Becoming a global retailer

RETALES, from retailers to retailers, with Isak Halfon | Episode 1

In this episode, Isak Halfon, International Business Consultant with a stellar trajectory at companies such as MANGO or Fawaz Alhokair Group Fashion Retail, gives his views on how to expand fashion companies internationally and within consumers and stores across different markets.

Listen to the entire episode on Spotify or by clicking on this link https://anchor.fm/orquest. A transcript of the entire episode is also available below. And don’t forget to subscribe and share this episode of RETALES, from retailers to retailers.

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ADARA
Bueno, bueno, bueno. Who do we have here today? I couldn’t be more  excited about starting this podcast series with him as our guest of honor. Isak Halfon,  the man behind Mangos’s original international expansion, our senior advisor and our  friend here at Orquest. Thank you so much Isak for being here today. Welcome.

ISAK
Thank you,  Adara. Thanks for all these nice words about me. I think I don’t deserve them but anyway,  thanks a lot. Thank you, thanks for your time also.

ADARA
Thank you. As I was saying, Isak  led the international expansion at Mango, the fashion group based in Barcelona, and with more than 2,000 stores all over the world today. This expands 38 years of Mango,and that’s saying a lot, that’s even more that I have been alive… Most of them as VP of international expansion. But not only  that, he has also participated in the expansion of the Al Hokair group. One of  the major players in the retail franchising industry in the Middle -East. As a consultant, he’s not only  Senior Advisor at Orquest, but also at fashion companies, such as  OXXO or Chakra, Yan&One, Marypaz or Missguided and in countries such as Turkey, Morocco, Spain or the United Kingdom. So many things, Isak.  With this a stellar trajectory, how did you start in the retail industry?

ISAK
Oh well, it was… actually, I was studying in my last years in tourism school because first, I started as a chemical engineer but I dropped out and I joined the company’s owner, the founder of the company. His name is also Isaac so I joined him just to help them with the whole operation. The whole operation, I mean, we had at that time three  tiny stores in Barcelona in the hippie areas or hip starts errors that say. And that’s how  we started. My main job was to take care of the warehouse and to send all the goods  to the three stores that we had at that time. And that’s how I started in the 1970s.  It was a very nice beginning,  hippie times, you know, we all had long hair, bell  bottoms trousers,  and all that. It was a nice time, actually. Good  start time, I would say.

ADARA
Amazing. That’s very inspiring and after all that, just leading the massive expansion that you did…. Amazing. And speaking of international expansion, what challenges retailers face while  expanding their business, internationally,What challenges did you experience?

ISAK
Well, the only  experience I had was with mango, so I’m gonna  tell you that we opened first of all, we had a warehouse and a wholesale business in  Barcelona that time, and we started opening stores of our own, some stories in Madrid,  Valencia, Barcelona… And then, we had so many clients that whoever was interesting in the brand, we start giving the franchise for their market like San Sebastian, Valencia  or Palma de Mallorca on the Canary Islands. So that’s how business starts. So when we had like I think it was 99 stores for some years, we  started having some people interested in Mango from overseas like from Portugal,  France, and UK and Germany and all that. So we started on the market, we can control like Portugal and France because we had borders with both countries so we  thought it was easier to control the business, even if it’s a  franchise. So we start opening stores in France, in Southern’s France, like Montpellier, Lyon… and in  Portugal, this is how we started because  one thing was very  clear that Mango has to control the business because franchise business is something  that if you don’t control it, you might lose the control of it. So we always like to have our own stuff, you know, going traveling  there from time to time to see how the business was because we know that once we have a  franchise business, if you don’t control it, we lose control, we don’t  recognize the story after six months. That might be a very risky thing.

ADARA
Yeah, absolutely.  And that’s a little bit related to the next question that I was going to ask you. What would be the recap of the do’s and don’ts of expanding the business  internationally? Kind of the best practices. Do you want to share other ones?

ISAK
Oh well. You know, as  I mentioned before, once we start opening franchise stores, you have to control them.  The good thing about the franchise business that you don’t have to invest your own financial capacity, let’s say, you can always lie on  somebody else funds. So it’s an easy way of spending but of course the risk is that  the business might not be as good as yours because the service that they give to the clients, it might not be as good as yours. So it has a good part and a bad part. That means that from one side, you can expand your business faster.  But also on second thought you can lose control of it. So it has to be 50/50. We always like to have company stores and franchises at the same time,  never only one side because you might lose… I mean you can lose everything. You don’t know if  they would  handle the business as well as you do. So it has to be very proactive in both ways.

