About five years ago, just before Steve Lax put up nearly his entire life savings to buy Naot—including its 2,000-person factory in northern Israel and the oversight of various distributorships around the world—the veteran footwear exec was thinking about retiring rather than acquiring. Lax was marking almost a quarter century as CEO of Yaleet, Naot’s United States distributor and top-ranked market. He could head off into the sunset successfully. He didn’t need the headaches that come with ownership, especially of a company in as much turmoil as Naot was. The minority owners had been in a knockdown, drag-out fight over the direction of the business. It was so bad that the CEO, a longtime friend of Lax’s, called with an ultimatum: “Steve, if you don’t buy the company now, 2,000 people in Israel are going to lose their jobs in three months.”
Lax loved the company, the product, the distributorship he had built and, most of all, the workers who helped make it all happen. The thought of it going up in smoke was disheartening, to say the least. But Lax had no guarantee that he’d be able to fix the internal problems if he bought the company. And even if he could, new problems would inevitably arise. This is the shoe business, after all. Lax was torn: Try to save the company or exit stage left? Then his wife, confidante and business partner, Susie, offered a bit of sage advice: “At the end of your life, you don’t take your money with you; you take your good name.”
Lax decided against the exit strategy, though his decision runs counter to current wisdom in the business world. “The first thing any accountant or lawyer asks when you’re planning to buy something is, ‘What’s your exit strategy?’” he says. “That’s the common denominator in business today, and it’s horrific because it means there’s no continuity or loyalty. People are just in it for a quick buck, to get in and out fast.” In contrast, Lax says his acquisition of Naot is all about the long term. His goal is to fix the internal problems, unify the company worldwide and groom its next generation of leaders. Lax’s daughter, Aylet, has been named CEO of the U.S. division while Lax himself assumes an active role as chairman overseeing the entire company.
“We are changing the company to make sure it’s run as the same brand worldwide. Previously it was a bunch of subsidiaries sharing the brand, all with different perceptions of it,” Lax explains. “We’re rebranding so that we’re known as Naot worldwide. Yaleet will be doing business as Naot USA.”
Initial efforts to unify the product line and image have already paid off. “It’s helped us to become more successful in Canada,” Lax says. “They had a very orthopedic look to the line, as did Australia, whereas here we’ve gone more into a fashion direction that is still comfort, and it’s worked very well for us.” There was some resistance at first, but now that distributors see the sales increases, they’re embracing the new approach. “We’re still sensitive to the fact that every market has its own tastes and needs, but we have a worldwide vision of what we should be doing,” he says. Such a unified vision is a must if Naot is going to compete and continue to be aggressive, he says. “It saves on waste and energy, and it will help us reach the next level as a company,” Lax says.
Of course, challenges have arisen in Naot’s efforts to grow. For starters, the retail environment has been no picnic lately. Millions of Millennial and Generation Z consumers are changing the way the world shops, led by a “less is more” approach to consumerism. “The last five years haven’t been an easy market, at all,” Lax says. “We haven’t grown the way we wanted to, but we’ve succeeded in an incredibly good way. It’s like we’re working twice as hard to do the same.”
In fact, if he’d known how hard the past five years were going to be, Lax admits that he might have opted for retirement. It’s one thing to compete against other companies and deal with economic challenges, but Naot’s internal issues proved more taxing than anything else. The minority owners had been practicing a scorched earth policy to get their way. Making matters worse was that, in the rush to purchase the company, due diligence took a back seat. The German distributor was bankrupt, the Canadian distributor was nearly as bad off and the Australian distributor decided to retire soon after the deal was signed. Those unforeseen and costly issues had to be fixed ASAP. “We were trying to help, but we were a little naive with people who were selfish and nasty,” Lax says, noting that he would never put his wife and family through such an ordeal again.
