The second-quarter financial results of most Israeli retailers showed that the war is good for business. With fewer Israelis traveling abroad for vacation, the money stayed in the local economy, benefiting shopping malls, fashion chains and food chains. Alongside this, there was a drop in sales at discounts and special offers.
For most of the major listed companies in the retail sector in Israel, the second quarter showed a double-digit jump in revenue and profits. Thus, sales of the fashion chain Castro (TASE: CAST) grew by about 17% to NIS 537 million compared to the same quarter last year. Net profit jumped by 69% to NIS 56.7 million, and operating profit jumped by 62%.
Castro is an excellent example of a company that has successfully streamlined its brand diversity over the past two years. The group operates the Castro, Hoodies, Urbanica, Carolina Limca, Yves Rocher, Kiko Milano and Top Ten brands, and in recent years has increased the number of stores, changed brands and reduced retail space, results that are also reflected in the latest report.
Textile, home design and fashion chain Golf (TASE: GOLF) also carried out a streamlining by closing loss-making online fashion site Adika, which it acquired in 2015. Golf reported net income of NIS 26 million in the second quarter compared to just NIS 3 million in the corresponding quarter of 2023.
Fox Weasel (TASE: FOX), Israel’s largest fashion group, reported record revenues of NIS 1.5 billion in the second quarter and net profit of NIS 124 million, up from NIS 89 million in the corresponding quarter of 2023.
Israel’s largest supermarket chain, Hamashbir 365 (TASE: MSBI), saw net profit jump 89% to NIS 5.3 million, with revenues rising to NIS 238.3 million from NIS 229 million in the same quarter last year. Hamashbir’s financial report said sales were impacted by a drop in the number of Israelis traveling abroad.
Delta Israel Brands (TASE: DLTI) reported revenues of NIS 262 million, up from NIS 193 million in the second quarter of last year, while net profit jumped 71% to NIS 34.4 million.
The malls are crowded.
“Since November 2023, a month after the war broke out, the State of Israel has been operating under a kind of ‘closed economy,’” says Ofer Malls’ Vice President of Trade and Operations, Omer Ogolnik. “The number of airlines flying to Israel and the number of flights abroad is much lower.”
Thus, not only money for shopping abroad became available, but also large sums that in normal times include the high costs of flights and hotels. The same money remains in Israel during the months of war and is pumped into local businesses. In addition, this year Passover fell during the second quarter – a period traditionally characterized by increased sales, while in 2023 it was during the first quarter.
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However, there were days of sharp decline in sales, during security escalations, such as in the days leading up to the Iranian missile and drone attacks in April. Ogulnik notes that even after the assassinations in Beirut and Tehran in July, there were four days of stagnation in sales, and the three weeks between the 17th of Tammuz fast and Tisha B’Av also saw a decline in trade.
“Despite the excellent financial reports, there were several days of decline due to the Iranian and Hezbollah threats, but overall, we continue to see increases in payments every month. It is important to remember that the days leading up to August 9 are always quiet, but last week, on the other hand, the shopping malls were full,” says Ogulnik.
“When people want to take a break and can’t travel abroad, they choose to go to the malls, eat and shop. Except for the past two weeks, when people preferred to stay near the security rooms in their homes in the evening,” explains Shahar Turgeman, chairman of the Federation of Israeli Chambers of Commerce and CEO of the Prill shoe company. “We were all on alert and rarely went out. Some of that caution has diminished over the past week.”
But the war routine not only affected the public’s desire – or compulsion – to buy products made in Israel, but also affected prices in light of the lack of offers and discounts, as some companies mentioned in their reports.
Retailers say that due to the high demand for inventory, while the stock ordered in advance was based on a general assumption of “normality,” the goods were sold out even before the usual “sales” windows. However, the situation has changed in the past two weeks, as stores in shopping malls and websites have announced the arrival of “end-of-season sales.” For example, Octopus sells children’s T-shirts for NIS 10, Urbanica offers 70% discounts, Delta sells items starting at NIS 29.90, and Golf offers 60% discounts on its summer collection.
“When a company orders goods, it doesn’t know if there will be a war,” notes Turgeman. “If fewer people travel abroad and more people make their purchases in Israel, there is no reason to offer discounts because the stock is no longer there. There was no malicious intent here, but while the goods were available in a normal year, this year was not normal. All the goods were sold at above-average prices, as there was no need to run promotions due to the level of purchases. None of the chains took advantage of this situation.”
However, Brill offered significant discounts. “We entered this year with a much larger inventory than last year, so we acted differently from the market,” says Turgeman. “Every chain that has excess inventory makes great sales. We will reach the end of the year with a healthy inventory, and enter next year with a balanced inventory.” Brill’s revenues grew 9% to NIS 154 million in the second quarter, compared to NIS 141 million in the second quarter of last year. Net profit was NIS 7.8 million, up from NIS 165,000 in the second quarter of 2023.
Tarjuman says the market saw big discounts last week, partly due to a sharp drop in sales in the days following the escalation with Iran and Hezbollah. “Since the security situation after the assassinations was tense and sales volumes were low, chains brought forward their end-of-season sales that were supposed to start in two weeks.”
Malls also invest hundreds of millions of shekels in renovations, improvements and changing the store mix. For example, Melisron is enjoying an increase in occupancy and contract renewals. It is renovating the large Ofer mall in Petah Tikva, where branches of international and local brands have been opened and renovated at an investment of about NIS 53 million, most notably Zara. The first Victoria’s Secret store in Israel was also opened at the mall at an investment of about NIS 5 million, and last year the company invested NIS 120 million in expanding the Ramat Aviv mall.
“Ultimately, the game in retail is revenue,” Ogulnik points out. “And in these financial reports, it’s not just about the decrease in flights. It’s also a reflection of streamlining and the hard work of chains that are doing everything they can to be unique and efficient, which is not easy. The labor market is very tough, shipping costs have increased. But in all the reports, you see an increase in operating profit, and for income-producing real estate companies, it shows that revenue is good. Tenants are looking for additional locations, and that generates growth. It’s not just fashion — the whole entertainment world from restaurants and cafes to shopping malls is doing well.”
Winter sets will decide
The coming quarters are also expected to be good, but that may depend on several factors beyond the continuation of the war.
“There is a question about what the winter will be like,” says Turjuman. “If it is cold, fashion chains will have a good year. If winter does not come – and we have had several such winters in recent years – the second half of the year will be less good for chains. But you have to understand that there have been two good seasons. This does not please us. These are good results in a difficult environment. We all hope for a good year, but without Covid, judicial reform tensions or war.”
“If there was no further drama by the end of the year, 2024 would have been the best year ever for retail in Israel,” a senior industry source said.
This article was published in Globes, Israeli Business News – en.globes.co.il – on August 28, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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