The American Who Gave Israel's Top Underwear Firm a New Look

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An ad for Calvin Klein Concept underwear collection, which is produced by Israeli brand Delta.Credit: courtesy

A tour of Delta Galil Industries in the northern town of Carmiel with its CEO, Isaac Dabah, shows how meaningless national borders are when it comes to making money. The American Jewish businessman, whose parents fled to Jerusalem from Syria in 1948, was in Israel on one of his very regular visits here. In fact Dabah was born in Jerusalem and lived in Israel until age 10.

He was joined on the tour of the Delta textile factory by his Argentine-born wife, who is also of Syrian background. As he made his way around the facility, he shook hands and chatted with its diverse workforce of Druze, Christian and Bedouin Arabs as well as the small number of Jews on the factory floor. Jews, however, are predominant in the upper levels of management.

But the heterogeneous nature of the Carmiel plant’s staff is just the tip of the iceberg. The designs for men’s, women’s and children’s apparel developed here are manufactured in Egypt, Turkey, China, and Bangladesh and then sold as far afield as the United States, Germany, France, Britain — and, of course, Israel.

Dabah accumulated almost all of his Delta stock between 2005 and 2008 for a total of about $100 million. Since 2007, the company’s stock price has soared 300% turning him (on paper at least) into a billionaire in shekel terms. As of Sunday, when Delta shares closed up 1.7% at 102.80 shekels ($29.84) in Tel Aviv Stock Exchange trading, his 55% stake was worth about 1.4 billion shekels. On top of that, Dabah has collected about $36 million in dividends and as CEO draws a salary that last year alone amounted to nearly 7 million shekels.

Dabah says this is just the beginning for the Delta, whose product lines spans from women’s underwear and bras to socks, baby clothing, sleepwear and knitted fabrics. By Israeli standards, Delta is a medium-sized company and by American ones is still quite small, but Dabah aspires to join the global textile and garment industry’s top 10 players. That’s a tall order: Delta’s sales this year are expected to surpass the billion-dollar mark for the first time, but that’s less than one-tenth of the $11 billion that Vanity Fair, the No. 1 company in the industry, sells every year, he notes.

“In Delta’s life cycle, we’re at the end of the first stage of recovery and stabilization,” Dabah says. “We haven’t yet reached 10% profit margins, but we’ll get there.” What’s in store in the second stage? “Making a major acquisition of a company with annual sales of $1.5 billion to $2 billion,” he answers, hinting that nothing is imminent. It’s a sellers’ market and not an opportune time to be looking for acquisitions.

After racking up accumulated losses of $70 million between 2005 and 2008, Delta has reported 18 consecutive quarters of sales growth and is turning a profit of about $50 million a year. Understanding how that turnaround came about requires a little background.

Dov Lautman, a young Israeli engineering graduate of the Massachusetts Institute of Technology, founded Delta in 1975 in Carmiel and turned his company into the standard bearer of the Israeli textile sector, with factories around the world. It was hit hard, however, in the 1990s, when the global textile market was flooded with inexpensive garments from China. Delta shuttered factories in Canada, Honduras, the United States, Britain, Ireland and Israel, and transferred a substantial portion of its manufacturing to Jordan. But that was not enough.

“Outside of Israel, it was easy for us to close the factories, but in Israel, it was difficult for Dov to close them. He would always say ‘first let’s shut down in other places.’ Every [Israeli] whom he would lay off would come to the company’s offices at Textile House in Tel Aviv in tears. They were the people who started to work with him back in 1975, and as a result, the streamlining process was carried out too slowly,” recalls Yossi Hajaj, Delta’s chief financial officer. “When Isaac arrived in 2007, he sped it up. He told me: ‘Give out expanded severance pay, whatever it will cost, just as long as we finish with this.’”

The industry crisis forced textile companies in the United States and Europe to change their business models. In Israel, the industry laid off tens of thousands of workers; the only companies that survived were the ones that evolved to more sophisticated products and/or branding. Among them, Delta made the switch most successfully.

It’s hard to explain the turnaround there without a nod to Dabah, who gradually took over the controls at Delta as he acquired a controlling stake while at the same time working in concert with Lautman. A testament to the smooth transition he orchestrated is the fact that a large portion of senior management has stayed through the years. Lautman, who was a major figure on the Israeli industrial scene even after his departure from Delta, died last year after a long battle with ALS, Lou Gehrig’s disease.

