If you’re one who reads the financial newspapers in Israel, you probably know one of the biggest financial newspapers – ‘Calcalist’, has issued a list of the top 50 CEOs in Israel. In the honorable third place, after moving up 11 places from last year’s ranking, is ‘Delta’ CEO – Isaac Dabah.
Five years after acquiring ‘Delta’, He tells us about the changes he has made in the company, what he plans for the future, and shares some of his experience and business philosophy.
In the midst of the stormy weather that hit Israel mid-December, Isaac Dabah watched the stormy sea from his office, located high above the rainy streets, in the 19th floor of the Textile House in Tel-Aviv; “yesterday was our best day in this quarter of the year. When it’s cold outside, people buy more pajamas, fleece clothing, it’s a different world”
Dabah (56) is the kind of man that would look at the sea and think about fleece. Even in today’s market everybody knows this man is all about making a profit, a quality which is greatly appreciated: it’s probably why this year he came in 3rd in the “Calcalist” newspaper rating of top 50 CEOs in Israel, after last year he was rated 14. He’s a merchant in his core, which is well noticed in a company that for years was run by Dov Lautman – an industry oriented business man.
Back in 2008, when Dabah bought over the company and became CEO, a change has begun, one that resonates to this day: less manufacturing in Israel, more brands, more profit. These days 50% of overall company sales are of well-known brands (compared to 20% in 2008), and the company has grown from 623 Million dollars in sales with an operating profit (pre one-time clause) of 900 Thousand Dollars in 2008, to 818 Million Dollars in sales last year and an operating profit of 50.7 Million, which is 50 times as much. This year, the estimation in the company is that the operating profit will rise higher than 68 Million Dollars.
“We may have started a revolution, but we’re still not finished. We still have a lot of work ahead of us”, Dabah says. He entered the ‘Delta’ board back in 2005, when he bought 21% of the shares.
“Why did I invest in ‘Delta’? Because I spoke to some clients and they told me they love the brand, but ‘Delta’ is hard to work with and the merchandise always arrives late”, he jokes. “So I thought it would be an easy fix. But I was wrong, it was very difficult”
One of the main challenges, he says, was changing the management culture in the company. “There was a culture of ‘you work hard, you did your share, everything is fine’. Now everybody has target numbers, the numbers are important and I don’t want to hear excuses if you didn’t make your target number.
As a manager you have a responsibility, and you have to stand up to it. We track the numbers monthly, we have monthly meetings with every division, each division is fully responsible for its profit and operation, it does everything by itself. And if you want to get a bonus – you better make your target.”
How do you provide an incentive for managers in the long run?
“That I learned from the Chinese: you work by a three year program, in which a quarter of the bonus is set aside every year, and given only if a manager made his third year target – then we add an extra 50% to the sum he retained”
What if a manager doesn’t make his target due to circumstances beyond his control?
“If there was an event that is beyond our control we change the targets. We already did that in our factory in Egypt, when they started losing due to the demonstrations – we changed the target. It’s something I learned in high-school – I had a teacher who didn’t want to even hear excuses when you were late for class, he didn’t even care why you were late. He knew when something happened, and as long as you were only late once or twice it was OK. Here in Israel everybody is your friend so it’s hard to tell someone they don’t get a bonus, when I started this job I arrived as a stranger, so I had the advantage of not being friends with anyone, but now… it’s a bit harder” he jokes.
Dabah is happy to enumerate the changes that were made to the company; “when I arrived here there were nine different IT systems, which is unbelievable. Now we have one and every day we know exactly how much merchandise comes in, how much is sold, and how that compares to the targets”. One big change that was made is steering the emphasis away from the production: “With me, the focus shifted from manufacturing to ingenuity – we manufacture in Bangladesh or China, and we keep the focus on the product. We leave some of the production here, not enough to burden us, if there’s no work we won’t take jobs at a loss just to keep the machines running here. This gives us more flexibility”
Bangladesh has become the symbol of cheap manufacture while exploiting people working in terrible conditions. How do you supervise the work conditions there?
