remained open throughout the pandemic. Stores
Another of our strong segments is health and In terms of margin, the story is very different, continued to present a large proportion of total
beauty. Sales in that business decreased and were though again it differs by segment. In food, sales and online also grew substantially. Another
hit, particularly in beauty. the margin was stable. In home improvement, distribution system that saw rapid growth was on-
margins varied. demand delivery. On-demand delivery had already
© Oliver Wyman 3RETAIL JOURNAL INTERVIEW
been emerging in these markets even before
COVID-19. But the pandemic gave a huge boost to
Online sales represented about 12 percent
on-demand delivery: demand for delivery of food of total sales in the previous year. This
orders within 45 to 90 minutes grew substantially
in all of these markets. We had a very fast rate of increased to almost 40 percent in the
adoption by our consumers: we went from zero
to 10,000 orders per month in Chile in a matter second quarter of 2020.
of months.
A colleague of yours in North America said that How different do you think your channel structure In my own experience, one of the challenges
one of the overlooked benefits of COVID-19 will be in three years compared to what it was in that retail organizations struggle with most as
was that it provided volume for direct delivery. the past three years — and how far and fast will it they move in the direction of data analytics and
However, the problem with direct delivery be changed? digitization is the profile of their workforce talent.
traditionally has been that it costs too much Do you see a talent issue developing?
money per unit to be delivered. But with rates We feel the need to move at a fast pace, and
of adoption having now doubled or tripled, he’s not just as a result of the pandemic. What is There are two things at work here. It‘s a talent
of the opinion that the economics of delivery happening is that as the whole market is moving issue, of course, but it’s also a cultural issue that
have fundamentally changed. Do you see toward better solutions from a technological and you’re trying to overcome.
that happening? logistics point of view. The consumer has become
more willing to adopt these solutions. Thinking about talent: There’s a shift in the profile
The efficiency of on-demand delivery is driven both of the talent, you need to create engines of growth,
by the delivery and the picking economics. We are But the most relevant driver is the improvement such as app development, direct marketing tools,
not seeing delivery economics improving much as of the solutions. I see the solutions growing at and business intelligence. We’re in the process of
a result of volume. But the picking economics have a very fast rate and the competition becoming recruiting those types of talent. In some cases, a
really improved as a result of the spike in volume, more efficient, aiming to make shopping more region like ours has a limited number of people
which has allowed for the construction of dark consumer friendly. Any players who are not that have that type of training. So, for example, we
stores. Without the volume, then you cannot build moving at this pace will be left behind. created a development hub in Bangalore, India,
dark stores. which complements our technology organization
in Chile, and helps us move much faster in terms of
developing technology solutions.
© Oliver Wyman 4RETAIL JOURNAL INTERVIEW
But that‘s only one capability profile where we have Another example is the development of our What has been most surprising for you about the
been able to recruit the right type of talent. The financial services business. We concentrated on past six months?
other is cultural: the whole organization needs to financing initially, but then it became focused on the
be onboard with these shifts. Therefore, people transactional relationship and payment solutions. The biggest surprise for me was the ability of a
need to be aware of how the online and physical Now it‘s aimed at the payment experience both whole organization to work remotely, and to see
channels complement each other and how this in-store and online, ultimately complementing our remote work actually help break some of the
is not a channel competition, but rather a set of retail offerings. hierarchical and organizational barriers across
solutions that will make the customer’s life easier. our businesses. It made us more horizontal in
We’re making a great effort to train people in how Another example is when we look at the countries our interactions and helped to boost some of the
these solutions work together. We have the Falabella where we don‘t have all the pieces of our ecosystem, cultural changes that we were seeking.
