MEXICO – When in 1998 the Falabella Group entered the home improvement market, it was in partnership with The Home Depot. Today, the Falabella Group becomes a serious threat to The Home Depot’s hegemony in Mexico, with the announcement that it’s entering this promising market through a joint venture with local retail leader Soriana.

Falabella’s incursion in the home improvement market was back in 1998 as it entered the Chilean market in partnership with the world’s segment leader, The Home Depot. The US retailer was attracted by Chile’s stable economy and the government’s support of foreign direct investment. Together they opened 7 Home Depot stores in Chile but in less than 4 years, in 2001, The Home Depot decided, because its of lack of financial success, to exit the Chilean market and sold its stake to partner Falabella. After buying out Home Depot’s stake in Chile, Falabella changed the stores name to Home Store. Two years later, in 2003, Falabella merges with Sodimac – its main competitor in the Chilean home improvement segment – and all stores involved in the merger gradually begin to operate under the Sodimac banner.

Fast forward to present time. By the end of FY 2015 Falabella’s home improvement business operated in Chile, Colombia, Peru, Argentina, Brazil and Uruguay with 247 stores, 1.7 million m2 of retail area and revenues of USD 5.3 billion.  Now, after the joint venture agreement with retailer Soriana, 20 Sodimac stores are to open in Mexico during a five-year period starting in mid 2017, with an investment of USD 600 million.

With a different strategy than its incursion in the Chilean market, in May 2001 The Home Depot entered the Mexican home improvement market with the acquisition of Total Home, a four-store chain. In 2002, the company acquired Del Norte, another four-store home improvement chain. The Home Depot increased its presence in Mexico in May 2004 with the acquisition of Home Mart, the second largest Mexican home improvement retailer. Under that transaction, The Home Depot acquired 20 Home Mart locations. Today Home Depot is the largest home improvement retailer in Mexico with estimated annual sales in 2015 of USD 2 billion and an estimated 17% market share in the category. It operates 115 stores in the country and 700 thousand m2 of sales area. The only other competitor in the large format segment is Lowe’s with 10 stores. Home DepotMexico has announced plans to invest close to USD 90 million to open 6 stores in 2016.

The Mexican home improvement market is very segmented with many small and informal competitors. The potential of the home improvement segment in Mexico is undoubtedly attractive in a mid to long term perspective. Not only is the big store home improvement segment underdeveloped compared to countries like Peru and Colombia, but also Mexico’s economic and retail outlook is among the brightest in the region as recently published by the Center for InternationalDevelopment at Harvard University which makes long term projections for GDP growth, and expects Mexico to have an average annual growth of 4.3% in the 2016-2024 period. Also in A.T Kearney’s 2015 Global Retail Development Index, Mexico is in the Top 30 countries in the world in terms of retail investment attractiveness.

In terms of a comparison between The Home Depot and Sodimac store formats, it can be argued that a noticeable difference is in the home furniture category that Sodimac carries in all its markets and The Home Depot does not in Mexico, otherwise the stores and associated services are very similar. It can be expected, as it has done in all markets it has entered, that Sodimac will carry the home furniture category in the Mexican market.