Castro to close stores as poor consumer sentiment during war bites into sales

Fashion retail chain saw 40% drop in revenues and lost potential revenue of about NIS 79 million since outbreak of war, as shoppers stayed away

Sharon Wrobel is a tech reporter for The Times of Israel.

Castro clothing store at a shopping mall in Haifa. (Courtesy)
Castro clothing store at a shopping mall in Haifa. (Courtesy)

Castro Model Ltd. is planning to close some of its clothing stores in Israel as the retailer is grappling with a 40 percent plunge in revenues amid the ongoing war with the Hamas terror group.

The fashion retail group said that it is working to reduce expenses and optimize operational logistics and manpower costs to mitigate the damage to demand caused by the war.

“We will close stores that are not profitable enough, and on the other hand, we will refurbish other stores,” Castro said in a statement. “This is in order to maintain the group’s profitability.”

The group did not disclose the number of stores it will close. Estimates in the Hebrew press put the figure at 30 to 40 stores. The closure of stores comes after the retail chain furloughed 30% of its workforce in October as the outbreak of the war led to a sharp drop in customer traffic and shoppers were staying away. Other retailers, including fashion chain Fox Group, have also put at least 30% of their staff on unpaid leave.

The family-founded retailer, which was established in 1950, operates 361 stores across the country, out of which 108 are Castro-branded fashion shops. Traded on the Tel Aviv Stock Exchange, the group includes 10 independent brands – Castro, Hoodies, Carolina Lemke Berlin, Urbanica, KIKO, Yves Rocher, Top Ten, Castro Kids, Castro Home and Urbanica Station – and employs about 4,000 workers.

War broke out in the wake of a murderous onslaught by Iran-backed Hamas on October 7 in which thousands of terrorists crossed the Gaza border and massacred some 1,200 people, most of them civilians. Israel has called up a massive 350,000 reservists to join the fighting in recent weeks.

As a result of depressed consumer sentiment, which is affecting private consumption, Castro saw its revenues, including online sales, drop 40% between October 7 and November 15 versus the same period last year, the group said in its third-quarter earnings report released last week.

Most of the decline was recorded during the month of October as sales at the group’s physical stores of clothing and fashion accessories were dented. The retail chain estimates that as a result of the war, it lost potential revenue of about NIS 79 million ($21 million).

In the third quarter ending September 30, before the outbreak of the war, Castro saw its net profit more than double to NIS 12.7 million, compared with the NIS 5 million recorded in the corresponding quarter last year, mainly due to an increase in sales of its clothing segment and as a result of streamlining processes.

“The group entered the war period at a momentum of growth and profitability across all its brands and with strong financial strength following the efficiency measures that were taken over the past two years,” said Castro CEO Gabi Rotter. “Castro is prepared to deal with this complex period in a relatively good manner since the group has sound liquidity.”

The group’s cash balances as of September 30 amounted to about NIS 230 million.

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