Amazon’s approach to Israel gets more confusing by the day. Only a few months ago, the retail giant appeared to have given up on the idea of online trading in Israel. Now, it seems, it has changed its mind again.
A few weeks ago, a number of Israeli suppliers received a message from Amazon, in Hebrew, informing them that they could add “Local Delivery” for customers in Israel. Local Delivery would imply that these customers will receive goods they have ordered within 5 days, but how Amazon aims to achieve this is still unclear.
The messages invited merchants to become part of a “select group of sellers” that would be the first to offer Amazon deliveries in the country. For local delivery services like this, merchants may take orders from customers via the Amazon platform, but will ship goods from stocks held in Israel. Though sellers will get the advantage of trading under the Amazon name, the company will otherwise not be involved.
The move is similar to those that Amazon has made when it has expanded into other countries and territories. Amazon always starts with seller deliveries as the first stage of its activity,” Nir Zigdon, founder and CEO of eCommunity, an approved Amazon supplier, told Globes. “We’ve seen this happen in Australia, India, and now in Amazon Turkey. Later on, subject to viability, Amazon opens logistics centers and enables Amazon Prime membership.”
It may take some years before a fully-featured Amazon service comes to Israel, though. At the moment, customers in the country will use the US site to order products, since there is still no version of the Amazon website in Hebrew.
It will also allow US companies to start selling to customers in Israel, albeit not via Amazon warehouses. Instead, goods for delivery will be stored in warehouses owned by local companies.
“This new service is a positive addition to the current Amazon shopping experience for Israeli customers, providing them with quicker and cheaper delivery, while also offering a great opportunity for local, Israeli businesses to grow their businesses on Amazon,” a source close to Amazon told Reuters.
Amazon and Israel
This news may be welcomed by local businesses and customers, not least because it is a positive development in what has been a torrid year for the mega-retailer in Israel. Earlier this year, we reported that Amazon had experienced technical issues with its delivery service, and that these difficulties had appeared to put a hold on the roll-out.
Amazon also appears to be expanding other operations into Israel. There have been reports that the company is planning to open a data center, which might be an indication that it hopes to bring some other services to the country: besides its retail operations, the company has also borrowed ideas from other companies successful forays into web services like dedicated, VPS and reseller hosting – which has proven popular amongst North American consumers and I.T. professionals – and even cybersecurity solutions.
Nonetheless, at the moment businesses in Israel seem most concerned about the arrival of a new, huge, retail force in the country. Azrieli Group, which owns 13 shopping malls in Israel, was down 1 percent in Tel Aviv on Wednesday after shedding 3.4 percent on Tuesday. Retailer Fox was 1.5 percent lower after a nearly 10 percent drop on Tuesday.
The retailer is also likely to bring some of the controversy it has generated in other countries with it. In the US and UK, for instance, there have been widespread complaints that the company treats employees badly in it’s warehouses, forcing them to work long hours and monitoring their activity by the second.
It has also been responsible for some of the largest data leaks ever seen in the US, during which thousands of customers’ credentials were exposed. Whether or not the retail behemoth will learn something from this misstep or finds its reputation tarnished in any way remains to be seen. People will forgive almost anything if the price is right.
Is Israel Ready?
Despite these issues, the local market appears primed for the arrival of Amazon. The retailer already does a lot of business in the country, not least because imports ordered through Amazon US benefit from reduced tax rates: orders below $75 are exempt from taxes, while orders up to $500 are free from customs taxes.
As a result, Israelis averaged two online orders per second during 2017, according to data from the Israel Postal Company, with the nationwide total coming to 61 million packages, 15 percent more than in 2016. Clothing and shoes, housewares, accessories, gadgets, vitamins and cosmetics topped the Israeli shopping list.
Looked at from the opposite perspective, the arrival of Amazon could allow Israeli companies significant scope for global expansion. Ilanit Scherf, head of research at the Psagot brokerage, told Reuters that small businesses should benefit since Amazon’s platform puts them on the map, gives them a broader marketing base and an ability to reach customers they couldn’t in the past due to high costs of mall rentals.
She estimated that Amazon “views Israel as an important target, given local growth, the developed consumption here and the business development capability that the global company can do in this part of the world through local developments.”
The Demise of the Local Store
At the broadest level, some are concerned that the fully-fledged arrival of Amazon in Israel will spell the end for local stores and family businesses. Whilst malls and superstores are likely to be able to survive the extra competition brought by Amazon, many smaller stores won’t.
Ultimately, it is likely that larger stores will adapt by copying Amazon’s business model, upgrading their online presence and reducing the number of physical stores they operate. Like malls and other retailers, these stores will have to make shopping more of an experience in order to convince their customers to get into a car, hunt for parking, and waiting on line at checkout. The ones who respond fastest are the ones that are the most likely to survive.