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MORE ISRAELI RETAIL CHAINS OPEN STORES ABROAD

By David Brinn

Israel's retail real estate developers have become important global players in recent years, especially in eastern Europe. Lately, the country's retailers have also been popping up around the world.

Retail markets in North America, Europe and Asia have seen dozens of homegrown food, fashion, and cosmetic businesses ensconcing themselves amid the mall perennials in major urban markets in those regions.

Aroma coffee shops, Castro fashions, Max Brenner chocolates, Michal Negrin jewelry, Sabon soaps — these may not be exactly household names outside Israel just yet. But lots of satisfied American, European and Asian consumers may soon catapult them in that direction.

With only a little over 7 million residents, Israel offers a finite market, so looking for expansion elsewhere is natural, says Joel Bainerman, an Israeli business analyst and journalist. “This trend has come about because of the success of some Israeli retail companies at building chains in Israel,” he said. “They saturate the market here and go abroad.”

Aroma is a good example. This café-eatery, founded by brothers Yariv and Sahar Sheffa in 1994, offers espressos, cappuccinos and regular brewed coffee, as well as sandwiches, salads and snacks. It has become a mainstay on the Israeli landscape. “Now we have 81 branches throughout the country,” said Noam Berman, the company's marketing director.

Aroma branched out into North America beginning in the summer of 2006 with a flagship store in New York City. A second one followed last year, in Toronto. “We think we have the right concept: healthy food, all of which is prepared on the premises, including all breads and baked goods,” said Berman. “We're very satisfied with the business we've been doing in New York and Toronto.”

Starbucks, on the other hand, was not so lucky with its own attempt to open cafés in Israel. The U.S.-based coffee mammoth closed all six Israeli units in April 2003 after finding that, like Europeans, Israelis like their coffee stronger. Berman says he hopes Aroma will change American taste buds. “This year, we plan to open two more locations, one in New York and one in Toronto,” he said. “We're also going to penetrate the European market with branches in Cyprus and in Romania.”

Though Aroma has taken the slow and steady path to expansion overseas, other Israeli businesses are more aggressive. Uniting the varying approaches is what Bainerman calls the “innovative, amazing entrepreneurial spirit” that enables Israeli entrepreneurs to dive into untested waters. “I have no doubt that the majority of businesses are expanding on their own capital,” said Bainerman. “They're not getting financing abroad, which is risky. But then again, most are slowly opening stores and paying rent. After a year, if it's not successful, you can leave, so it's not that risky.”

Among other Israeli retailers venturing forth internationally are Castro, a fashion design chain that boasts 26 shops overseas, including in Germany, Switzerland, Russia and Thailand; and Fox Clothes, which opened 114 shops abroad in 2006, half of them in China, 21 in Thailand, 19 in Panama, five in Romania and three each in Bulgaria, Italy and Singapore.

Jewelry chain Michal Negrin, with 19 stores in Israel, says it has found expansion abroad to be a highly profitable risk. Its boutiques feature the brand's flamboyant jewelry, gift and fashion items and stylish home decor. The chain operates 53 stores throughout the world, including in Madrid, Paris, Tokyo and New York City. Further, its products are sold in such department stores as Bloomingdale's, Neiman Marcus and Selfridges. The company plans to open about half a dozen shops outside Israel yearly, up to 100 in total. “We first got the idea of expanding abroad in 1996, when a couple from Japan stopped at our flagship store in Tel Aviv,” said Limor Shlain, Michal Negrin's vice president of marketing. “They were so enthusiastic about the merchandise and asked permission to sell it back in Japan. Since then, there are now 13 points of sale there, as well as one in Taiwan and one in Singapore, which this couple still holds the franchises for.”

In New York City Michal Negrin sold its wares through department stores before its store-within-a store opening at ABC Carpet in 2003. “We find it's the best way to tell our story,” Shlain said. “We have the same store design in every location all over the world, that is the beauty of it.”

Despite the abundance of fashion jewelry retail options available to shoppers, Michal Negrin has found a niche, Shlain says. “Everything is handmade, and we produce everything in Israel,” Shlain said.

That customized craftsmanship approach is the one Max Brenner and Sabon take as well. The Max Brenner franchises began with the tiny chocolate boutique in the Tel Aviv suburb of Rehovot that chocolate chef Oded Brenner opened in 1996. With an identifiable logo and a fetching slogan — “Chocolate by the bald man” — Max Brenner chocolate bars flourished in Israel. An initial attempt at international expansion failed, but in 2001 Israeli food manufacturer Strauss-Elite bought the company, and recent years have seen successful openings in Australia (11), the Philippines (one), Singapore (one) and New York City (two). One of those New York units is a 4,800-square-foot chocolate-themed restaurant that seats 150.

New York City has also been the U.S. testing ground for Sabon (Hebrew for “soap”), a Tel Aviv-based retailer of bath soaps made at an agricultural cooperative, or moshav, in northern Israel. The chain's full name is Sabon Shel Pa'am, which means old-fashioned soap. It is the brainchild of Avi Piatok and Sigal Kotler Levi, who opened their first Tel Aviv store in the late 1990s and have expanded to 31 shops in upscale Israeli shopping districts. Sabon's first U.S. store opened in 2003, and today, with over a dozen U.S. stores, including in Boston, Chicago and Los Angeles, Sabon plans to open 100 more over the next five years.

Not all these stores are eager to broadcast their origins, given the hostility against things Israeli in some countries. Some of the executives of these companies even declined to be interviewed for this story. Bainerman says Israeli retailers are too sensitive about the issue. “I don't think it matters in retail if you're identified as Israeli,” Bainerman said. “At least in Central and Eastern Europe, something Israeli is considered American, and thus a higher quality,” Bainerman said. “Israelis underestimate that people abroad generally have a good impression of Israel. There aren't many consumers who would [say], ‘If it's Israeli, then I'm not going to shop there.' ”