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Falabella Growth Options in Uncertain Times Case Solution

Solution Id Length Case Author Case Publisher
2401 2319 Words (9 Pages) Jorge Tarzijan Ivey Publishing : 9B20M205
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The better off test signifies an organization being able to acquire a competitive advantage which would be created due to a one off or a continuous form of activity which would be be compared with the existing levels of activity. While the test in itself is beneficial, it is unable to provide enough of an insight which focuses on whether there is value to it. For that, there has to be a focus on the resources within the value chain of the organization. 

Following questions are answered in this case study solution

  1. Using the better off test, evaluate the decision of Falabella department stores to enter in the credit card business. Explain your answer.

  2. Evaluate the decision to enter into shopping malls.

    a. Evaluate this decision at the time it was made, in 2003.

    b. The case takes place in 2020. How, if at all, is the environment different in 2020 than 2003?

    c. Regardless of your answer to (b), develop a logic for divesting the position in shopping malls. Would you advise this? If yes, why? If no, what would have to be true for this to be the right choice? What do you think will be the biggest hurdle to the divestiture going through, and how would you solve it?

  3. Consider the online threat from businesses like Amazon and Alibaba.

    a. Does Falabella’s current strategy protect against Amazon and Alibaba? Why or why not?

    b. Falabella could further invest in its marketplace business to counter the threat. What are the existing and potential sources of synergies that would result from focusing on its own marketplaces?

    c. What are the risks of such a strategy?

    d. Do you recommend greater investment? Explain your answer.

    e. Assume that Falabella increases investments on its own website. Is this a threat to Cencosud? Why or why not? How would you expect Cencosud to respond?

  4. What is the impact on the organization’s structure from keeping Linio separate from its own web presence separate (assume Falabella purchased Linio and has kept it separate)? Do you recommend that it merge the two? Why or why not?

  5. Assume Falabella wishes to open its marketplaces to suppliers. Should those suppliers be its existing suppliers only, or should Falabella open the market to any suppliers? Explain your answer, including why the other answer is not as good.

  6. Ignore your answers to questions 3-5 (meaning, assume the status quo in the case (ie, no increased investments, only existing investments).

    a. Evaluate the opportunity to acquire Mercado Libre.

    b. Could the same benefits be made with a non-equity alliance? Why or why not?

Case Analysis for Falabella Growth Options in Uncertain Times Case Solution

For an organization which has grown over more than a century from a tailor shop, the organization has not been a stranger to building up and acquiring different specialties in order to remain competitive within the market. By shifting towards their credit card division, they were able to answer the question of whether the combination of having a financial credit service within a corporation based in Chile which offered a wide range of products and services in five business divisions in seven countries. Based on the results they were able to generate, the group was able to build a financial history with a new client, and by offering them a small credit line, they were able to create a credit history with their clients which used to be updated quite often. Due to the regular streams of data coming their way, their competitive advantage meant they were able to amass a significant pool of information which would help them serve their customers better. Even though they continued working with VISA and Mastercard later on, their competitive advantage allowed them to have more than 5.5 million accounts by the end of 2019. 

2. Evaluate the decision to enter into shopping malls.

a. Evaluate this decision at the time it was made, in 2003.

The decision to build the Shopping centers in 2003 was a substantial one, as it allowed the organization to sell their goods within their own shopping malls. Since the company had an increasing share of goods in its own name, the company had been able to utilize this as creating department stores within Falabella owned shopping malls. By doing so, they were able to provide the market customers with an increasing inclination towards purchasing different goods and services from the same time. Secondly, the timing of Falabella was important to consider, as before their entrance there was only one mall in Chile; Parque Arauco. It was a logical step to obtain a controlling stake of the Mall Group group, known as the equity stake, allows companies to control the actions of their partners, monitor performance better, and align the interests of the two firms more closely as it allowed them to understand and develop alongside the group over a period of time (Dyer, Kale, & Singh, 2004). This is better than straight up acquisition of a business where the Falabella had no experience to deal with. If the Mall Group acquisition would have fallen through, the company would have had to deal with a much larger write off in their books.

b. The case takes place in 2020. How, if at all, is the environment different in 2020 than 2003?

For the organization to succeed in 2020, it would have had to contend with a greater number of competition from other shopping centers and the malls of similar kind. This is because as it had to grow from 2003 to 2020, it was able to acquire the remaining market share that it took the organization 17 years to build, that too with the help of the Mall Plaza group. It is not necessary that the organization would find the market as easy to enter as well in 2020 as well.

c. Regardless of your answer to (b), develop a logic for divesting the position in shopping malls. Would you advise this? If yes, why? If no, what would have to be true for this to be the right choice? What do you think will be the biggest hurdle to the divestiture going through, and how would you solve it?

Divestures generally have a negative connotation, and companies are reluctant to have their branches cut off, especially the ones which are profitable. Consideing the seventeen year progress, the company has been able to achieve a steady level of cashflow from the shopping malls. However, there are a couple of factors which would need to be kept in mind. The first one is obviously the impact of COVID-19. Due to the pandemic, the organization’s rating had fallen from BBB+ to BBB, due to the increasing loans and the fall in physical sales which could not be compensated by the online sales. For the organization such as Farabella to consider taking a step towards divesture, it would need to have a cost-benefit analysis based on:

  1. The Organization’s perception of Stability and Slow growth sectors and companies.

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