Olympic-sized fashion

According to Gaby Rotter, the clothing retail chain Castro’s CEO, “At the end of the day it’s an ecological process and only the fittest survive.” Castro’s latest collection has just had its unveiling – all sharp white suits and natty striped polos teamed with specially designed trainers. Not quite what you’d expect from a major fashion house gearing up for the winter season, but this is not an ordinary launch – this is the Castro Olympic Collection. The pieces – white suits for both men and women, with the option of a three-quarter-length pant – have the dignity “of something that has to represent a nation” but at the same the flavor of the house of Castro. “It’s all about the cut and how it looks,” says designer Assaf Biton. “The colors were inspired by the national flag.” The process of producing the uniform is the antithesis of how the company works to produce the fashion collections that are sold through its 130-plus retail outlets. Sportsmen by nature have non-standard physiques, and as such every athlete has to be fitted and tailored individually, resulting in a process that takes up to 18 months. In some senses, this detailed kind of work has more in common with the humble beginnings of the company which lay in the dressmaking business belonging to the mother of founder Aharon Castro. But the business has changed dramatically in its almost 60-year history. The Castro of 2008 is a lean, mean fashion-producing machine with state-of-the-art logistic centers in both Israel and Holland, a global manufacturing base, and a sophisticated retail and marketing team adept at tapping the pulse of the fashion-forward Israeli shopper. The journey itself hasn’t been straightforward. By his own admission, CEO Gaby Rotter, son-in-law of Aharon Castro, joined the company in 1980 to help close down the business. By that stage, the company, which had exploded during the ’60s and ’70s as a supplier to some of the country’s most prestigious stores, was bleeding profusely as a result of rampant local inflation and a financial crisis in Europe that was impacting its export business. So what happened? Says Rotter: “I come from a family which says if you have a business, a customer who is buying from it and a supplier that is willing to give you credit, you find a way to make it work.” So he spent the early years of his involvement riding out the economic storm and learning the ropes from his father-in-law. By the time things stabilized in the mid-1980s, the family had decided to keep moving forward and, as Rotter puts it, “the rest is history.” In the 20 or so years since then, several strategic decisions and changes in the local landscape have shaped the Castro of today. “First,” says Rotter, “was the decision to switch the focus of operations from wholesale to retail. In the end, we realized that you have to have direct contact with the consumer. Before that, we never really knew what the customer actually wanted or how much he really liked the product.” The group’s reentry into the retail sector began in 1985 and an aggressive expansion campaign throughout the ’90s saw the chain grow to more than 130 stores that employ in excess of 1,500 people worldwide. Just as significant, says Rotter, was the 1997 decision by the government to drastically reduce import duties on textiles, which in some cases ran as high as 42 percent. Almost overnight the company’s dominant position in the local fashion market came under threat from international chains keen for a piece of the Israeli fashion retail pie. Castro responded with an extensive reorganization that included the discontinuation of a majority of local manufacturing in favor of production in places like Turkey, China, and India. “If we hadn’t embraced these sorts of changes, we wouldn’t be around today, particularly given the problems in the historical centers of production: the West Bank and Gaza,” Rotter says. For Castro the resultant global production has benefits: “We are now able to produce the product where it’s best for the product – there are just some items that can only be done with the right integrity if you do them in a particular country, and I’m proud that we’re doing it. There is no other way to bring this kind of richness to the collection.” Rotter also reflects on the competition that came with the drop in import duties, citing the onslaught from international powerhouses like Zara as having been beneficial to the company. “It pushed us because it made us institute a lot of changes. To the ones who can move forward, competition is inherently a good thing because you find ways of doing things that you wouldn’t if you were in a non-crisis situation. For those who can’t meet this challenge, it’s not good. At the end of the day, it’s an ecological process and only the fittest survive.” In addition to the move from wholesale to retail and the opening up of the Israeli market, two more significant recent developments have shaped Castro – the move into menswear and the company’s decision to focus on marketing and branding. Until 2000 Castro was focused solely on the womenswear market, but that September it opened seven shops under the name “Castro Man.” Israeli men quickly embraced it; today, the 40-store chain is one of the dominant players in the market. FOR ROTTER, the beginning of the 1980s was the start of the company’s real appreciation of branding and the need for a powerful marketing message. It started with large billboards on the Ayalon Freeway and then eventually moved into television when the country first allowed commercial advertising in the early ’90s. “It seemed ludicrous at first,” he recalls. “Until that point, our main advertising cost $5,000 to produce, and all of a sudden we were considering spending $100,000 just to make the commercial, not to mention the media buy on top. Also, at that time no one really understood what you were getting for the money; there were no ratings.” But the company pushed ahead and its first ad remains an iconic part of the country’s advertising history. Castro advertising has continued to make a splash and remains an integral part of the local advertising landscape. Dudi Balsar considered the country’s first male supermodel, got his start as the face of Castro Man. One ad, which featured a clothed Balsar being followed off a nude beach by a bevy of beauties, was deemed too risque for television and was relegated to the Internet. More than 700,000 hits were recorded, an extraordinary number for the time. According to vice president of marketing Ifat Karni, it’s a “constant challenge to tell each new fashion story in an innovative, breakthrough manner while ensuring that the campaign retains the Castro flavor. When we crack this challenge it’s tremendous.” For Karni, the early summer 08 menswear Bermuda shorts campaign is a prime example of achieving that balance. The company passed over