ADARA
So I guess,  like keeping a tight relationship with them and making sure that the training about the  brand is very important. So the identity doesn’t get lost, right?

ISAK
Yeah. Actually, when  we opened a franchise store, we used to leave somebody from our company  for 15 to 20 days in the store, just to train them, teach them how to do the business  and you know, and control them a little bit to see everything is going well. Yeah. Not  always letting them do…. I mean, a big part of the time is always getting  in  touch with them, looking at the figures and… but of course now the system has changed because when we started in the 1970s or 80s, there was no Internet or anything like this. Now is easier to have cameras and you know, and you don’t need to have to send stuff all the time, but you can control them with information we have now,  with all the Internet and all that. So it’s easy to control now.

ADARA
Okay. I see. So if I would ask you, what is the ideal franchisee like?

ISAK
The ideal franchisee… I would say, for Mango at my time was not a very big company  because big companies that have so many brands might lose the focus on your business. But somebody dedicated and who likes the business and enjoys it and who loves the brand. I mean, if you don’t like it,  if it’s only a “profit business”… it doesn’t work.  You have to love the brand to dedicate your time. Somebody in the team has to be full time dedicated, 24 hours  a day, to the business…with some financial background, of course. Money is important.

ADARA
Yeah, absolutely. Great. So you have open many markets such as Latin America, Europe, Middle -East… Are those markets very different from one another?

ISAK
Definitely. I mean, they are completely different. You have a lot of different  markets, different politics also… I mean, for example, in South America, as you  mentioned, politics are very important because depending on who is  in the government,  you can invest more or less.  It can be more rightist or leftist.  So in Europe, it is different, you know,  more standardized, let’s say. It doesn’t matter who’s running the country but South America, it is important. And of course, each market before opening, we have to make a  small study of it to see the price study and you VATs duties and the income they have,  and we might send different products to each one because of religion issues, like, the  Middle -East as you already know, pretty well, how the market is now, you have to send.  I mean, you cannot send them, for example, miniskirts as much as you do with other countries because of long sleeves or long sleeves. It all depends on the market. Also, weather issues… Climate is also important to know, if the winter starts, and August or if it  starts in October…  You have many things to study before opening the  market. But I always say that Mango can open all over the world, the only difference between one market and the other, maybe in a city  like Berlin, you can have 10 stores and in cities like X, you can open only one store. That’s the difference. But the market will tell you how good  you are and how the performance is and how well you do it, when you have  to make some changes or price wise or collection wise or you know there’s so many different things actually to study before you go to a new market. And also the South America issue and Southern Hemisphere,  you have different climates… so it’s all the way around. You have to  study very well when you make manufacturing here, blouses or sweaters, you  have to make bikinis or t-shirts for South America, so it’s a complex situation. Companies that are running well at  the campus that are very well structured with good logistics, merchandising… All the  departments have to be involved in that.

ADARA
Yeah, so many things to take into consideration  while doing that. Absolutely. And from those markets, which ones do you think have  advanced more in the recent years? And why do you think that was?

ISAK
First of  all, it all depends on the competition you have,  how many brands you have, but it also… I can give you a good example. When we  started in Portugal, it was a great market for us because Portugal was, I would say a version… First of all, Spain was considered a superior country for Portugal. Let’s say that’s the country they are always looking forward to copy whatever they can. So, Mango was very well accepted there. And France was a little bit harder because France it’s…where the fashion first started. So it wasn’t easy because we were seen as… I wouldn’t say third world country but Spain was considered “away” in the 70s  and eighties, you know, we were not as leaders as France or the UK in fashion. So it was a little bit more difficult for people to accept the brand and to conquer that part of the world. I remember when we started opening franchise in Germany  for example, people laughing at me saying “Oh, you guys, how was your “siesta time”. So, what time do you work?”…  It was a little bit embarrassing for us and insulting ,  but we made them understand that we can also have good friends in this part of the world. It was very tough at the beginning. I have to say that.

ADARA
Yeah, I can imagine… And now look at what Spain is for the retail industry,  right?

ISAK
Yeah. Yeah….

