Chilean Retail Trade: Integrated and International
Chile's largest retail stores are taking their integrated model of consumer goods and credit to other Latin American markets.
(24 January 2007) The past decade has seen the emergence of a group of Chile retail firms capable of halting the efforts of international corporations to enter the domestic market. At the same time, major Chilean retail stores have been successful in developing a complex new model of integrated trade and expanding this to neighbouring countries.
In a context of economic expansion and growing consumption, retail trade in Chile faces intense competition in a small domestic market. The response of leading national retail chain stores has been to develop a new kind of enterprise: integrated retail trade. This is the analysis of Álvaro Calderón Hoffmann, Economic Affairs Officer in ECLAC's Investment and Corporate Strategies Unit, in the article El modelo de expansión de las grandes cadenas minoristas chilenas ("Expansion Model of Chile's Large Retail Chain Stores"), published in Revista de la CEPAL N° 90. (spanish only at this moment).
Calderón describes this new Chilean model of integrated retail services, which is based on six pillars: department stores, home improvement stores, supermarkets, administration of credit cards, financial services offered through the retail firms' own banks, and real estate development. Completing the model is the provision of a wide range of products, including travel, banking and insurance services, all available in one-stop-shopping.
Given the limitations of the domestic market, leading Chilean retail firms realized that they could not achieve adequate scales of operations by working in a single segment of the retail industry. As a result, they began to diversify and broaden their product lines to create synergies among diverse but related businesses.
This strategy provided Chilean firms such as Falabella, Cencosud, Ripley and Farmacias Ahumada with the solid grounding in local markets from which to withstand the onslaught of international retail corporations attempting to enter the Chilean market. Foreign companies underestimated the capacity of Chilean businesses to react and many have ended up abandoning the domestic market.
Moreover, at the first sign of saturation in the local market, these Chilean retail firms successful sought new opportunities for growth abroad, primarily in neighbouring Argentina and Peru.
According to the author, the success of this Chilean model rests on a combination of factors: the best practices of international retail chains, familiarity with local conditions, a diversified product line that includes banking services, and the ability to survive in a highly competitive market.