Dear Shareholders:
In these 130 years, Falabella has become part of the Chilean and Regional history. We have brought products from around the world to millions of customers, improving their quality of life, providing them with access to good quality goods and services, and at low prices. Our shopping malls have become the new parks of cities, creating meeting and entertainment spaces. We have helped to bring banking to the population and democratize loans and consumption. The leadership achieved has been obtained through conviction and execution consistency, supported by innovation and adaptation to various environments. These achievements have been possible thanks to the vision and drive of many people working in the company in the past, and the current support of more than 100,000 collaborators, helping us to surprise our customers, daily. We have a lot to be proud of.
During these 130 years of history we have faced many challenges. Today, we need to tackle a new revolution: the digital one. Falabella has been betting for years that e-commerce will be relevant for our customers. That is why we have been making significant investments for a long time, to be the leaders of e-commerce in the Region. Six years ago, investment in technology and logistics accounted for 26% of the group’s capex. Today, it reaches 36%. In 2019, we sold more than US$ 1,200 million in products via e-commerce, and more than US$ 1,330 million in financial products through digital channels. We believe in the increasing relevance of digital channels. However, we also believe these will not replace the store experience. The e-commerce is complemented by and integrated with physical commerce. In countries more digitized than those in Latin America, physical stores help attract new customers, increase brand awareness and therefore brand choosing, facilitate product deliveries, and especially product returns. The hallmark of our work in physical stores will be adapting them for this new scenario, digitizing the customer’s shopping experience to provide them with greater added value, and reducing friction of interactions. We will focus investments on remodeling our best stores and renovating our leading shopping centers. This combination of digitizing the company and betting on e-commerce, leveraged on a network of stores, shopping malls and logistics distribution centers, is what builds the Falabella physical-digital ecosystem. We promote our wide and differentiated product offer with a model that creates permanent relationships over time, allowing us to understand our customers’ behavior and needs. We have a leading loyalty program which rewards our customers and offers various payment, financing and product shipping alternatives. We create a unique relationship experience with our customers, which is more personalized, more attractive and involving less friction, and in this way we simplify their lives by transforming their shopping experiences. We believe that this supply and relationship fashion will be preferred by the market. This process of evolution and change has had material costs and has resulted in necessary cultural transformations within Falabella. It has been difficult to overcome the inertia; however, we have achieved the appropriate changing speed. We continue our work, on building cross-cutting capabilities and platforms for the entire organization. We are making progress and these efforts are already bearing results, which I am sure will help us further scale the company, generating greater efficiencies for the future.
Since October 18th, 2019, we have faced very difficult moments in Chile, which have had an impact on our company. We have made the greatest efforts to protect our collaborators, customers, suppliers and facilities. We managed keeping most of our stores, branches and shopping centers open in order to serve our customers, providing business continuity to our suppliers, thus supporting the recovery of the country’s operation. History shows us that solid companies survive difficult times, and in crisis times, such look for opportunities. By acting seriously, responsibly and professionally, we will overcome these moments and deepen our leadership. Higher investments in technology and logistics bring new expenses. To dampen their effect, this year we have made significant savings at all levels, focusing and simplifying the company in its main businesses, centralizing support areas and adapting to the new circumstances that we believe will remain at our side. Despite these efforts, we were unable to compensate for the drop in sales and margins as a result of the increase in promotional activity and informality occurring in the market. We hope the results of these savings will be reflected in the short term. Our international development remains dynamic, consistent with our expansion and diversification strategy in the Region. Our efforts are mainly focused on Mexico, where along with our partners, we continue to expand both the Sodimac Homecenter format and our financial services. Furthermore, we will continue to grow our supermarkets network in Peru and develop new shopping centers in Colombia.
Another of our great projects for this year and the next is the development of Ikea in Chile, Peru and Colombia. In 2019, we continued strengthening our corporate governance, increasing transparency in our operations. We have continued investing and improving on the company’s operational controls and cybersecurity levels. Falabella is committed with the promotion of meritocracy and inclusion by gender, age, nationality, or race. We respect minorities and seek to act as a responsible and caring company with our communities and SMB suppliers. We’ve maintained support on the various programs we have in regards to education for children, reconstruction of neighborhoods, training for professionals, incentives for innovation and entrepreneurship, among many other initiatives. In turn, we are increasingly aware of environmental care, so we will continue working to operate with less impact on the environment. We are proud to be part of the DJSI as one of the best global retailers. We will continue going forward along the charted path with even greater speed, with the same conviction and professional work which has characterized us in our long history. I am convinced that we will consolidate Falabella’s leadership in the region’s commerce, building a digital-physical ecosystem that captivates our customers. To finalize, I want to thank our clients, collaborators, suppliers and shareholders for their trust in Falabella. It is in these times when we are all required to work together in pursuit of a common purpose, to improve life in our Region.
Carlo Solari Donaggio
Chairman