ADARA
You have made a big dent on that. It’s amazing, incredible. That’s a great story. So, when you’re thinking about that international strategy, right? When you’re thinking about where to put those franchises or that expansion by its own brand, how are those destinations chosen? I’m interested in learning who makes those decisions,  what criteria are taken and consideration….

ISAK
Yeah.  Actually, when we have a new market on the Pipeline. First we make a small visit to at least one person from our company. We do a small market research to see, without a brand, without  position, where you can go. If it’s a shopping mall, if it’s a street. Now it is easier. Now you  have statistics, you go to the Internet. You can find which are the best shopping malls in each country… But in my time we had to visit them for three days, visit all the shopping malls, all the street lines… and see where your brand will match? Then we had to make a small study as I said before, what kind of pricewise we have to target there because not every… I mean, of course, in countries like Indonesia we can only market 10% of the population maybe, but  in a country  like Germany, we can go to 60%-70% (13:49) percent of the population or even more. So it all depends on the market.

ADARA
That previous analysis must be really thought through, right? In order to get all  the insights you need to go ahead and make the investments and the changes of  course…

ISAK
And actually that’s what the big brands like Zara do. They go to many different markets with local partners,  because the local partner  knows the markets better than you. You cannot learn the whole thing in two or three days. So once they open their  own stores, like a franchise or joint venture. They learn the business and once they’ve learned, they have the deal already done. In five years, they will take over the business. So it’s another way of doing this because you then depend on your  local partner because as I said, they really know how to handle all  operations, salary  wise and stuff wise  and even they can get better deals with the malls… I mean, if you are a foreign company, it’s always easier to cheat you. But  if you’re local? That’s even better. So we always choose a local partner to help us. Because they  know their market a lot better than we do.

ADARA
Absolutely, so going deeper into that. How would you  choose the store location? Like a reference mall flagship at Main Streets? where the  franchises decide…? How such a strategic decision is made?

ISAK
The decision is made by  both. I mean, we have to listen to what they say because they know their market but  we know our brand so it has to be, you know, win-win for both.  So they tell us a lot of things, “Okay, let’s go to this place, that place…” and then we have to do our own research to see if it matches what they say because sometimes, maybe  they want to go to a cheaper location or rent cheaper… So they might try to not  cheat you, but to convince you or persuade you to go somewhere more to adjust to their budget, but we have to say “Sorry, that’s not what we want, we want to be in this place because we think that this brand is  our competition. This is the price that we want to target, blah, blah…”. So it’s always a mix.  They recommend us, they advise us, they take us to places… and then we have to say, “Okay  now, let’s look at our side” and then we also do our own research. So it has to be both ways. It was a very big issue targeting South America because our strategy was different. We thought that we knew it but the market is different. There are a lot of  different social classes there, let’s say, in South America. So we had to adjust  ourselves, not to what we knew but also to their reality to their truth. We learned a lot and we lost a lot of money also with some  bad decisions in some markets in South America because we thought we could take the European ideas or policy there. Then we realize that we have to adjust ourselves to the  local market. And that’s something that not everybody knows. You have to  feel the market, you have to be there, talk to people and then you realize how to do  that. It takes some time.

ADARA
So interesting. So I understand that…you know, a good location doesn’t necessarily guarantee itself the profitability of the store, right?

ISAK
Oh not at all. Yeah. Definitely. There’s so many issues there like rents, sales by square meter,  margin that you want to sell,  we might give the margin that the price that we can sell…  It’s also important to know what the price strategy is in each different market. I  mean, let me tell you what happened when I was working in Marypaz. We had four or five stories in France once…  and then we realized that we thought that we could reduce prices. We did and we started selling the same amount of shoes, but with less turnover, of course. Why? Because they’re not so price sensitive in France,  but in the other way, in Germany, for example, even though it’s one of the richest countries with the higher per capita income and all that, they’re very price conscious. So we do have to sell cheaper in Germany because people are  looking for bargains. So it’s a difference between France and Germany…. They are completely  different in this sense.

ADARA
Great, thank you for that. That’s a good insight. And what else could guarantee good profitability from your point of view?

