Israeli retail fashion chain Castro Model Ltd. (TASE: CAST) is in talks with US online sales giant Amazon on starting joint operations in Israel, sources inform "Globes." Representatives of the Israeli retailer, whose finiancial results for 2018 reflected the difficulties facing the fashion sector, have met with Amazon representatives in order to discuss domestic sales activities through Amazon's website.
Castro has operated its own sales website in recent years with success in domestic terms. Gabi Roter, one of Castro's controlling shareholders, described the volume of sales on the website as generating the same revenue for the group "as a successful store." As far as is known, Castro is considering expansion of the areas in which it operates and also on Amazon Israel's ecommerce theater.
In the past month, Amazon decided expand Israeli online operations, contacting Israeli sellers and asking them to sell through a local program aimed at the Israeli market. Among other things, Amazon met with Castro's representatives. The pace of the Amazon's meetings with local representatives is likely to increase in the coming weeks in preparation for the scheduled launch of Amazon's Hebrew-language website.
Castro has been attempting to use various creative ways of countering the crisis in the fashion sector, among them a change in the stores' visibility and consolidation into more comprehensive and larger stores, together with closing local money-losing stores. The group has also recruited a new chief digital officer, Or Goren, and an ecommerce activity manager, and is now recruiting someone to manage the group's ecommerce activity for its personal care brand, Yves Rocher.
Castro also took steps last year to deal with online competition. In the second half of 2018, Castro acquired 80% of the shares in online youth fashion chain LADiLA with the aim of using it as a springboard in the online theater.
This summer will be the first anniversary of Castro's merger with the Hoodies fashion group, which had quite a difficult year. The group's financial reports listed a 7.7% drop in clothing stores sales, with the bottom line being a NIS 59 million loss, compared with a NIS 48 million net profit in each of the two preceding years (2016 and 2017).
The acquisition of Hoodies, however, is a long-term measure that enables Castro to increase its top line and improve its bargaining power vis-à-vis the shopping malls through a broader portfolio, in addition to introducing new brands, such as KIKO Milano cosmetics.
Castro's market cap on the Tel Aviv Stock Exchange (TASE) is NIS 555 million, compared with a NIS 1.3 billion market cap for its major rival, Fox-Wizel. Actually, the heads of the Castro group, controlled by the Roter family, are aware of this gap, and have been looking for a way to buttress and expand their group, whose share has lost 10% of its value this year. The group is experiencing difficulties in its main business - the clothing sector is under attack.
In effect, the group's historical core activity is having to provide a solution for changes in the Israeli public's consumption habits, especially in fashion, resulting from change such as the VAT exemption for overseas online purchases and the lower cost of flight prices, which have increased the volume of purchases made by Israelis overseas.
Castro said in response, "The company does not comment on its future plans."
Published by Globes, Israel business news - en.globes.co.il - on May 20, 2019
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