Recession and foreign currency controls accelerate flight of international companies from Argentina

Argentina's retail business has lost the interest of major international chains. This time it was Falabella's turn to announce the closure of four of its large commercial stores, including Sodimac stores as well. Meanwhile, Walmart reportedly resumed its search for a financial partner to reduce its exposure in the country.

"Falabella is currently evaluating options for making its subsidiaries' operations in Argentina profitable, which could include the incorporation of a strategic partner," the company said in a statement, explaining that the pandemic accelerated the transition to digital commerce for its department stores.

The exodus is not new: Nike, Wrangler, Lee, and Panasonic have already left. In the aeronautical sector, Qatar Airlines, Emirates Air New Zeland, Norwegian, and Latam also announced their departure. While Starbucks and Burger King reduced their presence in the country.

Before the pandemic, Walmart had already delegated to Citi the task of finding a financial partner to reduce its exposure in Argentina, and with the coronavirus, the retail giant suspended the search, which would now have been resumed. In the meantime, a gradual process of detachment from brick and mortar stores throughout the country began, which went to the Día discount supermarket chain.

When it comes to deciding whether to keep a brand in the country, profitability in dollars is key, as well as the possibility of transferring profits to the parent company from which the investments were made. The combination of recession and foreign currency exchange controls affects both of these priorities for foreign companies. The decision, in other cases, responds to a global strategy of the company not to weaken its presence in other markets.

These are not the only foreign companies that have lost interest in Argentine retail: Nike, Wrangler, Lee, and Panasonic have already lost interest. In the aeronautical sector, Qatar Airlines, Emirates Air New Zeland, Norwegian, and Latam also announced their exit from Argentina due to the crisis that unleashed the pandemic in the sector and the poor outlook for the Argentine market. Starbucks and Burger King also reduced its presence in the country.

A study by the University of Avellaneda showed that the economy's monthly minimum wage had fallen from US$589 in December 2015 to US$268 in December 2019. Since then - and using the same exchange rate - it fell to less than $214 today. This shows the deterioration of the population's purchasing power and the low interest of retail companies in the country.

According to the latest figures from the Ministry of Labor, half of all formal workers were paid less than $956 gross ($793 out-of-pocket) in June.

Several other companies also decided to leave Argentina: Gerresheimer, the pharmaceutical packaging company, also left the country. And BASF, the German chemical manufacturer of automotive paints, announced in June that it was moving its operations to Brazil; its American competitor Axalta and industrial paints specialist PPG did the same. French auto parts company Saint Gobain Sekurit has already stopped producing windshields at its Mercedes factory in response to the decline in the automotive industry. And several plants suspended investment projects such as Ford and Volkswagen; Honda straight away suspended production.