CEO Falabella - Oliver Wyman
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RETAIL & CONSUMER JOURNAL INTERVIEW
GASTON BOTTAZZINI
Falabella CEO
© Oliver Wyman 1RETAIL & CONSUMER JOURNAL INTERVIEW
Falabella is a diversified food and non-food retail comfortable with us continuing operations in
organization, operating in major Latin American our 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 we’ve exploded. So while until the beginning of 2020,
had to make to keep operations going. And given home delivery was something we mostly did
that we operate in very different segments — from internally with our resources — our own distribution
ACCELERATING
food to home improvement, electronics, and fashion centers and contracts with independent transport
— we’ve seen each of these segments impacted companies — we now had to adapt ourselves to
ADAPTATION AT
differently. Second, there was a permanent focus on work with third-party logistics companies to carry
how to maximize innovation while minimizing the out this operation.
PANDEMIC PACE
level of risk for our team.
To circle back on the split between the 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
operates — and lessons Gaston has The third area of focus was how to implement the electronics, DIY and fashion in particular were hit
learned from the experience. right safety protocols so that the authorities felt with downturns of 90 percent, and many non-food
© Oliver Wyman 2RETAIL & CONSUMER JOURNAL INTERVIEW
retailers were forced to close for long periods. And finally, home improvement, where we Department stores is where we were impacted the
Was that mirrored in Latin America? command a high market share, was a line of most in terms of margins, because demand shifted
business that did extremely well. People allocated to electronics and away from fashion.
Again, it was an evolving story. For food, we had more of their incomes to improving and renovating
a shift in channels, not a decrease in demand. their homes, partly because they‘re spending more There was the increased cost of delivery, which
Quite the contrary, sales in general were above prior time in them, which made them more aware of placed major pressure on margins. This meant we
years, as consumers no longer had the alternative the wear and tear that’s happened over time. The saw stable sales, but our results and margins were
of going out to restaurants. combination of seeing the issues and having a greatly affected.
lot of time at home to take care of them created
As for non-food segments, it’s hard to generalize. substantial demand for home improvement. So Did you cover a lot of the increased online volume
Fashion was hit very hard and continues to struggle. that‘s one sector where we saw online demand through third-party logistics (3PL) providers?
People reverted to basics, such as underwear and and home-improvement needs creating activity
shoes, and felt less comfortable buying higher- 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 quarter of 2020. So in terms of sales, the online delivery or was that mostly click-and-collect?
was very dependent on physical stores, it didn‘t channel almost completely replaced the offline
do well because people were uncomfortable channels. That led to a major explosion in home Food — which was both click-and-collect and
going into stores and interacting with delivery volumes. home delivery — is the one segment where stores
other people. remained open throughout the pandemic. Stores
In terms of margin, the story is very different, continued to present a large proportion of total
Another of our strong segments is health and though again it differs by segment. In food, sales and online also grew substantially. Another
beauty. Sales in that business decreased and the margin was stable. In home improvement, distribution system that saw rapid growth was on-
were hit, particularly in beauty. margins varied. demand delivery. On-demand delivery had already
© Oliver Wyman 3RETAIL & CONSUMER 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
one of the overlooked benefits of COVID-19 the past three years — and how far and fast will it Do you see a talent issue developing?
was that it provided volume for direct delivery. be changed?
However, the problem with direct delivery There are two things at work here. It‘s a talent
traditionally has been that it costs too much We feel the need to move at a fast pace, and not issue, of course, but it’s also a cultural issue that
money per unit to be delivered. But with rates just as a result of the pandemic. What is happening you’re trying to overcome.
of adoption having now doubled or tripled, he’s is that as the whole market is moving toward better
of the opinion that the economics of delivery solutions from a technological and logistics point Thinking about talent: There’s a shift in the profile
have fundamentally changed. Do you see of view. The consumer has become more willing to of the talent, you need to create engines of growth,
that happening? adopt these solutions. such as app development, direct marketing tools,
and business intelligence. We’re in the process of
The efficiency of on-demand delivery is driven both But the most relevant driver is the improvement recruiting those types of talent. In some cases, a
by the delivery and the picking economics. We are of the solutions. I see the solutions growing at a region like ours has a limited number of people
not seeing delivery economics improving much very fast rate and the competition becoming more that have that type of training. So, for example, we
as a result of volume. But the picking economics efficient, aiming to make shopping more consumer created a development hub in Bangalore, India,
have really improved as a result of the spike in friendly. Any players who are not moving at this which complements our technology organization in
volume, which has allowed for the construction of pace will be left behind. Chile, and helps us move much faster in terms of
dark stores. Without the volume, you cannot build developing technology solutions.
dark stores. In my own experience, one of the challenges
that retail organizations struggle with most as But that‘s only one capability profile where we have
How different do you think your channel structure they move in the direction of data analytics and been able to recruit the right type of talent. The
will be in three years compared to what it was in digitization is the profile of their workforce talent. other is cultural: The whole organization needs to
© Oliver Wyman 4RETAIL & CONSUMER JOURNAL INTERVIEW
be on board with these shifts. Therefore, people financing initially, but then it became focused The biggest surprise for me was the ability of a
need to be aware of how the online and physical on the transactional relationship and payment whole organization to work remotely, and to see
channels complement each other and how this solutions. Now it‘s aimed at the payment remote work actually help break some of the
is not a channel competition, but rather a set of experience both in-store and online, ultimately hierarchical and organizational barriers across
solutions that will make the customer’s life easier. complementing our retail offerings. our businesses. It made us more horizontal in
We’re making a great effort to train people in how our interactions and helped to boost some of the
these solutions work together. We have the Falabella Another example is when we look at the countries cultural changes that we were seeking.