Dabah brought with him the ability to set targets for Delta and see to it that they are carried out. For instance, the company had not been known for meeting supply deadlines, a problem in an industry marked by rapidly changing fashions. Dabah began to demand managers be assessed on their ability to deliver orders on time rather than by how many products they had sold. In 2007, only 75% of orders were filled on time, but by 2009, the rate had jumped to 95%.

The name behind Nike

Delta also changed its branding focus. When Dabah arrived only 20% of its products were being sold under international brands; today fully 50% of its undergarments are sold under such leading names as Lacoste, Nike and Tommy Hilfiger. In the United States, about half of its sales are of non-brand merchandise through major retailers such as Walmart. The only country where Delta has its own retail stores under its own brand name is Israel. The old plant in Carmiel is undergoing renovations to turn it into a center of operations for the new Delta, where the company can more fittingly receive representatives from the global brands that it works with.

Although most of the efficiency measures instituted at Delta were carried out five years ago, sales growth has come principally from a series of acquisitions under Dabah, including the Israeli company Lodzia Rotex, as well as the U.S. companies Little Miss Matched and Karen Neuburger, acquired in 2012 and 2011, respectively. In 2012, Delta also acquired the German maker of undergarments Schiesser for $85 million, its biggest acquisition to date. “Now we’ve secured the franchise to produce all of Lacoste’s undergarments all over the world, and Schiesser will be the one to launch Lacoste in Germany,” Dabah says. From there, Delta plans to expand to all of Europe, he says.

Because Schliesser is a German company with its own business culture, Delta did not push for rapid changes immediately after the acquisition, Dabah concedes. “We didn’t work at the pace of change that we do in countries such as the United States,” he says, but Delta did demand that Schliesser boost its profit margin from 5.8% when it was acquired to 10%. Last year they got to 9%, Dabah adds.

Dabah likes to tell the story about how his mother and sister were helped to flee Syria by a local sheikh, who gave them Muslim-style clothes to wear and escorted them through checkpoints. “My mother says that we Sephardim know how to survive with Arabs,” he says. He expresses support for a Palestinian state, but expresses bearishness about an imminent agreement.

Advice to Saeb Erekat

“Yossi Vardi [the high-tech entrepreneur] invited me to [the World Economic Forum at] Davos this year to meet with a group of Palestinian businessmen. When I left I told my wife that there doesn’t seem a chance,” Dabah says. “Saeb Erekat [chief Palestinian negotiator] was there and they asked him ‘Why didn’t you make peace with Olmert or Barak? They offered you what you wanted.’ Erekat said something like ‘We wanted more than the 95.6% offered.’ I said to him, ‘All of us here are businessmen. If someone gives us 80% of what we want, we do business. Here they gave you almost 100%. No one gets 100% of what they want.’”

Dabah’s father was a tax clerk in Jerusalem until 1967, when he moved with his family to New York. There, the elder Dabah worked in bookkeeping and later opened a fabric importing business, an enterprise that Isaac Dabah joined in when he was in his 20s.

Isaac Dabah made his first major business move in the early 1990s, when he bought the Gloria Vanderbilt jeans brand, then on the verge of bankruptcy. He revitalized the company and sold it a decade later for $100 million. He invested some of that money in Israel, initially in the Habas real estate group and in Polgat, the clothing manufacturer, and later in Delta. Habas ultimately went bankrupt, but Dabah got out before the global economic crisis in 2008. He started out buying small quantities of Delta stock during a period in which the company was seen as a lame duck in a crisis-ridden industry.

In 2005, after establishing a relationship with Lautman, he bought a 23% stake, playing second fiddle as a shareholder to Lautman’s 25% interest. By 2007, however, Lautman was seeking a buyer for his interest in the company, due to his illness, and approached Dabah, who bought another 13.3% and took control. Lautman’s son Noam still owns 10% of the company and serves as chairman of the board.

When asked about the nearly 7 million shekels a year that the company pays him in compensation, along with the suggestion that his compensation is high for a company of the size of Delta, particularly when he controls it, Dabbah responds: “If I were the chairman, you would be right, but I work as CEO and deal with Delta 80 to 100 hours a week. If there were a salaried CEO, they would pay him the same salary and maybe more.”

Hajaj, Delta’s CFO, adds that most of Dabah’s salary is from performance-based bonuses, with a very large component of long-term targets. “We should only be so fortunate as to pay him such a salary.”

Delta Galil CEO Isaac Dabah.Credit: Courtesy

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