"There is more money today than at any other time in history. There are billions of dollars in US companies' reserves. The moment businesses feel secure with the government and with government policies, we will see businesses investing once again, and that will revive the economy. The real revival will begin when businesses start investing again, because the atmosphere will be better," so says Jewish billionaire Jay Schottenstein, chairman of American Eagle Outfitters Inc. (NYSE: AEO), the fashion label that was launched last week in Israel. In this spirit, he advises President Barack Obama, "to stay out of business, and to provide Americans with an environment that is conducive to working, and businesses will repair themselves. The government cannot fix businesses no matter how hard it tries. But provide them with a pro-business environment, and they will fix themselves."
To the question, When will the economic crisis come to an end? Schottenstein replies, "Not in the next few years." Then he adds, "This depends on the upcoming elections."
Will the elections really affect the crisis so much?
"Most definitely."
"You can't say no to such an invitation"
Last week, Schottenstein arrived in Israel for the launching of the American Eagle fashion chain. He is a religious American Jew, whose net worth is valued at $1-3 billion. Schottenstein's grandfather, Efraim, was the one who laid the foundation for the family business. His father, Jerome, developed it, and Jay has expanded it. Jay himself heads the family empire that includes American Eagle, Designer Shoe Warehouse (DSW), a luxury brands chain, a furniture company, and extensive real estate activity. Schottenstein owns dozens of commercial centers in the US, partially or entirely. In 15 of them he is a partner of Kimco Realty, through which he is also a partner of Big Shopping Centers.
Nothing in Schottenstein's appearance or manner is indicative of his wealth. "He is an amazing person. It's fun to be with him. As powerful as he is and he is extremely powerful he is mild mannered," businessman Jacky Ben-Zaken says of him.
Schottenstein owns one of the most expensive yacht's in the world, as well as two private jets. The interview with him was held during an El-Al flight from Tel Aviv to New York, for which he wore sweat pants and a t-shirt. We sat on the stewardess's narrow seats in first class to talk while his wife, Jeannie, and his three sons slept.
Schottenstein does not often personally attend the openings of American Eagle branches outside of North America. He agreed to come to the Israeli opening after receiving an invitation to the bar-mitzvah of the son of Fox Group CEO Harel Wizel. Fox Group owns the American Eagle franchise in Israel. "I couldn't refuse such an invitation," Schottenstein explained.
On the opening night at the Ramat Aviv Mall, he stood for two long hours in the store. The fact that the chain comprises more than 1,000 stores within and outside of North America did nothing to dampen his excitement. "We are extremely excited about entering the Israeli market," he said. "In the retail industry, if you are no longer excited, get out of the business. We have an excellent business partner and operator Fox and the label will be very successful. The greatest part is that if you enter an American Eagle store in the US or an American Eagle store in Israel you won't be able to tell the difference. Harel (Wizel, I.H.) is committed to American Eagle."
Many Israeli companies would have been interested in the American Eagle franchise. What made you pick Fox?
"We held discussions with several companies. We were very impressed by Wizel, by his company, and by his operation, and we feel that he is the perfect partner for us. He is honest. He is a wonderful person, a working man, a real family man, and a good friend. And he loves his country. He is also a philanthropist and a proud Israeli."
How will American Eagle compete with Forever 21 and the other international brands?
"We compete with them every day in the US, and we have no problem."
The American Eagle label offers quality at reasonable prices. Will it hurt the H&M brand?
"We are currently competing with all of these brands. All of them exist in the US. We have our unique attributes, and they have theirs."
Are your brands more resistant to economic crisis than the others?
"We have always offered good value and high quality to our customers. American Eagle is the number one brand for young people between the ages of 15 and 25 in the US, and studies show that outside of the US it is one of the three leading brands for ages 15-25.
"DSW is the number one shoe seller in the US, with the largest market share. We have 15 million loyal customers who are members of our Customer Club that is three times the population of the State of Israel. DSW offers all of the leading brands that are sold in stores such as Macy's, as well as popular fashion items. American Eagle and DSW have become the standard in the categories in which they operate."