the traditional 30-second TV spot in favor of a Web-based campaign that featured house model Yonatan Wegman wearing the Bermudas at a variety of events – from the beach to an evening out. According to Karni, the campaign was a huge success. Reticent to share statistics (it’s against company policy to release the data), she does say the campaign boosted sales by about 30%. Both Rotter and Karni concur that the old adage “product is king” holds true in their business. “The marketing enhances the message but first it’s about the product,” says Karni. “In fashion retail, you tell a story with the marketing, but then the customer comes to your store and meets the product. If he loves it and enjoys wearing it and then gets compliments, he comes back and you’re a success. If he doesn’t meet it in the store, he will be numb to any marketing he sees afterward.” As part of its marketing Castro promises “a new collection every day.” Rotter is adamant that this is not just hype. “All our business systems are planned around weeks and days of dispatch. Even though there is a seasonal framework, our focus is a computerized collection book that allows us to ensure that we have a relevant collection for each week. Because the collection is very fashionable, it’s not easy and actually complicates the solution in a sense, but it gives us a big advantage.” STATE-OF-THE-ART merchandising aside, the culture of design is still very much alive and thriving at the House of Castro. While Karni and Rotter speak about systems, numbers, and markets, Assaf Biton, senior menswear designer, talks of inspiration: “For us as designers, our work reflects our universe and the world around us – exhibitions, books, cinema, people surrounding us, our trips around the world. In a way, all these form our design inspiration and our tools to create. “Each season begins with a gathering of all the designers outside the office, which is aimed at getting us out of our everyday environment. We speak about our inspiration, our interests, and what we think is the next big thing. Only then do we start to create.” There are four designers on the menswear team, and after setting the direction for the season, each gets to work in coming up with a line that will reflect their unified vision. Biton is responsible for “City” (the dressier end of the collection). His three counterparts work respectively on “Trend” (younger, “going out” clothes), “Vintage” (the more casual collegiate look), and “Jeanswear and Shoes.” The women’s business is divided among similar lines. Biton emphasizes that throughout the process, there remains a very strong team element. “People don’t go into a store to buy a line, they choose the garments that suit their personality. Today people mix a lot of things together to create a personal style, and so everything needs to work together in the store at the same time.” The designers’ work doesn’t stand on its own but in the end, has to be filtered back through the business funnel. Once the creative process is over, the designers present their work to a panel that includes the CEO, the collection manager, and sales representatives. “Part of your job as a designer is convincing the commercial people you want to have a certain item in store. You need to explain yourself and your work and why you think it will be so strong,” Biton says. Rotter categorizes the work that comes out of this process as “urban casual” and something that is quite different from the international players whom he regards as Castro’s main competition. “We all look at the same journals, the same forecasting reports and travel to the same key centers to see what’s happening, but we translate it through an Israeli eye. The whole design team is Israeli means all those trends get sifted through a different filter.” Since 2003 the company has been banking on the fact that this difference will also appeal to customers abroad: first by opening stores in Germany and more recently in Russia, Switzerland, Ukraine, Romania, Latvia, and Thailand – some 30 stores in total. According to Rotter expansion abroad was a necessary component of long-term profitability. “This market can’t give you the economies of scale you need to absorb the cost. You need volume.” He is frank about the difficulties in making it a success. “We were a very localized organization, and we had to make a lot of adjustments and changes in all aspects of the business. There were a lot of changes we had to make. It took us time until we were able to do the new collection every day there and to provide the logistic support. With our new distribution center in the Netherlands, we’re poised to overcome much of this.” Castro also faced a challenge exporting the culture of the brand. Rotter cites Germany as a prime example. “They don’t approach customers, and with our brand it’s essential.” He acknowledges that the path ahead will continue to be challenging. “It’s still not simply because we’re not in easy markets. The brand is also not a known identity. We plan to continue building abroad, but it will be a process and it will take a long time until we become successful and reach the level of confidence to start expanding quickly. We are on a learning curve.” Europe remains the priority for the group. Of the company’s foray into Thailand, Rotter says, “It’s something we did on the way because the opportunity arose, but in hindsight maybe it was premature.” He is frank about the fact that last year was tough. Despite consistent growth in sales revenue over the last couple of years, brought about predominantly by new store openings, the group’s overall operating profit dropped by 3.8%. Increases in rents and wage costs affected the business. Net profits were even more significantly impacted. A drop of 31.6% resulted from a number of external factors. Rotter nonetheless remains upbeat and considers Castro’s net profit of nearly NIS 31 million more than respectable, given the challenges faced in 2007. Key indicators also show that the company, listed on the Tel Aviv Stock Exchange with a market value of NIS 300m., is in a very solid financial position. There are challenges ahead for the group. “We are living in an environment which is not stable,” Rotter says. “We are feeling a certain ambiguity in the climate and don’t know how much the financial crisis in the world will influence Israel and what the real implications of the macro situation will be on the demands in our local market. As yet we haven’t felt it; it’s not showing in sales. In fact, we already have an increase in 2007, but still, we don’t know the implications for the future.” But he appears unfazed by all this uncertainty. He and the company he has helped steer for almost 30 years seem to relish the opportunity to overcome the challenges thrown at them, something we also hope for from our Olympians.

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