But the acrimony is fading as Naot unifies under the Lax family’s majority ownership. The future looks brighter, despite the troubled market and a world of unrest. Lax, who hails from a line of entrepreneurs, is an optimist under his veneer of pessimism. He’ll often lament that the world seems like a lost cause, yet he presses forward, acting in the interest of his employees, retail partners, customers and those less fortunate through the company’s philanthropic programs. He believes every day presents an opportunity to make the world a better place, and it starts at home. “I feel incredibly blessed,” he says. “While I have a lot of worries, overall we are trying to do right by our company, our retailers and the world.”
Naot has long been a labor of love for Lax, and the positives far outweigh the negatives. “What I love about what I do is it allows us to help lots of people,” he says. Case in point: The U.S. subsidiary donates shoes to homeless people every week. In fact, the company just shipped 10,000 pairs to Puerto Rico as part of hurricane relief efforts. “That’s my favorite part of the business, and now it’s what this company is all about: trying to make the world a better place.” For Lax personally, it’s also about leaving a meaningful legacy—what he considers the mark of a successful life. His mother, who recently passed away, was a Holocaust survivor who had seen the best and worst of humanity. “She created, out of the ashes of Europe, a strong family legacy,” he says. “Being able to continue that legacy means the world to me.”
What does your daughter bring to the table as CEO of Naot USA?
Aylet has been a big part of our division’s success over the years. She came into the company almost 15 years ago. Before she had worked in advertising, and I first sent her to England where she earned a degree in shoemaking. Aylet along with a couple of younger women working for us have pushed us to get younger and more fashionable. She has a much better eye for color and style than I do. While we have an amazing design team in Israel, she has been able to keep them directed.
She’s experienced, proven and ready.
She has been doing this basically since she could walk and talk. She also spent six months working for Danny Wasserman at Tip Top Shoes. They loved her. All three of my kids were doing trade shows from a young age—they all could present and sell the line. Beyond that, this allows me to focus on transforming this company from separate entities into a worldwide brand. My family owns the company and our CEO in Israel has a minority stake. But we’re looking for a successor CEO to take over the factory and, eventually, the same goes for me.
So it’s an exit strategy of sorts.
Not because either of us want to, but neither of us are getting any younger. I believe that it’s dangerous for a company to be dependent on two older guys. We’re not retiring. We’re moving over to make room for the younger generation.
Where is Naot at now in this unity drive?
Our CEO had told me I bought an amazing company with a lot of problems. So we’ve been dealing with those mostly the last five years, and we’ve solved a lot of them. The Canada and Australian distributor issues, for example, are cleaned up. We’ve also shut down about 10 businesses that the former owners had acquired. They had been taking their eyes off Naot, buying companies that were bankrupt that they thought that they could turn around but lacked the capabilities to do so. It was all being done to create an illusion of a giant portfolio, and they didn’t care if they made or lost money. It was a real mess, and we’ve had to clean all that up.
But you did recently take on Source as worldwide distributor outside of Israel.
Yes, that’s a brand that I’ve admired for years and we finally got a deal done. They are an Israeli outdoor performance brand. It’s helping get us into outdoor specialty stores, including Naot. In addition, its hiking boots with winterized features is adding to our year-round offering, especially in Canada. Source is bringing a whole new direction to the company. We’re really excited about its potential. We have some unique product in the pipeline. I challenged our design team to deliver the next greatest products. I don’t want more of the same. Naot brings a lot of great design abilities to Source that will allow us to think outside of the box and go into some new directions.
Where do you envision Naot in five years?
First, it’s very worrisome where the world is going. I think consumers in general are concerned about whether they’re going to have enough money to pay their bills. The difference between the haves, and the have-nots around the world is widening rapidly. The rising cost of medical care, for example. Your kid gets sick and you can become broke overnight. People are also living much longer, but few have saved enough for retirement. The financial problems are on a whole other level. In addition, the worldwide concern about peace and security is adding to the worry. We seem to be in a very tense stage.
Walls being erected, nationalist politicians being elected, wars…It’s not a pretty picture.
