Amazon in Talks to Start Up in Israel, Sources Say

The U.S. company is reportedly seeking a warehouse and logistics center site, as well as a private sector courier to replace Israel Post

Amazon's distribution center in Pheonix, Arizona, Nov 22, 2013.
REUTERS / Ralph D. Freso

Amazon may be coming to Israel, a move that, if it comes to fruition, would bring joy to millions of consumers and distress to the country’s retailers and shopping mall owners.

Sources told TheMarker that the online retailer is in talks to rent a giant warehouse and logistics center where it would base its Israeli operations and offer shoppers a wider range of products and faster delivery times. JLL, the international real estate company that handles Amazon’s real estate interests in Israel, declined to comment, but other sources in the industry said Amazon was seeking between 10,000 and 12,000 square meters.

“Amazon’s entry to Israel and its opening of a logistics center would be a huge expression of confidence in ecommerce here,” said Yaron Ben-Eli, CEO of UShops, which provides a U.S. address and warehouse services for Israelis ordering from online retailers that don’t deliver to Israel. “It strengthens the feeling that international players recognize Israeli buying power. I believe that the minute Amazon comes here, others will follow.”

Meanwhile, local courier services said Amazon was seeking to replace Israel Post with one or more private companies for domestic delivery services, which would also help improve service in Israel because the state-owned postal service has had a poor track record.

“We’ve been speaking with them for more than a year. They have spoken about changing couriers and also about entering Israel, although I don’t know how serious the second option really is,” said one executive at a local delivery company, who asked not to be identified.

“What is certain is that they are looking for ways to improve the speed at which packages arrive in Israel,” he added.

A spokesman for Israel Post discounted the reports. “It’s an attempt by our competitors to create fake news because we succeed in delivering 400,000 packages every day during the big buying days [Black Friday and China’s Singles Day], including thousands of deliveries for Amazon,” Israel Post said.

The prospect of competition from Amazon threw Tel Aviv Stock Exchange investors into a tizzy after the news broke on Sunday. Electra Consumer, which operates the Machsanei Hashmal chain of electronics stores, tumbled 6.9% to 64.09 shekels and apparel retailer Fox lost 5.9% to 34 while mall operators Azrieli and Melisron dropped, respectively, 4.4% to 186.50 and 6.1% to 163.50.

The arrival of Amazon, if it indeed happens, threatens to shake up retailing in Israel just as it has in the U.S. Although its accounts for just 5% of all retail sales, not including food, Amazon is gaining shares at the expense of brick-and-mortar stores. This year, the company captured between 45% and 50% of Black Friday sales, according to a report from GBH Insights.

In Israel, the retail industry – and the shopping mall companies that rent space to them – is especially vulnerable because of high local prices and limited selection. The consulting firm Czamanski Ben-Shahar estimates that each 1% of sales that malls lose to the internet represents 10,000 square feet of selling space.

While online shopping has grown sharply in recent years, Amazon only ships a limited number of products to Israel directly. A shopper who wants to get around the limitation can use a company like UShops that accepts delivery and reships it to the shopper in Israel. But that adds to the price and delivery time.

Nevertheless, not all industry figures were in a panic about Amazon. “We’re not frightened because we believe that people will continue to leave their homes and shop at malls. Some retail will go over to Amazon and it will have an impact, but it won’t be colossal. The weaker malls will die out, but not the strong ones or the leaders,” said one mall manager, who asked not to be named.

Bar-Eli said he still expected personal imports – where consumers buy and ship purchases they made from abroad, often exempt from customs and value-added tax – would continue to be a popular choice for shoppers.

“The costs of logistics, shipping of inventory to Israel, hiring of personnel and the like will, in my view, interfere with [Amazon’s] low pricing model,” he said.

In any case, Israeli supermarket chains were unlikely to be affected immediately by Amazon’s entry into Israel because online food sales are tricky to work out and have even frustrated ecommerce masters like Amazon.

In any case, Amazon’s entry will also force Israeli online retailers to improve their service, like matching Amazon’s promise to deliver goods within 24 hours of ordering, said retailers.

“The market is moving in the direction of more online sales,” said Yossi Gabison, CEO of the Castro-Hoodies group, a major Israeli fashion retailer. “With or without Amazon, within a few years ecommerce will account for 20% or more all sales in Israel and a quarter of all commercial space will be closed.”

The Castro chain already has its own website, but the company is developing its own website that would sell products from the entire group, which includes Hoodies, TopTen Accessories and Urbanica, to serve customers in Israel and overseas.