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After a year in which most Israeli fashion chains invested heavily in expansion and new branches, this year they are looking to international markets. A few of the leaders have already started setting up chain stores abroad and others are working on the infrastructure for overseas branches in 2005.

A few of the chains say international expansion is a matter of course, since in the past few years most of them have transferred their production to the Far East and the production capability allows them to expand operations to other countries.

Castro, Fox and ML (Matim Li) have fired the opening shots. Castro's first store outside Israel will open in Cologne in September. A few weeks ago Fox opened its first two stores in Singapore and looking into the possibility of opening a chain in Europe, Asia or Australia. ML is trying to expand the chain it opened in Cyprus, Greece, Romania and Turkey.

Now other Israeli fashion chains are busy setting up international operations. Honigman is negotiating to open branches of Honigman and TNT in Europe; Lee Cooper is developing a chain of stores in Romania and Serbia and is planning to open stores in Bosnia, Slovenia and Bulgaria; ZIP is opening its first two stores in Russia, in Moscow and St. Petersburg; Renuar has taken the first step to developing a chain overseas.

The expansion of the fashion chains outside Israel indicates they are near market saturation locally. "ML has exhausted its operations in Israel. We are focusing our activities, developing the brand from the perspective of collections and professionalism," says Avi Malka, CEO and owner of the chain. ML has 11 branches outside Israel, and Malka says the development of the chain abroad is tough due to the low exposure of Israeli brands. He believes that in the next few years all the Israeli fashion chains will develop international operations.

Harel Vizel, CEO of Fox fashions, says the chain still has growth potential in Israel, but admits that it has already reached 80 percent of this.

"We want to continue growing, which means going abroad," said Vizel. "We will invest the next six months in Singapore and after we establish ourselves will continue on to the next destination."

The stores in Singapore were set up as franchises, but in Europe Fox is planning to establish a chain by investing on its own or through a partnership. Castro CEO Gaby Rotter, on the other hand, says the decision to develop a chain abroad was not because the local potential was exhausted, but due to the strength of the company.

"Castro is a company that is capable of facing off against companies abroad and the time has com e to expand outside Israel," said Rotter.

The international plans of many of the chains were drawn up after they had opened 115 new branches in Israel in 2003. This expansion seemed too fast, particularly in a year when the economy was still treading water. The chains have slowed their momentum and have plans for 93 new branches in Israel this year, although 25 of these are by the Golf Group, which opened very few new branches of its subsidiaries (Golf and Co., Intima, Golf, Polgat and Sprint) in 2003. The other chains will be opening 68 new branches, compared to 101 in 2003.

The reduced momentum in opening new branches is consistent with decisions to focus their resources on developing international chains. Lee Cooper, for example, is operating two stores in Romania and one in Serbia, and CEO Gidi Goldfinger says this year he will open another 15 branches in Romania and 10-15 stores in Bosnia, Slovenia, and Bulgaria. He is now working on getting permits to open stores in the Czech Republic, Slovakia and Hungary, and is planning to open 6 branches in Israel.

Honigman is planning to open just 10 stores in Israel in 2004, compared to 22 in 2003. Owner and CEO Yaacov Honigman says the chain has made initial contacts to establish a chain in Europe in 2005.

Castro will be opening just 5 new stores in Israel in 2004, as Rotter says the companies' main focus this year will be on the successful development of the chain in Germany, where Castro plans to open 80 branches over the next 5 years, with a total investment of 5 million euro.

Rotter is cautious about prematurely declaring Israel a fashion power. "We're not Spain yet," he says. "When we have revenues in hundreds of millions of dollars from outside Israel, then we can compare Israel to Spain."