The president of Falabella celebrates the good results of 2024. The retailer has left behind the poor performance of 2023 and achieved profits of nearly US$ 500 million. “We were able to turn the situation around quite quickly,” says Ostalé, who will mark two years in the role in April. He points out that all the business sectors have grown, and they have not lost ground in e-commerce. “Our obsession is not Mercado Libre and what they are doing: our obsession is what we can do”, he asserts.
In April, Enrique Ostalé will complete two years as president of Falabella, the once-retail star that had a forgettable 2023 but released a strong 2024 recovery report this week: profits returned – US$ 483 million earned – margins increased, the debt ratio dropped from its peak – net financial debt versus EBITDA was 8.6 times in June 2023; now it stands at 2.6 times – and the share price has increased another 10% on top of last year’s nearly 60% rise. Ostalé took the helm during a period of corporate stress: he is the first external president in the history of Falabella, replacing Carlo Solari, who led the company for a decade. In 2023, Gastón Bottazzini stepped down from the general management, and Alejandro González took over in 2024.
Ostalé wants to summarize his message as follows: “Perhaps the most important thing is that we see the Falabella group with good opportunities ahead, with great potential”, he says. The company’s president defines Falabella as an ecosystem with five main business – Falabella Retail, the homecenter Sodimac, Tottus supermarkets, the bank, and the Mall Plaza real estate business – more than 35 million customers, and operations in seven countries, with the main markets being Chile (51% of sales and 59% of EBITDA), Peru (26%), and Colombia (17%). They also have smaller sales in Mexico (2%), Brazil (2%), Uruguay (1%), and Argentina (1%).
Was Falabella in a crisis?
“I’m not sure if crisis is the right word, but in the main countries where Falabella operates, there was a synchronized crisis where, as a hangover from the pandemic, we saw rising inflation, increasing interest rates, a sharp slowdown in consumption, and that impacted Falabella’s businesses”.
Has Falabella overcome this moment?
“If we look at the results the company has achieved, we are well advanced in the two goals we set two years ago, which were to improve the profitability of our businesses and strengthen our financial situation. Both objectives are on a very good path”.
Was profitability prioritized over service?
“Quite the opposite. The recovery of profitability goes hand in hand with strengthening the value propositions, and that is reflected in how customer service and sales have evolved. All the signals we see today are quite positive”.
Wasn’t it expected that after such a bad cycle in 2022 and 2023, a recovery would follow? Falabella suffered quite a bit…
“There are companies that have fallen even more… But that speaks to the capabilities and potential of Falabella, to its resilience”.
How much of the recovery is due to the improvement in the environment, and how much to internal actions by Falabella?
“Normally, half of it is related to the environment and the crisis we were living through, and the other half is due to internal factors. At Falabella, we focused on solving internal challenges, continuing what we were doing well, and improving what we weren’t doing as well”.
What weren’t you doing well?
“Falabella was in a process of change from which we are now benefiting, particularly with investments in technology and logistics. Part of the results we’re seeing come from this effort. These changes always come with growing pains, and perhaps we could have handled those better and minimized their potential impacts, but the situation was not irreversible. We were able to turn it around quite quickly and look to the future with a new perspective”.
You’ll mark two years in April. How has Falabella changed from two years ago to today?
“The company is 135 years old, it has its DNA, and that is extremely important because it’s part of the essential values of who we are. But despite that, and considering what the Grupo Falabella represents, I would say that the main change has to do with being humble and always paying attention to the changes we need to drive, listening to ourselves, and recognizing that when facing more complex challenges, the answer is not greater complexity, but greater simplicity and agility. That’s what will allow us to be more effective”.
Your answer focuses on attitudes. What has changed in strategy?
“The strategy has undergone adjustments, undoubtedly, but the main challenge often relates to management – how we work, how we interact, and how that turns into a positive force to drive change. That’s why I first talk about management. Usually, the responses to challenges within the company lie within the company itself, not outside, and Falabella was no exception”.
Aren’t last year’s profits a mirage? Forty percent of profits come from the banking business…
“No, I think that speaks to the strength of Falabella’s business model and what it has been able to create. The banking business and financial services are an essential part of our ecosystem”.
But the main business has always been retail.
“Not always, depending on how you look at it, but the example of the financial business, like the other businesses at Falabella, shows the company’s potential. In just a few years, the company has been able to build a financial services business in which it has been involved for many years, but today we can see how it has consolidated that effort to be one of the top three banks in Chile”.
How much of the good results do you attribute to yourself?
“None. The company has more than 85,000 people, and no one could believe that the good results of such a large company operating in seven countries could depend on one person. That doesn’t make sense”.
Could these good results have been even better?
“There’s always space for improvement, but I’m very happy with what has been achieved, and even happier with what lies ahead”.
What is the weakest business today?
“All businesses have improved; all have had a positive dynamic, and most importantly, all have growth potential. We are pleased to see that the retail business has improved significantly, how people have returned to stores in large numbers, how they’ve returned to malls, and how omnichannel, which is an essential part of our strategy, is gaining strength every day”.
And how is 2025 looking?