Academy, where hundreds of associates learn about for example in Brazil, where we’re working with
technology and logistics, BI, data analytics, and how third-party marketplaces. So, depending on the Can we assume that this is going to be a
all those capabilities help improve the business. market, we will build different types of partnerships permanent change?
to complement our ecosystem, but our main focus is
If you look at China, there are retail ecosystems on enhancing the businesses we operate. I think one of the challenges ahead is to find out
that are built up around the entire portfolio of whether we can project the reality that we are
what people buy and do and how they entertain One more question about people. The biggest seeing now into the future. It‘s like when you build
themselves. And then on the other side is classic surprise for many business leaders has been just a dam in a river. You know the river will change
retail, for example the Amazon purchase of Whole how well they could operate with fewer associates direction — and that once you remove the dam, the
Foods, a relationship where each can learn and in the stores than ever before. Going forward, river will return to its previous path.
profit from each other. Do you see that evolving in many plan to have a dramatically leaner number
either your company or in your continent? of associates in stores. Do you see that happening We‘ve seen very drastic shifts over the last six
in Latin America? months. However, once we bring the COVID-19
We are moving in that direction. It is not clear barriers down, we will go to a new balance. But we
whether it will be through partnerships. But if In Latin America, we went through a very drastic will not go back to where we were.
you think about our acquisition of Linio a couple reduction in overhead and then simplified our
of years ago, an online marketplace, it meets our organizational structure. I think that same mentality What is the one thing that keeps you up at night?
main objective. We aim to complement our retail of simplification is taking place in the stores, taking
business with a marketplace platform and as a advantage of technology to automate. That also The main thing that keeps me up at night is the
result, have a more attractive assortment and means people’s efforts can be invested to really add need to increase the speed of execution. What
better customer experience. value to the customer. happened over the last six months brought a
© Oliver Wyman 5RETAIL JOURNAL INTERVIEW
great deal of pressure to rapidly react to shifts in never have imagined. Had we moved faster in platform to entrepreneurs and small businesses —
customer behaviour. That pressure will not ease building out a digital ecosystem and creating digital is an example of how we can become a more useful
up as we move forward. We have very ambitious capabilities for our business, we would have been in player in the overall ecosystem.
plans of putting our e-commerce under a common a much better position during the pandemic.
umbrella. So if there is one thing that keeps me up The issue of cooperation is something that is not
at night, it is the question how fast we can execute What lessons do you hope to take with you often mentioned, because every company is more
on all the different initiatives and if they can truly moving forward, having gone through this very focused on its own survival. But I think cooperation
improve the customer experience. difficult time? between smaller and bigger companies can create
a better offer for the customer. We have a lot of
What did you learn earlier in your career that I think the one thing that helped us, and that I’d small businesses that wouldn‘t have survived if
helped you to navigate these dangerous waters? like to continue moving forward, is that intensive not for the marketplace business model, because
levels of communication are very important. As they don‘t have an online channel. I think that
I actually began in the agriculture sector. From organizations, we tend to underestimate the the larger players becoming a channel for
that experience, I learned that you have to stay on importance of communication, we often feel like everyone is extremely influential and important
the course and not overreact to very short-term we are repeating ourselves and get bored of our moving forward.
shifts. It‘s a bad idea to keep changing your actions own message.
because it rained yesterday or because something
is happening with your next-door neighbour. The reality is that organizations and markets take a
long time to digest those messages. So you need to
The pandemic has brought on a lot of changes, keep repeating them again and again, even when
some of them long-term, while others may pass you feel like you are getting tired.
us by. Of course, you have to act in the short-term,
but you also have to make sure you hold steady on Is there anything else you’d like to add?
your future plans. Constantly changing strategy is
a very bad idea. Going forward, we will see an acceleration of
greater cooperation between larger companies
The other big takeaway for me, is the notion that like Falabella and the rest of the retail and
you‘d better be prepared to confront the long-term financing ecosystem. Our move toward creating
trends quickly, because events like the pandemic a marketplace — of doing it not just with a view
can accelerate those trends in a way that you could of improving assortment, but of opening up our
© Oliver Wyman 6Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialised expertise in strategy, operations, risk management, and organisation transformation. For more information, please contact the marketing department by phone at one of the following locations: EMEA Americas Asia Pacific +44 20 7333 8333 +1 212 541 8100 +65 6510 9700 Copyright © 2020 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman. Oliver Wyman – A Marsh & McLennan Company www.oliverwyman.com
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