One morning it happened – Honigman, a well-known fashion chain is filed for court protection from its creditors by asking for a stay-of-proceedings. The company owes creditors NIS 234 million. Looking into this case study will teach us that although the sudden collapse, there were strong signals showing the failure is on its way. Other Israeli fashion retail chains are also under pressures feeling the decline in sales, while the Israeli economy is doing well. So what is going on?
Hoingman Ltd. is an Israeli fashion chain with 150 stores throughout Israel and over 1000 employees, specializing in kids and woman’s clothing founded in 1947 and is privately owned by the Honigman family. It has a good reputation and many loyal customers over the years, managed by conservative management. Its stores are located in the big shopping molls, and its products are positioned in the mid-range prices as well as its quality. The Honigman group chain manages three brands – Honigman Women, TNT, and Honigman Kids. Its revenues in 2015 were NIS 287 million with net profit of NIS 3.3 million and in 2016 NIS 276 million with net profit of NIS 2.8 million.
The competitive landscape
The local fashion market is known for being highly competitive, and over the years, Honigman was successful in building its own strong brand. Even though, the cost of having stores in shopping molls is high and increasing while far away almost under the radar, a new competition is slowly approaching – the online sales. Andy Grove, the phenomenal founder of Intel, wrote in his outstanding book Only the Paranoid Survive referred to the difficulties identifying changes: “This change didn’t happen from one day. It came gradually,” (p. 63). Meaning, that the major challenge of competitive threats is to trace them earlier otherwise it is often too late.
The online threat
Israelis are known for being early adapters. Since the broad civil protests of 2011, Israelis became more aware and criticized towards the cost of living, among them high on the list is clothes, especially kid’s clothing. Parallel in the same time, Israelis started to discover the secrets of online buying and the expenditure of buying through this channel began to grow gradually. The most attractive products for the online are children clothing, which is considered to be too expensive in local shops.
Honigman under pliers pressures
Honigman group has found itself under pliers pressure from two arms. One is the high and increasing expenditures of keeping its shops in shopping centers, the declining in sales and cutting its prices in order to stay competitive. On the other side, it was the fast increasing of online orders by local customers reached to huge quantities. So, the Israeli customers became one of the leading buyers of Next and ASOS UK online highly successful brands, in addition to eBay and Ali Express, with more than 61 million packages arrived in 2017, with total weight of 10,800 tons!
Such a business phenomenon as significant online orders, has never before challenged Israeli business sector, especially fashion. It didn’t come from nowhere. From one side, the cost of living became a major issue here since 2011 while people became more aware and shopping more wisely, and this, for example, caused the collapse of one of the leading local food chains, Mega, last year. This food chain was unable to modify itself to a new business model.
The challenge of online buying is new and for quite a long time the leading local chains did not see it as a major threat. They thought that a small reduction of prices will satisfy the customers. They did not assess right the strength of the online alternatives. They were greatly surprised not only by the low prices and the quality of the online goods but also by the high level of customer’s service. This, together with the strong willing of the customers not only to buy in much better prices but also to punish the chains for being so disconnected with their customers’ expectations for such a long time, were the drivers caused the change.
What could be done?
The first challenge by the various retail chains, firstly in fashion, was to comprehend timely that something very significantly is changing in customers’ behavior. Obviously, they failed here expecting that the online phenomenon either will fade away or will keep in small size.
The local retail chains including Honigman, had to reduce immediately their expenses by smaller shops; pressures on shopping centers managements to reduce significantly their fees, to pressure the relevant government ministries to reduce taxes, differentiating themselves from global online brands and cut more expenses severely. Those who build up strategic alliances with global brands unlike Honigman, are in better situation. It is still a question why these retailers did not develop aggressively their own online delivery systems, and those initiated it (like Fox and Supersal) waited so long and look as if they missed the train.
Scholars in business strategy are aware of the phenomena that successful businesses often ignore threats and are too focused on daily activities and ignore external treats. As strategy guru, Peter Drucker once said, “Ninety percent of the information used in organizations is internally focused and only 10% is about the outside environment. This is exactly backwards” (see the book by Seena Sharp, Competitive Intelligence Advantage, p. 13) .
Too often, when corporations don’t peruse correctly the signs ‘written on the wall’ i.e. ‘early warning signals’, and avoid acting promptly, they are doomed to fail.
Keywords: Online buying, Israel, competition, fashion, retail chains, competitive strategy.
Avner Barnea, Ph.D. is a senior competitive intelligence strategic consultant and also teaching strategic CI in various MBA programs in the academia in Israel. He is the head of special program on competitive intelligence, corporate security, cyber security and crisis management in the MBA program at Netanya Academic College, in Netanya, Israel. Avner is teaching the course ‘Strategic Intelligence in the competitive landscape’ in a few MBA programs including the Academic College of Tel Aviv- Yaffa, and the MA program of the Department of Information Science, Bar Ilan University. He is currently chairman of the Israel CI Forum (FIMAT); he also member of SCIP (Strategic and Competitive Intelligence Professionals) Board of Directors and distinguished member – academia of SCIP. He is a former senior officer with the Israeli Intelligence Community and is a research fellow, the National Security Studies Center, University of Haifa, Israel. firstname.lastname@example.org