Amazon Is Taking Israel by Storm. Here Is What This Means for the Market

The hard-pressed Israeli consumer can expect lower prices and better service, but for retailers and mall owners life will be less pleasant

An employee works at the Amazon fulfillment center in the village of Dobroviz, near Prague, Czech Republic, December 20, 2018.
DAVID W CERNY/ REUTERS

For years, the hard-pressed Israeli consumer looked on from afar as online commerce spurred competition, lowered prices and offered shoppers a seemingly infinite selection of products. Israelis could buy from Amazon, the online retail king, but only from overseas sites, which meant long waits, lost deliveries and complicated return processes.

Now Amazon is on its way here. The company confirmed last week that, within the next few weeks, it would launch a local version of its website in Hebrew, both for local buyers and sellers. What does it mean? The following are 10 key questions.

Does it mean Amazon will be offering its entire range of services in Israel?

No. Amazon doesn’t plan, for instance, to have a logistic center and warehouse in Israel, at least for now. Its entry into Israel is only partial. Amazon won’t be supplying merchandise directly to Israeli consumers; instead, it will act as a platform for local vendors.

A view of the Amazon logistic center with the company's logo in Dortmund, Germany November 14, 2017.
Thilo Schmuelgen/ REUTERS

What does that mean for local shoppers?

Amazon calls its offering in Israel “fulfilment by merchant,” which means the third-party seller is responsible for inventory and shipping, as well as refunds and returns. However, sellers have to maintain Amazon’s high standards for all processes. That’s different from the “fulfillment by Amazon” system in which the company itself is responsible for the entire supply chain.

So what will change in Israel regarding online shopping?

Amazon is well known for spurring competition and change in every market  it enters. It sets new standards for customer service, whether it’s delivery times, instant refunds, selection or price. The company is requiring that Israeli third-party sellers offer five-day shipping maximum inside Israel. That’s a big improvement over what’s available now for Amazon shoppers; orders on Amazon from abroad can take two weeks or more to arrive.

Moreover, Amazon is encouraging vendors to offer free shipping as well as more competitive prices. Vendors who comply the most with Amazon’s recommendations get higher placement on product pages. That leads to more sales for those with the highest placements and encourages competition between Amazon vendors. It should also encourage non-Amazon retailers to follow suit.

What’s the launch date for the Israeli site?

There’s no official date yet; Amazon likes to keep its plans close to its chest. But the word is it will happen by the end of this year, probably before the big November shopping events – Black Friday, Cyber Monday and Christmas sales.

Packages ride on a conveyor system at an Amazon fulfillment center in Baltimore, United States, on August 3, 2017.
Patrick Semansky,AP

Why do the shares of Israeli mall owners drop every time there’s news about Amazon’s arrival in Israel?

Israeli malls are already feeling the effect of growing Israeli online shopping (and more Israelis are shopping abroad while on vacation). They’re also suffering from overbuilding that has left malls cannibalizing one another’s business. When Amazon comes to Israel, online shopping is expected to grow even more at the expense of brick-and-mortar stores. Retailers will close or reduce their floor space and malls will have to cut the rents and management fees they charge.

In addition, they have no choice but to invest money to compete in the new world of retail. That means developing leisure and entertainment offerings at their malls, more restaurants and unique services to lure customers in. Copycat malls are a thing of the past; now they have to stand out as an experience that will draw shoppers away from their screens.

How will Israeli retailers be affected?

Amazon is offering them an additional selling platform already well known to shoppers and easy to use. On the other hand, it exposes them to competition from overseas retailers, many of which have bigger selections  and can offer lower prices. Israeli retailers will have to lower prices and improve the customer experience at their stores to compete.

Tel Aviv's Azrieli Mall, April 9, 2019.
Meged Gozani

Some will lose sales and cut back floor space, if not close stores altogether. The bigger, more established brands with customer clubs are the most likely to survive.

Will retail prices in Israel come down?

Yes. For every product sold in Israel, there will be scores of vendors offering fast delivery and generous refund policies.

Why are some people claiming that Amazon’s entry into Israel will spell the end of personal imports?

Products sold in Israel are subject to a value-added tax of 17%, but the same products purchased overseas by a consumer are exempt as long as the delivery doesn’t exceed $75. Local sellers on the Amazon Israel site won’t enjoy the exemption.

If so, does that mean it won’t be worthwhile to buy on Amazon Israel?

It depends. It’s reasonable to assume that products will be slightly more expensive because of VAT, but they should be lower than elsewhere in Israel. That’s because of the competition between vendors.

Is there any chance that Israel will stop imposing VAT on consumer products?

It doesn’t seem likely. This has been an issue between the treasury and retailers for quite some time.

Finance Minister Moshe Kahlon has repeatedly said he has no plans to rescind VAT for local retailers. In response, a year ago the Federation of Israeli Chambers of Commerce and other business groups turned to the High Court of Justice, demanding that the government end alleged tax discrimination against local retailers. It dropped the suit after the court said it wouldn’t second-guess economic-policy decisions by the government. But the fight isn’t over.