“We believe that the foundations we’ve been building are solid. While we don’t expect 2025 to be significantly different from 2024 economically, we do expect a positive effect, especially in the case of department stores, with the influx of Argentinians coming to Chile. That does have an impact, but it’s specific to certain businesses. In that context, we expect to continue seeing improvements”.
If activity won’t be much different from 2024, should the results be similar this year?
“No, because we see businesses growing, not only in a disciplined way but also with costs well controlled, defending margins, and looking for opportunities”.
Was the change of logo color – and the return to green – symbolic?
“No, not so symbolic”.
What message were you trying to convey?
“The color change was part of the adjustments we made to our strategy: it had a purpose, and the intention was clear, which was to strengthen our value proposition in e-commerce, but that ended up causing confusion among our customers and also some unintended consequences in the business. What we wanted was to correct that”.
‘Our obsession is not Mercado Libre’
In your results presentation, you mention that in retail in Chile, in-store sales are growing more than online sales.
“All sales are growing. It’s a common factor, at least in the three main countries where we operate in retail: Colombia, Peru, and Chile. We are growing in both physical store sales and the online channel, and in all combinations, we see good expectations for the growth of our omnichannel offering. About 50% of what we sell online is picked up in our stores, which shows that customers value the value proposition we offer”.
How much does online sales represent today?
“It depends on the country, but in Chile, it’s almost 40% of department store sales. In the case of Sodimac and Tottus, the numbers are different, but they are all growing at attractive rates”.
Have you lost ground to Chinese platforms or Mercado Libre?
“It’s a fact that it’s an extremely competitive environment. We don’t just compete with Mercado Libre, but also with platforms like Temu, Shein, AliExpress. We also compete with other players like Almacenes París, Ripley, and supermarkets. We’re happy with where our e-commerce business is heading”.
I insist: Have you lost ground?
“The pandemic created a huge challenge for all retailers because the closure of stores and people staying at home caused a massive increase in demand for online business, and most companies struggled to respond. We were no exception. But after that, things started to normalize. We focused on moving as fast as possible to develop capabilities where we saw gaps and where it was important to advance quickly. That’s why the company invested a lot of resources and energy into developing those capabilities. What we see today is that it was the right decision, even though it impacted us at the time. Today, with a more normalized situation, we see that this development of capabilities is key to taking advantage of the opportunities the e-commerce business offers. We have our own strategy, with key aspects like omnichannel, brands, and our value proposition, which is not the same as what others offer”.
Are customers today more satisfied with companies like Mercado Libre?
“It depends on what you mean. Customers have the great advantage of having many competitors trying to add value. I think that’s great news for customers. Our obsession is not Mercado Libre and what they are doing: our obsession is what we can do, what our main advantages are, and how those advantages translate into better satisfying those customers, leading to sales and, hopefully, better profitability for the business”.
Are Chinese malls a strong competitor in the lower-income segments?
“We don’t focus much on the segments they target, but the competitive dynamics do influence things. Chinese malls are definitely becoming a growth factor, at least in general retail”.
‘Argentina is a developing story for us’
Has the sale of assets concluded?
“The criteria has been to divest assets that we do not consider essential for our business or, for example, in the case of Mall Plaza, that could be better managed by those who are specialists, like the deal we made in Peru. The second criterion is to divest assets where we don’t see a clear path to obtaining the minimum expected profitability. Those are the two criteria, and they are permanent”.
But there is no specific plan like the one announced in 2023.
“No. The two main transactions were the Mall Plaza one, which was completed and finished last year, and the second one with Parque Arauco regarding our Open Kennedy mall, which is progressing well”.
Are you now at a moment where you’ll begin growing inorganically as Falabella did for years?
“Falabella has great potential, and when we talk about potential, it’s not just about improving the business as it is today, but continuing to grow. The growth opportunities are within the markets where we currently operate. The improvement in our financial situation and the strategy we’ve defined going forward will give us the flexibility to hopefully take full advantage of these opportunities”.
Have you identified any opportunities?
“Yes, there are always opportunities. This is a dynamic market, and in every country where we operate, there are always opportunities. The important thing is to first be able to identify if they’re good opportunities and then have the capability to take advantage of them. Yes, Falabella is now in a much better position to take advantage of those opportunities”.
You’re in seven countries, but some of them represent less than 2% of sales. Does it make sense to be in Brazil, Uruguay, and Argentina?
“Right now, we’ve been focused on improving profitability, and we are happy with how profitability has improved in these three countries. That is the main focus. We are happy with their evolution…”
Has your perception of Argentina changed? Could you grow there again?
“We continue to observe the evolution of all our markets. Argentina is a developing story for us. We hope that the decisions and actions being taken will lead to an environment with more opportunities for growth in Argentina”.
When do you expect to regain investment grade? This year?
“The criteria and timelines of the rating agencies are not for us to control. The only thing we can control is focusing on what’s good for Falabella and the recovery, from a financial situation and ratings perspective, which has been quite remarkable. However, rating agencies always look for not just a change but a permanent and consistent one, and that’s what we are focused on. The most practical impact of this is the impact it has on the cost of financing, and fortunately, Falabella has never had any liquidity or insolvency problems, and we haven’t needed financing: on the contrary, we have been prepaying debt due to the good liquidity generation results”.
