Israeli clothing and accessories brand Castro is sending some 300,000 pairs of 'Carolina Lemke' eyeglasses back to Israel from the United States after it failed to entice Americans to buy them. The clothing chain had tried to expand its Carolina Lemke subsidiary into the United States via social media and reality TV megastar Kim Kardashian West, whom it hired for its advertisements.
Kardashian received $6 million from Castro for her part in the advertising campaign, in addition to options to buy 10% of the American firm Carolina Lemke USA.
A source says the brand sold some $1 million in eyeglasses in the United States during a 60-day period and that to justify the $6 million payment to Kardashian, Castro would have needed to sell much more.
To date, however, U.S. consumers have generally been buying only the line that Kardashian designed, and not Carolina Lemke’s other products, forcing the company to send some 300,000 pairs of glasses back to Israel.
Israelis, on the other hand, haven’t been interested in Kardashian’s line of the brand, and in a mirror image twist, the company sent some 10,000 unsold pairs from Israel to the United States.
Kardashian had been due to visit Israel in March but canceled due to tension in the south, a period of rocket fire from Gaza. Castro is thought to have suffered several million shekels in losses as a result of the cancellation.
Gabison said the glasses would have been sold at an event with Kardashian in Israel. The company sells some 1.5 million pairs of glasses a year in Israel, he said.
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Castro has seen its share price fall by 50% over the past two years, and it is down 41% since it merged with clothing brand Hoodies. Castro’s share price has also lost 14% since it published its first-quarter financial reports three months ago, when it revealed a loss of 49 million shekels ($13.6 million), which followed a loss of 60 million shekels for 2018. A large part of the problem is the consumer shift toward ordering clothing online, but the drop in the share price also stems to some extent from Castro’s own internal problems.
Castro’s valuation has plummeted to 460 million shekels, after it bought Hoodies for 400 million shekels only a year ago. At the time, it was trading at a valuation of 550 million shekels. As part of the deal, it issued new shares and diluted the stakes of its original shareholders. Yossi Gabison, Hoodies’ former owner, now owns some 38% of Castro’s shares.
Before the merger, the consulting firm Prometheus projected that Castro and Hoodies would be worth 1 to 1.3 billion shekels combined. Currently, Castro’s value is derived almost entirely from Hoodies.
One of Castro’s strong points has been Carolina Lemke, a brand that Gabison founded in 2011. The brand has high profit margins and finished 2018 with 16 million shekels in earnings. It has been trying to expand into the American market during the current quarter of the year through an eyeglass line designed by Kardashian as well as through a newly designed website.