Amazon entry into Israel gains momentum

Amazon Photo: Shutterstock

Amazon representatives have been in Israel to map the trade terms here in fashion and textiles, books and media items, and electronics products.

Amazon continues to make progress in its planned entry in the sales activity in the local Israeli market. In addition to the measures being led by the global ecommerce company towards the establishment of a logistics center in Israel, sources inform "Globes" that Amazon representatives visited Israel in recent months, and also contacted major suppliers here, including the major food companies, to obtain information about market conditions in Israel. The Amazon representatives even visited the companies themselves, and emphasized that Israel was one of their target countries because of its high rate of online penetration, among other reasons.

As part of Amazon's examination, a team was sent to conduct initial checks on behalf of the company. The team said that the Amazon wanted to step up its business in Israel. The representatives made it clear that the food sector was not their top priority, and was not expected to be included in the first wave of their local activity.

As far as is known, the market conditions that Amazon wants to map involve trade and competition in the local market, with the aim of both making progress with the company's logistics center and separate activity for selling products of these Israeli companies through its online services.

As far as is known, at this stage, Amazon is considering activity in fashion and textiles, books and media items, and electronics products. These products have a long shelf life, and do not have sell-by dates.

On the other hand, although Amazon has a strong worldwide presence in the food sector, especially after acquiring the Whole Foods retail chain, it does not expect to go in this direction in Israel, at least not in the foreseeable future. One of the reasons for this concerns the special characteristics of the Israeli economy.

One of the barriers to Amazon's entry into the local food market is the need to create a supply chain in refrigeration (a logistics measure that requires set-up time and management inputs). It therefore appears that Amazon prefers to begin in other sectors. Another problem that could constitute a barrier for Amazon in the local food market is kashrut.

The name of Amazon, led by CEO Jeff Bezos, has already been linked to Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) giant logistics center at Shoham, following reports that Teva was seeking to sell it because of the downturn in its business. Bezos is the world's wealthiest man at present; Forbes has estimated his wealth as $108 billion.

How widespread is Amazon's international deployment, and to what extent will Israel join the exclusive club, if and when Amazon gets here? Amazon currently maintains activity in 11 of the world's leading and most powerful countries, including the US, France, Germany, the UK, India, Canada, China, and Japan, from where it sells to customers in 180 different countries worldwide through 109 delivery storerooms all over the world in more than 30 activity categories.

Commenting on Amazon's plans, an Israeli supplier told "Globes," "They haven't contacted us yet, but if Amazon does contact us, we'll say yes," adding, "In addition to the mergers and acquisitions in the local retail sector, the force that the Israeli retailers are exerting on the suppliers are generating great pressure on them (the suppliers, S.M.)." It was recently reported that Amazon was assessing and studying the shopping habits of Israeli consumers and the prevailing logistics and distribution practices in Israel.

Shares of shopping mall companies plummeting

The ecommerce market in Israel has grown by 25% a year in the past three years, and is now estimated at NIS 7 billion, making up 6% of the total Israeli retail market, according to figures of the Israeli Credit Insurance Company. Online sales by Shufersal Ltd. (TASE:SAE), the largest retail supermarket chain in Israel, have already increased to over 11% of the company's total sales.

One important feature of the Israeli online market is the substantial volume of purchases from overseas, which has grown as a result of the inadequate supply in the local market. At present, overseas purchases make up 40% of the online retail market, and there is great variation in the proportion of overseas purchases between the various categories.

Amazon's interest in opening a logistics center in Israel, which was reported two months ago, has had a negative impact on the share prices of the major shopping mall and commercial centers companies, due to anxiety about the effect of the retail giant's entry into Israel on the activity of Israeli companies. For example, the share price of Melisron Ltd. (TASE: MLSR) dropped 13%, that of Azrieli Group Ltd. (TASE: AZRG) 6.5%, and that of Big Shopping Centers (2004) Ltd. (TASE:BIG) 10.5%, at a time when the Tel Aviv 35 Index was booming, gaining 6.5% in the past two months, and the real estate index was up 1% during this period.

In addition, there have been many reports of stepped-up activity by Amazon in field checks and spadework in preparation for its entry into direct real activity in the Israeli market.

Growing concern among Israeli players

Such a step by one of the international online giants constitutes a potential earthquake in the local retail market in Israel. The power of Amazon, which has a prodigious $624 billion market cap on Wall Street, is far beyond anything known in the local market, and is threatening the established order, leading all the players in the non-food retail market to peer fearfully at the developments.

In any case, anxiety is growing among the Israel players, and this is reflected in an announcement yesterday by the Federation of Israeli Chambers of Commerce about its request to the Israel Tax Authority. "If Amazon does enter Israel, it should be informed in advance… that it will have to pay all the taxes levied on the retail sector on all of its sales here in Israel, whether on or offline, and will have to meet the same legal requirements for imports as the retail sector," Federation of Israeli Chambers of Commerce president Uriel Lynn wrote.

Lynn asked the Tax Authority to require Amazon to pay full tax on its sales in the local market if an when it begins doing business here, in addition to demanding cancelation of the tax exemption for purchasers on its website (on purchases of up to $75). He argued, "Everyone is fawning over Amazon as a concern that will bolster competition in Israel. As senior economists have already explained, this is a very short-term perspective. Amazon may create competition when it begins its activity, but it will also destroy competition after it becomes powerful in Israel."

Besides its plans for taking up retail activity in Israel, Amazon current employees hundreds of workers in Israel in a number of fields: chip development for its cloud servers, based on the activity of Annapurna Labs, which Amazon acquired, and cloud-related commercial activity; perfecting the option of ordering products through the Alexa virtual assistant; developing technology for the Amazon Go store, which operates without checkout counters; and computer vision.

Reports say that Amazon is offering software developers salaries that are higher than those prevailing in the sector, even in comparison with Microsoft, Google, and Apple.

Can it also make the clothing market grow?

Amazon, founded in 1994 in Seattle, Washington in the US, engages in ecommerce and provides cloud computing services. It is one of the largest companies in the global economy, and is mentioned together with Google, Apple, Microsoft, and a limited number of other international giants that have changed the international economy and worldwide consumer behavior.

When Amazon first started out, it revolutionized the purchase of books and other media, first in the US, and then worldwide (and also enlarged these markets). "The Wall Street Journal" recently predicted that Amazon could and would do the same thing in the fashion industry.

The US newspaper recently wrote that Amazon might be capable of making the clothing market grow, while noting that Nomura believes that Amazon's clothing sales in the US have already equaled Walmart's $25 billion clothing sales and Macy's $22 billion, and have exceeded them. "The Wall Street Journal" added that global sales of clothing and accessories total $1 trillion, and said that research had shown that Amazon could grab $45-85 billion of this market.

Amazon said in response, "Since we have not yet announced anything about Amazon's activity in Israel, we cannot comment on rumors or hypotheses."

Published by Globes [online], Israel Business News - www.globes-online.com - on January 18, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Amazon Photo: Shutterstock
Amazon Photo: Shutterstock
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