Delta on course to be top ten global textile company

Isaac Dabah  photo: Ronen Topelberg PR

Delta Galil owner Isaac Dabah tells "Globes" about his plans to maintain the Israeli company's growth.

"My salary?" It's very Israeli for people to ask about things like that. They should better be concerned about the performance of the business, not how much the CEO takes home," bridles Delta Galil Industries Ltd. (OTC: DELTY; TASE: DELT) CEO and controlling shareholder (49% stake) Isaac Dabah in an exclusive "Globes" interview. "I'm trying to be very reasonable about my bonus. I don't want anyone to think, God forbid, that I'm exploiting the company because I'm also the owner. Israelis think, 'If he's both, pay him less as CEO. That's not right, either."

"Globes": Does it anger you that this subject always comes up again?

Dabah: "It doesn't anger me, but in comparison with other CEOs like me around the world, I'm in the lowest paid quarter. What's most important is that my pay is based on growth; if it doesn't happen, I don't get my bonus."

The seasonal argument with investment institutions about salary at Delta Galil right now concerns other company executives, so it will not be discussed here. Dabah's remuneration was approved three months ago: $750,000 in base salary and a $750,000-930,000 bonus, depending on the company's performance. About one thing, however, there is no dispute: where performance is concerned, Dabah's term at Delta Galil, since he became a partner, and later acquired control of the company in the middle of the past decade, has multiplied the company's value several times over, and its market cap now stands at NIS 2.5 billion.

You once said that you wanted to be one of the world's 10 largest companies in your field. How far have you gotten on the way to that?

"In the textile industry, I think we're in 15-20th place in the world. In intimate wear, we're the fourth largest. We have many growth engines, and the main focus is on organic growth. We mainly aim for growth with our main customers, and we're also concentrating on growth in Asia, especially China."

Haven't you missed out on China?

"We got to China late, because we were busy with other things, but now we're devoting special attention to it. We have people working with us in China, and we're about to sign a franchise agreement soon with a Chinese company to sell our products in China."

Already when founder Dov Lautman was running the company, Delta Galil began moving production from Israel to other countries. You now produce little here – only experimental versions in order to consider the possibility of producing somewhere else on a large scale. Is this something that will change?

"We won't grow in Israel with textiles. It's not competitive. We won't manufacture in Israel and lose money. There are 1,700-1,800 employees in Israel, only 350 of whom are production workers. The rest work in Delta networks in development and things like that. I wish we could produce more here, but the question is how we can survive as a company, with all the costs there are here in Israel. It's more expensive to manufacture in Israel than in the US, for example, because electricity is more expensive, municipal property taxes are higher, and there are many taxes."

Threads that absorb shocks

Despite its nostalgic past as a company of underwear and socks, today Delta produces for customers such as Nike, Victoria's Secret, Calvin Klein, Under Armour, and others, and holds franchises to produce for Tommy Hilfiger, Lacoste, Columbia, and others. At the company headquarters, which recently moved to Caesarea, they are delighted to explain with enthusiasm about cotton they have given the characteristics of polyester, so that men can be both cool and comfortable; about technology that extends the life of laundered fabrics; about special threads integrated in the Nike socks of top athletes (and ordinary amateur athletes) in order to absorb shocks in jumping, prevent slipping when kicking the ball, and also about how to charge $15 for a pair of socks.

They also show me shapewear that is soft, breathes, and pleasant, and contributes to a more flattering silhouette; elastic-less underwear that blurs the marks left on the hips; and activewear with laser cuts at the knees that facilitate movement. All this is aimed at highlighting one clear message: Delta's textiles have not been low-tech for a long time. On the contrary – the technology is advanced, and the company invests 4% of its turnover in research and development.

A mirror image of the cheap mass textiles from the Far East

In comparison with the textile industry for upper body clothes, the success of which is dictated by popular fashions, Delta Galil's products are trend-proof; sales are stable and less subject to cycles. Last year, however, Delta Galil strayed from its safe territory, and on a large scale.

