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If the Shoe Fits, Sell It
Hanan Sher
 (Esteban Alterman) |
Fix your gaze on a businessman who says he set out to lose a little on each deal to boost volume, and you're likely to see someone who's headed straight for bankruptcy without passing Go. Unless you happen to be looking in the direction of Solly Sakal, who used that standard formula for commercial disaster as a springboard into a business that turns over a cool 1 billion shekels (about $240 million) a year.
In the late 1980s Sakal and his brother-partner Meir, suppliers of duty-free products to U.N. forces and diplomats, took over a shop at Ben-Gurion International Airport that sold duty-free sports clothes and athletic shoes to departing airline passengers. The previous owners had lost money, but the Sakals had a plan to turn the business around: sports shoes at $39 a pair, a price that compared to what their customers would pay in New York. The catch was that the wholesale price of the shoes they wanted to sell was $45. "No one was going to offer me large discounts, or give a break to a store with a history of failure," says square-faced soft-spoken Solly Sakal, whose family immigrated from Beirut in the 1950s. "But losing on each sale was worthwhile, to get customers and establish credibility."
Before long, the shop didn't have to worry about losses. It was selling enough to get volume discounts from manufacturers, and was able to raise prices enough to make a profit. Sakal says the airport store now sells a staggering 40 percent of the 1.5 million pairs of sports shoes sold in Israel each year.
Much of that business, Sakal observes, comes from repeat customers among Israelis who travel abroad each year. "We've been able to keep clients by offering them a good price, about $10 less than list price in the United States for shoes, and giving them service," he says, business isn't limited to tax-free goods. Sakal's airport store also offers larger appliances, like refrigerators and cooking stoves. Customers must go to customs and pay the requisite duties and excises, but still come out, Sakal says, with a better deal than they'd be able to get at a store in Ramat Gan's Ayalon Mall or Jerusalem's Jaffa Road. Now the taxmen have approved a new arrangement which will make this kind of shopping easier: The buyer will be able to pay all the duties at the Sakal cash register, and skip the trip to customs altogether.
The buying power generated at the airport has become the engine for an empire of about 60 Sakal locations all over Israel, from outlets for sports clothing and athletic shoes to stores selling labels like Calvin Klein, Donna Karan, Timberland outdoor wear and Swiss-made Bally shoes. Sakal Direct appliance outlets in Hamashbir Letzarchan department stores and shops market discount appliances, local taxes paid, to labor-union members. And even though margins have to run about 20-25 percent to stay above water on the local market, Sakal claims the competition he has generated has pushed appliance prices way down. "Three years ago an Amana refrigerator retailed for over 20,000 shekels in local stores. Today you can get one for about 12,000," he says, granting that lowered customs duties on American goods because of the U.S.-Israel Free Trade Agreement, and changes in the dollar-shekel exchange rate, are also responsible for part of the price differential.
"And look at microwave ovens," he continues. "We're selling one in our local shops for 499 shekels. Their price used to be about 1,500 shekels."
The phalanx of Sakal's all-out assault on the local price front is now a 9,900 shekel ($2,400) basic home-starter package of appliances (refrigerator, stove, washing machine, etc.), and the $200 PC.
The latter sounds too good to be true, or an attempt to fulfill a former prime minister's promise of "a computer for every child." But it's not philanthropy: In addition to the $200 price tag for Sakal's Pentium computer, the purchaser has to sign a three-year $25-a-month contract for Internet linkup with Internet Zahav, the service provider whose subsidy makes the deal possible. On a piece of paper, Sakal scribbles some figures demonstrating that, at a total cost of less than $1,200, his computer-Internet package is still a huge bargain. "And right now," he says, "we are selling about 500 computers a day."
None of this has gone down very well with local electrical appliance retailers, wilting under the pressure of Sakal's competition. But their suit to strike at the core of Sakal's success�the arrangement that allows Israelis to buy electrical goods before they go abroad, and pick them up when they return home�was recently turned down by the Supreme Court.
The rivals claimed the deal hurt their sales, and gave Sakal an unfair advantage; Sakal says it's introduced competition and lowered prices. What's more, he observes, it's only necessary because Ben-Gurion has no duty-free shops for incoming passengers, unlike 100 other airports.
Thanks to his shops, what's more, claims Sakal, airport taxes at Ben-Gurion are lower than at other international airports. "This is because of the royalties the Airports Authority collects from our shops." That's one bargain you didn't know you get at the duty-free.
Business
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