Falabella Partners with Soriana for Mexico Expansion

On 15 April 2016, Chilean retailer SACI Falabella and Mexican grocery company Organización Soriana announced a joint venture, facilitating Falabella’s entrance into Mexico via the expansion of Falabella’s CMR financial services (including retail credit cards) and the development of Falabella’s home improvement specialist chain, Sodimac. The venture calls for the investment of approximately US$600 million over the next five years split between the two companies and to open 20 Sodimac outlets in Mexico.

Sodimac will enter a tough channel…

Sodimac’s 20 outlets in Mexico will compete against existing brands like Home Depot, which led home improvement and gardening stores with nearly 17% of value sales in 2015, Fix Ferrertías, and in the paint category, Comex. However, Mexico’s home improvement and gardening channel also has a very strong presence of independent players and remains highly fragmented. Overall sales of this channel to consumers are projected to remain fairly flat over the next five years, as the concept of DIY is fairly underdeveloped in Mexico relative to other countries and the channel will face an increasing threat from mixed retailers and internet retailing. As a result, a strong in-store experience will be key to drawing consumers.

…but Falabella is intent on Latin America expansion

Perhaps more significant than the launch of Sodimac outlets in Mexico is what the expansion means for Falabella and Soriana’s strategy, as well as what it indicates about the overall retail environment in Latin America. Falabella currently has presence in Argentina, Brazil, Colombia, Chile, Peru, and Uruguay, and Soriana is focused entirely on Mexico. There had been increased speculation in recent months that Falabella was looking to enter Mexico in light of uncertain economic performance in its current markets, most notably Brazil. Some have considered Falabella a potential buyer for Walmart’s Suburbia chain, an apparel and footwear specialist retailer in Mexico with over 100 outlets and nearly US$1 billion in sales in 2015; it is unclear what implications the venture with Soriana has on that possibility. The joint venture with Falabella is Soriana’s second recent major move, following its acquisition of 160 stores from Comercial Mexicana, another Mexican grocery chain, which was final as of January 2016, further signalling Soriana’s push to develop itself from a somewhat regional company concentrated in the northern part of Mexico into a national retail player.