“We don’t put all our eggs in Bangladesh, less than 15% of our manufacturing is done there. There is one factory there we have worked with for 20 years, all the facilities are brand new buildings built just for us, and we don’t change factories. In general, if you’re manufacturing for big brands like we do, everyone is always looking into your factory, standards and regulations, but it’s harder to work there now because of the demonstrations. It happened to us in Egypt, too, and now we make less than 5% of our manufacturing there. The company is spread around the world to minimize the risk, so if there’s a problem at one location it will affect us - but not devastate us"
Another main change is the emphasis Dabah puts on making ‘Delta’ a big-brand company, ones that keep the cash flowing and are harder to compete with. That is the reason he keeps on buying; mostly cheap, mostly companies in crisis. ‘Schiesser’ is a leading underwear brand from Germany, he bought it in May of 2012 for 68 Million Euro (“it was hard but it was a great price, we’ll be getting our investment back in two years. It’s harder now to find such an acquisition”), in December of that year he also purchased the American children clothing brand ‘Little Miss Matched”, and he recently purchased the Israeli underwear brand ‘Fix’ for approx. 2 Million dollars (7.5 Million NIS).
And for every acquisition Dabah made, there were a few almost-acquisitions. the most prominent one is the jeans division of the American brand ‘Jones’, for an approximate 400 million dollars, that would have bumped ‘Delta’ up a few leagues and taken Dabah back to owning the brand that built his fortune, ‘Gloria Vanderbilt’. He also failed to acquire the Italian underwear brand ‘La Perla’ for an estimated 50 Million Euros.
Dabah shows me a power point presentation he has made for the directorate board meeting to conclude 2013, and says: “I wrote down what I think were our failures this year, and I put down: Zero acquisitions. That’s a mistake. I should have paid more and bought something. We are constantly looking into things. We don’t like taking risks, but maybe I should have taken a bit of a risk to dramatically change the company. We do good, business is good, there’s nothing to be sorry for, but…”
Things learned from the family business’ failure
Dabah (56) was born in Jerusalem, lived there for 12 years and still speaks perfect Hebrew, ‘spiced’ with the occasional word in English. His father came from Haleb to Israel in 1925 at the tender age of a month, his mother – immigrated to Israel in 1948 at age 16, straight to a transit camp.
“My father worked at the Israeli IRS and my mother was a housewife, but all of our extended family lived abroad in the US and Panama. In 1969 my father’s brothers told him he should come to the US. Moving to America was very hard for me, as well as for my parents. We landed in Brooklyn, I went to public school and hand no friends at first. But then I started playing basketball, so I had a lot of friends”
Were you financially successful?
“At first it was very hard. My father worked as an accountant, then he tried making it with a partner and that failed, he worked for an import/export company. After a while he brought my brothers to work alongside him at the import/export business, trading clothes and other products. That was only half-successful, it had its’ ups and downs. In the end- it didn’t work.
“I left college in 1979, never graduated – that was a mistake. I worked for the family company for a short while and then left to work on my own. When I told my father I wanted to leave he didn’t like it, but the family company wasn’t working, everyone was losing and that taught me to be more cautious and conservative”
With those life lessons in mind, he bought ‘Gloria Vanderbilt’ in 1993, a clothing brand known mostly for its jeans, for 5 Million Dollars. “I was in my 30s back then, and my brother in-law, a great business man who specializes in real-estate in Argentina, helped me buy the firm for 5 million dollars. He gave me the initial sum but I learned how to work on a budget.”
“We were counting every penny back then. We bought a company that was in a big problem and brought it to a profit, after ten years we had 100-110 million dollars of sales each year and an operating profit of 19%. But at that point I was looking to have cash, financial security for my family, so I decided to sell the company. I came out of that sale with 154 million dollars”