ISAK
Special after the covid. You know, so many companies went bankrupt and closed.  I wouldn’t dare to say anything, really, it all depends…. First of all, dedication. You need to be strong financially to, if something goes wrong, to be able to restart again. It’s not easy to  say it all depends on the kind of business. Also you have to realize how fast the world is changing and adapt yourself to the new strategies, especially during covid we realize that the website and the Internet can do a lot to help you on the sales  wise. So we have to adapt really fast to this world. We have to  start with the marketplace or start selling to other market places in the area  or your own business on the website. You know, the world is changing so much and so fast, so you have to be very focused and not lose one day, you know? If you stay out for 6 months, you’re out of business.

ADARA
So, how do you think this online “boom” has affected the physical stores?

ISAK
Online is affecting. It will be affecting but of course, it doesn’t mean that that’s  the end of the shopping. I mean, I’ll give you an example because I remember once I was  in the UK and somebody, I don’t remember who it was, but he said something very wise to me “Before, If you want to be known in UK, you needed to have 200 stores all over and now maybe with the 50 stores and a good website, maybe you can make the same amount of money”. So I would say that it is affecting.  It all depends on the kinds of products…. Actually, when I started in Mango, we started in  2000 with a website and I thought we were selling more basic garments, like a polo shirt that I know my size is a large size, it’s gonna be easier to… but it’s not like this,  so I was wrong. I know, for example, shoe companies from Portugal, Parfois, the product they sell the most are shoes. And shoes are something that is not easy to sell online, because if it doesn’t fit you they can hurt your feets, whatever. So times are changing, now people buy three pairs of shoes and then send it back too, you know. So Internet sales are effective sales but  I think going shopping is still gonna be  an important part of the world  because otherwise, you’re gonna stay home all day. So it’s not funny either and also some markets like the Middle -east for example. The only fun they have is going to shopping malls because there’s nothing else. Until a couple years  ago, there were not even cinemas or bars. So they have to  go somewhere, go shopping. But in Europe, I know it’s different. I know the younger  generations are buying a lot more on the Internet, but I think that the compulsory cells will always be there somehow. Maybe some products less, some products more but there.

ADARA
It needs to adapt, no?

ISAK
Yeah, yeah, definitely. You have to find the right time, the right moment to  match them. Both of them. And that’s what I said. Instead of maybe small stores, all  overhead, have only flagships. It depends on the brands of course, or the other ones may choose another way… but you cannot only have a website,  it doesn’t really work. I know ASOS is doing great and companies like Zalando or Amazon… but even these kinds of companies are opening their own retail stores. I mean, I know that ASOS now  has its own brand because they need to have a presence somewhere. I would say, you know, both.

ADARA
Okay. Okay, very interesting Isak…

ISAK
I  worked in a company, like, misguided, as you mentioned before,  and they had only stores, and then they had to open a couple stores in the UK. And now, we opened many stories in the Middle-East because they realize that only websites it’s  limited. They limitated what they were doing?

ADARA
Yeah.  You definitely have seen it all,  haven’t you?

ISAK
And I’m looking forward to seeing the rest. To see the future. How is going to be the future of retail… and I think  nobody knows. The stores, I think they have to give a different kind of  service to keep track because otherwise… you have to do  something.  And I see some changes going around. I mean,  nobody knows what’s gonna happen, but in 10 years, we will see a lot of different things  and they are offering a lot more things in the retail business to keep on selling and so people will desire to go and buy there and not not online. I’m a little bit old fashioned for that. So I do believe in the online, plus the retail, the retail that we all know but maybe a little bit more advanced and with more gadgets like say the stores and you can amuse the kids while the moms are buying or you know, something has  to be done to to keep these people going to the stores. They’ll find a way.

ADARA
Yeah,  absolutely. Well, Isaac, thank you very much, very interesting everything that you share today. I thank you, dearly for being here with us, and for sharing so much wisdom in a nutshell…  And one more thing just to finish leaving your audience with a final  thought. How would Isak Halfon summarize his business philosophy?

ISAK
Well, first of  all, you have to enjoy what you do. Otherwise it doesn’t work. That’s my main thing. If you’re not happy doing what you’re doing, I think you better change your profession. And secondly, you have to be very optimistic and opened your eyes because the world is changing so fast. It’s like a train going, you know, like a bullet train that you have to catch very carefully and to grab. Don’t leave yourself because you’re gonna get out of fashion.

ADARA
Thank you…

ISAK
And long life for you guys, for, Orquest also.

ADARA
Thank  you.

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