Have you seen changes in consumption as a result of the continuing economic crisis?
"The moment Americans have money, they go shopping and they still have money."
"Looking for opportunities"
What is your vision of American Eagle's development worldwide?
"I think that the brand has amazing opportunities in the international market. In the last few years, our activity has focused on the US and Canada, but we are now looking to expand outside of North America. We have opened stores in Dubai, Shanghai, and Hong Kong. Soon we will open stores in Japan, and in the next few years we will also expand to Europe."
Asked whether he intends to expand his shoe and furniture businesses to Israel as well, Schottenstein replies, "Anything is possible in the future."
Schottenstein does not reveal any details about future retail plans. He will only say that, "Our businesses were always open to opportunities, and when they arrive, we decide if they are the right opportunity."
Opportunity is also the key word in his real estate activity. Asked whether the economic crisis is more of an opportunity than a risk, he replies, "It all depends on how people buy. If they buy right it's an opportunity. If they buy poorly it's not an opportunity."
Have you increased your investment in real estate since prices began to fall?
"We have a company that develops commercial centers, and we are always looking for opportunities."
Would you recommend investing in real estate in the US now?
"Real estate is a niche we specialize in. We invest in deals that we understand, and not in deals that we don't understand. If you put your money on something, that doesn't mean that it will succeed. Invest in what you understand, and not in what you don't understand."
1,776% return for investors
Schottenstein speaks plainly in layman's terms, but he has a number of security guards around him, headed by Sharon Bennet, who has been accompanying Schottenstein on all of his trips overseas. It could be that Schottenstein is aiming not just to protect his personal safety, but to create a buffer between him and the many people who seek to get close to him, mostly to ask for contributions for various projects. Schottenstein is well known for his generosity, and it has been said that he donates $15-20 million every year. He finances projects such as the Western Wall tunnels; he supports a kollel (Jewish learning institution) in Jerusalem; and contributes to many organizations in Israel, including IDF soldiers.
In the US, Schottenstein supports sports teams such as the Miami Heat basketball team, of which he is a dedicated supporter. He has a courtside seat in the stadium, from which he watches the game. In his home town of Columbus, Ohio, the Schottenstein family donated a stadium that is larger than the one in Yad Eliahu in Tel Aviv, called the Value City Arena (Schottenstein Center).
When his father, Jerome, and uncle, Saul, who bequeathed Jay his estate since he had no children, died, Jay Schottenstein was appointed head of the family business empire, and he currently chairs more than eight companies. The obvious preference for Jay over his sisters, Ann and Susan, led the three to an acute legal dispute. Jay's sisters petitioned the court demanding that he should be deposed as trustee of the family's foundations. The sisters claimed that Jay was using the funds to maintain influential positions in public companies, invested funds recklessly, and gave his own children preferential treatment over theirs. For his part, Jay claimed that his father and uncle's decision to grant him and his family a double share, and to appoint him as trustee of all of the grandchildren, "sowed the seeds of continuing acrimony and unhappiness between Susan, Ann and their husbands". A source close to Jay says that the conflict between the family members has been resolved, and they currently have a peaceful relationship.
Apart from his control of the extended family's assets, Schottenstein himself directly holds only a few percent of American Eagle and DSW. The former held its IPO in 1994, and since then its investors have seen a return of 1,776%. Its current market cap is $2.7 billion.
Schottenstein has continuously sold the American Eagle shares that he owns. Between 2004 and 2007, he sold $52 million worth of shares, and most of the deals were carried out at prices that were 70-100% higher than the price at which it is currently traded. Last year, he began buying shares again at a price similar to what it was in 2005 - $14 a share. The value of shares that he currently directly owns is $97 million (3.6%). His brother-in-law, Ari Deshe (Ann's husband), owns a similar amount.
Schottenstein owns $18 million worth of DSW shares. The company's market cap is currently $2.21 billion. His 2010 salary package was $1.776 million, or $148,000 a month.
Published by Globes [online], Israel business news - www.globes-online.com - on February 13, 2012
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