Last summer, the company announced the biggest deal in its history: the acquisition of the production activity of premium jeans brands. For $120 million in cash, Delta Galil acquired the activity of the 7 For All Mankind brands of jeans, and other clothing brands, such as Splendid, from US clothing and footwear company VF.

Jeans is where Dabah made his name. In 1988, he acquired a US jeans maker on the verge of bankruptcy, Gloria Vanderbilt, and sold it 10 years later for $100 million. For Delta, however, this is a completely new playing field that is more sensitive to trends and fashion.

This was a big deal in a new area for the company. Didn't you take a risk here?

"It's an excellent deal. Obviously, we'll celebrate only after we start raking in profits. I think we've made good buys up until now, and here there are international brands that will help Delta Galil flourish. Saban is in over 50 countries, it will give us a big lever for growth in the coming years, and we paid a very reasonable price. Where risk is concerned, we're very conservative. In the four years preceding the Saban acquisition, we bought nothing, because the market was very hot, and the prices were very high."

But up until now, you were not exposed to what is called the unpredictable dictates of fashion.

"It's true that most of our products are not cyclical and trendy, but first of all, in order to grow, we needed an acquisition, and we found no suitable large company in the underwear sector.

"So we went into a different category, which I understand well, and it's also a category that is not so cyclical. There have been levis for 200 years. Demand can change by 5-10% in either direction, and I expected this acquisition to increase both our profit margin and our sales - we're already leveraging it. We decided to put our brands into stores: In Splendid, we're already inserted yoga clothes, and we'll soon put underwear into Saban."

What was also attractive to Delta Galil was Saban's Internet presence in the form of virtual stores. "Ecommerce is one of the channels in which we really wanted to expand," says Delta Galil senior vice president, deputy CEO, and head of global operations Yossi Hajaj, "and this is a good way of doing it."

Hitting it off with Dov Lautman

Dabah, 59, was born in Israel, but moved with his family to the US when he was 10. "I was a little angry at my parents for leaving Israel," he admits, "but I understand why they did it." He began his career by working in his father's import-export business, together with his brothers. He then decided to leave, and bought Gloria Vanderbilt, which he turned from a money-losing company into a success. He managed the company for two and a half years more after selling it. "In 2004, I was getting twice the salary I'm getting now. I was getting paid $2.2 million," he says, returning to the first subject we talked about.

He used the money from the sale of Gloria Vanderbilt to found an investment company, and at age 28, began investing in Israel. His first investment, in 1999, was in Polgat Jeans from Kiryat Gat, which he also rescued from bankruptcy and turned into a profitable company. Afterwards, however, despite heavy investment in technology, the plant fell on hard times, lost money, and closed down in 2007. "We tried the best we could to maintain Polgat, but because trade agreements were signed and quotas for imports to Israel were eliminated, at some point, we had no choice," he says. "It was sad. We gave the workers almost a year's salary. To this day, I exchanged holiday greetings with some of the employees."

Another of Dabah's investments was in the real estate company of Herzl Habas. He made two investments in the company of NIS 30-40 million, and sold his holdings to Idan Ofer in December 2007 for NIS 67 million. The company later collapsed, and the other investors suffered heavy losses.

You are one of the few people that unloaded an investment in Habas in time

Dabah: "It's not because I'm so smart. I thought that the market was contracting a little, that was the right time to sell, and someone wanted to buy it."

How did you come to invest in Delta Galil?

"I was always very proud of what Delta Galil was doing - an Israeli company with a lot of innovation. I phoned my lawyer and asked him to organize a meeting for me with Dov Lautman. I met him in a Tel Aviv office, and as they say, we hit it off immediately. A lot of the things he believed in I also believe in. At that meeting - after all, I'm an Israeli, and I have the audacity to prove it - I asked him if he was selling, and said, 'Right now, I'm not selling.'

"One day, he called me and said, 'My partners, Sara Lee, want to sell (Sara Lee owned one quarter of Delta Galil), and if you want to buy, I'll let them know that I'm not exercising my first refusal rights. ' I started negotiating with Sara Lee in order to buy, and the truth is that my due diligence wasn't so good. I think I paid $6.50 a share.