It isn’t. In the speech that I gave at my mother’s funeral I noted how she was an unwanted immigrant. Yet she and her sisters built an incredible life in this country. Immigration helped create incredible prosperity, just like it has in Israel, which has doubled in population over the past 10 years. There’s hardly any unemployment there. So this worldwide fear of others, just from a retail perspective, creates horrific problems. Without immigration, we’re a dying country.
It’s just one of many macro problems impacting retail.
Yes. Like the younger generation being a lot less consumer driven. They want quality rather than quantity. It’s changing buying habits tremendously. There’s also changing weather patterns that our industry refuses to adjust to. A lot of goods go on sale before people even need them. It’s biting us all in the rear end, and there’s nobody to blame but ourselves. For example, if I see a line at a cash register making customers wait, then that retailer is a moron. Customers don’t want to wait for anything today. Many will not come back if they do. Retailers often complain about the internet, but expecting customers to wait 10 minutes just to buy something is crazy. You’re the problem, not the internet.
What’s the solution?
Better service. Retailers have to come up with unique ideas to make shopping in their stores a pleasant and efficient experience. We recently opened a Naot flagship on Long Island. We have about 80 stores worldwide, and I wanted to try and understand our stores better and create a platform to use in Israel, Canada, Europe, Japan, etc. I wanted to make a statement of what a Naot store should be like. We invested in artwork, it’s comfortable, the service is immediate. We made it fun and beautiful, and it tells the unique story of this amazing Israeli brand.
How’s it doing?
It’s not been easy. I can commiserate with retailers. It’s hard to succeed today with all the competition and challenges. You just don’t know where you’re going to get hit next. The environment is very difficult. Plus, there’s the whole insecurity of what’s going on with technology. It’s changing so rapidly, and you don’t know which direction the next thing is coming from yet you have to be ready for it. For example, we’ve talked a lot recently about whether to include tracking devices. Should we get involved in that technology just to stay relevant? There are questions about what’s important in terms of technology and what’s a waste of time. It’s the same with advertising, which is totally different than 10 years ago. As newspapers struggle, how do you get your brand message across? It’s scary watching industries struggle and some literally disappearing overnight.
Like streaming did to Blockbuster.
Our family was a regular customer. For me, this goes all the way back to when I was living on a Kibbutz in the 70s and growing cotton. It had been a profitable business and then overnight the Chinese stopped importing cotton and the price dropped by half. The following year they started exporting cotton and the price dropped by another half. The cost of watering our cotton was more than what it sold for on the marketplace. That was a lesson in the strength of China. I learned to not directly compete against them.
Yet Naot makes shoes in Israel while many of your competitors manufacture in China.
A key aspect of my corporate philosophy is that unless you are doing something different and unique, you shouldn’t be in business. If you’re not providing either a service or an answer to a market or a problem, then it ultimately boils down to price. Eventually, you’ll get eaten alive because there’s always going to be someone who will undercut you on price. At the end of the day, it’s our culture, design and craftsmanship that makes Naot special. We offer a great story and an incredible product. It has tremendous value. Our shoes last a long time and are extremely comfortable. Our consumers are incredibly loyal—they are Naotics. People literally have hugged me, saying how our shoes have enabled them to walk pain-free again.
And they are willing to pay more for it.
Our average price is about $150 for sandals and $200 for shoes. It’s not a cheap product. In many stores, Naot is the most expensive brand, but we’re also often the best-selling one. And while strong margins are important, not enough turns means you’ll be out of business soon. We’ve always preached that you can make a huge amount of money selling Naot because of our great turn rate. In addition, we treat retailers fairly and equally. We offer no discounts, no matter the size of the retailer or the order. We’re equally loyal to all our customers. No. 2. We offer incredible service. No. 3. We have incredible product featuring amazing design that’s innovative and fresh. No. 4. We are unique in that we are based in the Middle East but influenced by Europe—it’s a very cosmopolitan brand that reinterprets trends for a worldwide market. Retailers often say we’re the best at what we do. (NSRA named Naot “Vendor of the Year” in 2017.) I just received a letter from one who is retiring after 50 years, complimenting us as being the best at what we do. That kind of recognition gives me confidence that we can become something greater. I told our team recently that some think we’re the best. However, I added, I think we suck. My standards are higher. I said we better get better, faster and smarter, because it’s not good enough.
