Chilean retailers have taken the offensive in response to the country’s favorable economic climate, the potential of new retail formats, and international opportunities.
Important Chilean retailers intend to invest $7.143 billion through 2017 according to a report in the business journal Pulso. According to the article, Falabella plans to make the largest investment of nearly $4 billion, expanding its already sizable retail portfolio to include 527 stores and 51 malls.
Cencosud’s anticipated investment of $1.169 billion, SMU’s anticipated investment of $1 billion, and Parque Arauco’s anticipated investment of $450 million follow.
Ripley, La Polar, and Hites, three additional significant retailers, plan to invest a total of $350 million, $150 million, and $101 million, respectively.
Strong economic growth, consumer credit availability, and rising consumer confidence all contribute to rising consumer demand, which is one of the factors driving the investment strategy. The $100 billion in planned mining investments in Chile have also opened up long-term opportunities for large retail formats in cities close to mining centers, which are expected to experience rapid population and economic growth and have low GLA per capita ratios.
Santiago has been characterized by rising levels of larger format saturation and longer commute times because of a sharp rise in car ownership and modest improvements in road routes. As a result, smaller formats have gained appeal, especially in brand-new residential areas that have grown away from central urban districts.
However, a sizable portion of the planned investment is going to cities outside of Chile. As they look to bring operational expertise to regions with strong economic growth prospects, lower retail penetration rates, consumer credit growth opportunities, and lower operating costs, Chilean retailers are already making inroads in a number of Latin American nations, including Argentina, Peru, Brazil, and Colombia. For instance, Falabella intends to enter Mexico, and Ripley reportedly plans to open 10 stores there.
Falling capital costs are yet another factor influencing capital-intensive expansion strategies. In 2012, the Chilean government issued sovereign bonds denominated in foreign currencies at historically low rates, which made it possible for businesses in the private sector to step up their global capital-raising efforts. Given the sizeable capital requirements of Chilean retailers and the sizable number of foreign investors looking to rebalance investment portfolios with exposure to potential higher growth markets, it would not be unexpected if a sizable portion of Chilean retail expansion plans were financed with foreign money.
The outlook for the retail sector has gained more optimism on the Chilean stock market. On the Santiago Stock Exchange, the Retail Index has increased by nearly 15% over the past year and by 7.45% over the past 30 days. However, it is highly likely that listed retailer stock prices will continue to fluctuate significantly in the future as businesses gradually expand their operations in a number of environments that have unpredictable economic growth patterns and high operational risks.