"Then I started as a director in Delta Galil, where Dov was the chairman, and it was hard to believe what was happening in the company, because Dov was such a dictator. He did whatever he wanted to in the company, and I don't mean this in a bad way."

And the disease?

"Even before I bought Sara Lee's shares, Dov told me that he was ill, when he had told almost no one else. In order to be fair with me, however, he told me. At that time, I didn't know much about the disease (Lautman had ALS – Lou Gehrig's disease, which is incurable). I did a Google search, and when I read about it, I was reduced almost to tears. But Dov managed to live with it for 10-12 years. When his disease interfered with his job, he asked me if I wanted to buy his controlling interest in the company. We negotiated, and I bought."

Dabah bought Sara Lee and Lautman's shares for a total of $50 million. That gave him a 39% stake in Delta Galil, and his subsequent purchases brought his stake to 49%.

Then you started managing it. Why?

"The truth is that I mainly wanted to protect my investment. At that time, in 2006-2007, the company was in difficult situation, and lost money. I thought, however, that in the long term, it was an opportunity. I didn't intend to be the CEO, too, but on the day I acquired control, the CEO, Aviram Lahav, told me that he wanted to resign in a year.

"I'm very glad that Dov lived long enough to see this success, because it made him very happy. I remember once that I went to him and told him, 'I want to give leadership of the board of directors to Noam (Lautman, Dov Lautman's son, S.L.).' He was so moved, he had tears in his eyes."

Did you take Noam in order to keep a connection with the Lautman family?

"Noam was the person who had been with the company for the longest time. He knew the company and all its managers. I myself visit Israel only every six weeks, and I thought it would be best for there to be someone there representing continuity and who knew and worked in the business."

Dov Lautman founded Delta Galil in 1975. The company has 10,000 workers, markets in over 20 countries, and its production network spans the globe, from the Middle East to Eastern Europe. Among other places, it manufactures in Turkey, Bulgaria, China, and Bangladesh, and will soon open a new factory in Vietnam.

How does Delta Galil keep fair employment terms in all these places, where it works through local suppliers and managers?

"This is the hardest thing to do, and we're working on it constantly. We don't have many suppliers, and we've been working with our suppliers for many years. They're pretty big, and none of them fails to observe the high level of compliance with the rules of fair employment. It's very important for us, and very important to our clients (the major fashion companies)."

In Egypt, you had a different kind of problem involving the political situation that was so acute that you were forced to stop producing there several years ago.

"It's completely different now. Everything there is very peaceful. The new administration is very stable. They maintain a business-friendly atmosphere. There are tax concessions, and the depreciation of the Egyptian lira also helps us. We're growing there."

What about acquiring other companies?

"In the coming five years, we'll make another acquisition or two - I don't know how big."

What will we see you buy? Less conservative acquisitions outside your usual field, like 7 For All Mankind?

"No, we'll be conservative. We have a clear strategy for what we acquire. The first priority is companies in intimate wear, and we'll stay with jeans and activewear. I don't think we'll expand to other categories."

Something personal to finish with: Gloria, your eldest daughter, has been working with you for a long time.

"Yes, up until several months ago, she managed the children's department in Delta stores, and now I wanted here to learn something else and advance, so we gave her a small department, also of children's clothes, that sells all over the world."

Are you grooming her as your heir?

"There's no inheritance in business. You always need the best person. But she's very useful to the company."

And something else personal: Is she named Gloria after Gloria Vanderbilt - your first business success?

"No," he laughs. "My wife's mother was named Gloria. We're Sephardic, and it's allowed and customary among us to give children their parents' name when they're still alive. We usually give the first daughter the name of the father's mother, but my mother and my wife are both named Ivette."

Published by Globes [online], Israel Business News - www.globes-online.com - on April 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Isaac Dabah  photo: Ronen Topelberg PR
Isaac Dabah photo: Ronen Topelberg PR
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