Academy, where hundreds of associates learn about where we don‘t have all the pieces of our ecosystem,
technology and logistics, BI, data analytics, and how for example in Brazil, where we’re working with Can we assume that this is going to be a
all those capabilities help improve the business. third-party marketplaces. So, depending on the permanent change?
market, we will build different types of partnerships
If you look at China, there are retail ecosystems to complement our ecosystem, but our main focus I think one of the challenges ahead is to find out
that are built up around the entire portfolio of is on enhancing the businesses we operate. whether we can project the reality that we are
what people buy and do and how they entertain seeing now into the future. It‘s like when you build
themselves. And then on the other side is classic One more question about people. The biggest a dam in a river. You know the river will change
retail, for example the Amazon purchase of surprise for many business leaders has been just direction — and that once you remove the dam, the
Whole Foods, a relationship where each can how well they could operate with fewer associates river will return to its previous path.
learn and profit from each other. Do you see in the stores than ever before. Going forward,
that evolving in either your company or in many plan to have a dramatically leaner number We‘ve seen very drastic shifts over the last six
your continent? of associates in stores. Do you see that happening months. However, once we bring the COVID-19
in Latin America? barriers down, we will go to a new balance. But we
We are moving in that direction. It is not clear will not go back to where we were.
whether it will be through partnerships. But if In Latin America, we went through a very drastic
you think about our acquisition of Linio a couple reduction in overhead and then simplified our What is the one thing that keeps you up at night?
of years ago, an online marketplace, it meets our organizational structure. I think that same mentality
main objective. We aim to complement our retail of simplification is taking place in the stores, taking The main thing that keeps me up at night is the
business with a marketplace platform and as a advantage of technology to automate. That also need to increase the speed of execution. What
result, have a more attractive assortment and means people’s efforts can be invested to really add happened over the last six months brought a
better customer experience. value to the customer. great deal of pressure to rapidly react to shifts in
customer behavior. That pressure will not ease
Another example is the development of our What has been most surprising for you about the up as we move forward. We have very ambitious
financial services business. We concentrated on past six months? plans of putting our e-commerce under a common
© Oliver Wyman 5RETAIL & CONSUMER JOURNAL INTERVIEW
umbrella. So if there is one thing that keeps me up never have imagined. Had we moved faster in like Falabella and the rest of the retail and
at night, it is the question how fast we can execute building out a digital ecosystem and creating digital financing ecosystem. Our move toward creating
on all the different initiatives and if they can truly capabilities for our business, we would have been in a marketplace — of doing it not just with a view
improve the customer experience. a much better position during the pandemic. of improving assortment, but of opening up our
platform to entrepreneurs and small businesses —
What did you learn earlier in your career that What lessons do you hope to take with you is an example of how we can become a more useful
helped you to navigate these dangerous waters? moving forward, having gone through this very player in the overall ecosystem.
difficult time?
I actually began in the agriculture sector. From The issue of cooperation is something that is not
that experience, I learned that you have to stay on I think the one thing that helped us, and that I’d often mentioned, because every company is more
the course and not overreact to very short-term like to continue moving forward, is that intensive focused on its own survival. But I think cooperation
shifts. It‘s a bad idea to keep changing your actions levels of communication are very important. As between smaller and bigger companies can create
because it rained yesterday or because something organizations, we tend to underestimate the a better offer for the customer. We have a lot of
is happening with your next-door neighbor. importance of communication, we often feel like small businesses that wouldn‘t have survived if
we are repeating ourselves and get bored of our not for the marketplace business model, because
The pandemic has brought on a lot of changes, own message. they don‘t have an online channel. I think that the
some of them long-term, while others may pass us larger players becoming a channel for everyone is
by. Of course, you have to act in the short-term, but The reality is that organizations and markets take a extremely influential and important moving forward.
you also have to make sure you hold steady on your long time to digest those messages. So you need to
future plans. Constantly changing strategy is a very keep repeating them again and again, even when
bad idea. you feel like you are getting tired.
The other big takeaway for me, is the notion that Is there anything else you’d like to add?
you‘d better be prepared to confront the long-term
trends quickly, because events like the pandemic Going forward, we will see an acceleration of
can accelerate those trends in a way that you could greater cooperation between larger companies
© Oliver Wyman 6Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. In the Retail & Consumer Goods Practice, we draw on unrivaled customer and strategic insight and state-of-the-art analytical techniques to deliver better results for our clients. We understand what it takes to win in retail: An obsession with serving the customer, constant dedication to better execution, and a relentless drive to improve capabilities. We believe our hands on approach to making change happen is truly unique — and over the past 20 years, we’ve built our business by helping retailers build theirs. For more information, please visit: www.oliverwyman.com CONTACTS Sirko Siemssen Maria Miralles Frederic Thomas-Dupuis Global Retail & Consumer Goods Practice Leader, Retail & Consumer Goods Practice Lead, Retail & Consumer Goods Practice Lead, Germany EMEA and LatAm North America sirko.siemssen@oliverwyman.com maria.miralles@oliverwyman.com frederic.thomas-dupuis@oliverwyman.com Pedro Yip Ronan Gilhawley Rainer Muench Retail & Consumer Goods Practice Lead, Retail & Consumer Goods Practice Lead, Retail & Consumer Goods Practice Lead, Asia Australia and New Zealand Germany pedro.yip@oliverwyman.com ronan.gilhawley@oliverwyman.com rainer.muench@oliverwyman.com Nordal Cavadini Coen De Vuijst Eric Bach Retail & Consumer Goods Practice Lead, Retail & Consumer Goods Practice Lead, Retail & Consumer Goods Practice Lead, Switzerland The Netherlands and United Kingdom France nordal.cavadini@oliverwyman.com coen.devuijst@oliverwyman.com Eric.BACH@oliverwyman.com
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