JERUSALEM — The two lightly tanned, chestnut-haired models came out from behind the dressing screen, displaying the worn blue jeans and jackets that may be part of next summer’s Castro Model Ltd. collection.
“What’s with the hemming?” asked Gabriel Rotter, Castro’s co-managing director, pointing at the unfinished hem on one of the pairs of jeans.
“That’s something we’re trying to figure out,” explained Etti Rotter, co-managing director who is also married to Rotter and is the daughter of Aharon Castro, the company founder, who ran the business with his wife, Lina, for nearly 30 years.
The other critics in the room, which is filled with racks stuffed with clothing, were Castro’s own design team, a gathering of the half-dozen men and women who helped determine whether peasant blouses are in this spring and out next summer.
“Think about it,” said Etti Rotter, a tall, vivacious figure dressed simply in a white top and black pants who popped open a bottle of champagne to welcome the 2003 collection. “We’re already planning for next summer.” It’s all part of the Castro code: Analyze, plan, optimize and communicate. And whenever possible, retain the feeling of a family-owned business.
When Aharon Castro first opened a dress shop on Allenby Road in Tel Aviv in 1950, the first thing he did was recruit his mother, Anina, a well known dressmaker who ran her own design salon out of the family’s apartment. At the time, the goal was quality, stylish, ready-made clothing at a reasonable price. The business flourished, helped along by the relative lack of competition in the local fashion industry, government incentives and targeted marketing.
By the late 1980s, however, Castro’s decision to export to Europe and the U.S. backfired when an economic crisis in Europe forced the company to lower prices and soaring inflation ate into their profits. When Etti, and then Gabi Rotter, joined the business, the plan was to close the company. Instead, they restructured and reorganized and by 1997 had developed an entirely new business strategy: outsourcing their production and redefining their brand name.
“It took us a while to figure out what to do,” said Gabi Rotter. “We didn’t want to make a warehouse or an Israeli Zara,” referring to the Spanish clothing chain that has nine stores in the country.
Castro reinvented itself as a fashion company, but competition was somewhat fierce during that time, particularly from the growing number of imported fashion chains, including Zara, Kookai and Mango. One option was to bring in their own foreign chain, which they did with Italy’s Stefanel. But Zara and Mango’s ability to sell stylish clothing at competitive prices crystallized the need for Castro to move production abroad.
With 80 percent of their production line outside of Israel, they have cut their manufacturing costs by using cheaper labor in China, Hong Kong, Portugal, Spain, Turkey, Poland and India.
At first, the global production switch created a logistical nightmare, having to make sure that each item of a design line — from a simple sandal to a pair of jeans and tiny emblem-emblazoned T-shirt — made in five different countries would get shipped to Israel and end up in all the stores at the same time.
It took four years to create a smooth process. Clearly, it was the right decision. Manufacturing abroad significantly lowers Castro’s production costs compared to local manufacturers, says Yuval Zaira, an analyst at I.B.I. Ltd., in a May report covering Castro’s first-quarter 2002 results.
There is local competition as well, specifically from the 76-store Fox fashion chain, which is an aggressive competitor to Castro, offering simple, inexpensive casual wear for the youth market. Fox is also planning to open a chain of men’s stores, similar to the Castro Men chain, which currently stands at 26 stores.
Competition, however, is a good thing, said Rotter. It helped create a more mature Israeli fashion industry, and made Castro refocus its direction and strategy.
The company now spends more money on developing its brand name and marketing its products with building-size billboards in Tel Aviv. These days, the red-and-white Castro label is one of the most recognized in the country, adorning 70 stores and symbolizing trendy, fashionable but affordable designs for the Israeli consumer. More importantly, however, the annual and quarterly results of the Tel Aviv Stock Exchange-traded company reflect Castro’s structural changes.
In the first quarter of 2002, the publicly traded company reported $1.24 million in revenue, up from $1.14 million during the same quarter last year. Revenue for 2001 totaled $4.7 million, an increase from $4.16 million in 2000. The company’s shares are currently selling at around $5.58 million, the upper end of the 12-month period in which the share price ranged from $3.82 million to $4.7 million.
That kind of growth is “sizzling” during a period when the market is in a recession, consumer buying is down and the security situation is affecting the number of buyers in malls and shopping centers, added I.B.I’s Zaira, who recommended purchasing Castro shares, given the company’s estimated growth of 4 percent for 2003, increasing revenues to $5 million and 95 cents per share.
The financial results for April surprised Rotter, who expected that the continual suicide bombings and Operation Defensive Shield would result in far fewer shoppers.
“We take the risk factor into account and we expand slowly,” described Rotter. “We’re industrious, we work hard, and we’re committed.”