No pressure sales a la buy this in order to get more of what you want?
We do just the opposite. We tell retailers to buy a little less and fill-in. My whole philosophy has always been: I don’t care what I sell you today, it’s about what I’m selling you two years from now. And if I’m not selling you then, we didn’t do our job right. We’re the warehouse that can ship orders the same day. The big guys can’t work as fast. We are the ultimate open-stock company. The challenge now, however, is we’re not working with buyers as much as we used to. Plus, the internet offers little buying pattern on what sells on any given day. It can wipe you out on a style because you had no read on the potential. It makes our job harder.
Just another challenge to overcome.
It is. A big part of our business is now done through internet sites, and that’s really direct-to-consumer (DTC). Those customers didn’t go into a store. Historically, the first gatekeeper a designer had to go through was the distributor. The second gatekeeper was the buyer, often followed by the owner, then the salesperson on the floor and finally the consumer. Whereas online, it goes directly to the consumer. There are no other gatekeepers. Making it more challenging is the fact that internet companies aren’t like buyers in the traditional sense. They are negotiators. It’s like working with lawyers. They buy the whole line and tell you the terms.
A lot of wholesalers have been ramping up their DTC efforts. What’s Naot’s position on that channel?
I’ve always said we’d never compete directly with our retailers, and we don’t. We don’t sell a single pair on our website DTC. Business is hard enough for our retailers for us to compete directly against them.
Might Naot just be the last brand not selling DTC?
I don’t know. But to me it’s foolish to do if I want to stay in business long-term. Besides, just because we’re a good distributor doesn’t mean we’d be a brilliant retailer.
It seems that losing sales to wholesale DTC sites has surpassed competing with online dealers as the No. 1 concern.
It’s the same way we don’t open stores near existing accounts. Basically, retailers are having a tough enough time with rising rents and less traffic. Then there’s all the spiffing going on. It’s a bribe, really. You’re selling an inferior product to your customers because your salesperson has their hand out. It’s a short-term strategy, because if the consumer doesn’t like the product, then they are likely not coming back to your store. Plus, your salespeople’s loyalty is to the brands offering the spiffs and not to the store.
What does this all mean for shoe shopping going forward?
At the end of the day, our best sales are when people try on a pair in a store. Lots of people still want to do that before buying, and I believe there’s always going to be a need for trying on a shoe for the first time. You still can’t touch the latest and greatest on the internet. Fortunately, there are some incredible retailers around the country that make this type of shopping enjoyable.
Plus, no return hassles and, in the process, lessening that carbon footprint.
I agree. The amount of waste involved with shipping goods back and forth when shopping online is a big negative. I think we’re in for a rude awakening, environmentally. I don’t think the hurricanes last year were an anomaly. Of course, it’s not just online shopping causing the damage. It’s the whole way we do everything. I feel bad for my grandkids in that we didn’t create a better world for them. My parents created a world that was much richer than the one they came from.
Exactly how do you remain optimistic when the world looks to be going down the toilet?
My wife is a spiritual counselor, so that really helps. Also, each day is an opportunity to do something positive. While I’m no saint, if I help create something that helps our company and our retailers—great people who I consider to be some of my best friends— that’s what keeps me going forward. It’s genuinely a joyful ride. I’ve been very blessed. Sometimes I think somebody up there really likes us, because there’s a lot of luck involved—being in the right place and taking advantage of it. I’m a lucky guy. I really love what I do.
What specifically do you love most about your job?
I love teaching and mentoring. We’ve hired young people with criminal backgrounds and helped turn their lives around. We’ve hired people with disabilities and helped build self-esteem. I also love creating a team—the kinship from A to Z that spans building a successful company and trying to make the world a better place.