Amazon or No Amazon, Israel’s Retailers Struggle to Go Online

Some of Israel’s largest mall companies and clothes brands lost millions in their attempts to compete with international giants. Here’s how they fared

TLV Fashion Mall in Tel Aviv.
Ofer Vaknin

Israel’s local retailers, including malls and fashion chains, have been launching online commerce websites in the past few years in an attempt to draw Israeli customers who are showing a growing preference for shopping online. The new websites are supposed to compete with international giants including AliExpress, Asos, eBay, Next and Amazon.

Last week, Amazon disclosed that it is seeking to enter the Israeli market with a Hebrew-language website, inviting its existing Israeli sellers to market locally to Israelis.

>>Read more: Is big, bad Amazon really going to eat Israeli retailers’ lunch? | Analysis 

In 2016, the Azrieli Group, known for Israel’s largest malls, bought the buy2 commerce website and turned it into an online shop for itself and its mall tenants under the brand Azrieli.com. Shopping center company Big took a similar step shortly afterward, announcing it was launching the online store BIG+, which would have offered all the brands sold at Big shopping centers.

In 2018, supermarket chain Super-Sol launched its own online store, American Outlets, which offers international brands at relatively low prices.

Israeli clothing chains, the main industry to be affected by Israelis’ growing shift to foreign online sites, have followed suit. In 2017, Fox launched the online store Terminal X; in 2018, Castro bought the online fashion site Ladila, as part of its plans to open online stores for all the brands in its corporate group; and Golf bought the controlling share of online store Adika and launched e-commerce sites for all its brands.

Local retailers have spent tens of millions of shekels developing online stores or purchasing companies operating such services. Along the way, they’ve absorbed significant losses, sometimes tens of millions of shekels a year, as they subsidize services they offer customers, such as free delivery.

The losses come as the companies seek to seize market share and become part of consumers’ online consumption habits.

Some of the companies have done better than others.

Azrieli was one of the first companies to enter the field three years ago, when it bought Netex New Media part of the buy2 group, for 65 million shekels ($18.1 million), along with 75 million shekels a year in operating costs. Since then, Azrieli, which also has 13 malls, has lost 110 million shekels on Azrieli.com. The Azrieli Group, which trades at a market cap of 25 billion shekels, has spent a total of 300 million shekels on its online operations, including the loss, a loan to the online operations, and the initial investment.

The company lost 14.4 million shekels on the site in 2016, 44 million in 2017 and 51 million in 2018 – meaning the losses grew as the site’s sales volume grew. This indicates that the Azrieli Group hasn’t found a way to make online commerce profitable, and that its other operations are subsidizing the online sales.

Boxes ready to be loaded onto a delivery truck move along a conveyor belt at the Amazon fulfillment center in Baltimore, Maryland, U.S., April 30, 2019.
Clodagh Kilcoyne/Reuters

Shopping center company Big, on the other hand, shuttered its plan to launch online operations after two years, in December 2017, after investing 10 million, and before the website ever went live. The decision came about after the company realized Israeli tax regulations wouldn’t permit it to have its warehouses and shipping operations abroad, in an attempt to enable Israeli customers not to pay VAT. That tax break is only available for orders from abroad of less than $75. Big added that another consideration was that it didn’t want to compete with its own brick-and-mortar stores.

Israel’s other major mall company, the Melisron Group’s Ofer Malls, decided not to launch an online store, explaining that it didn’t wash to compete with its own stores, and that in any case, Israeli online shoppers would prefer to buy from international sites.

Supermarket chain Super-Sol released its own online store in 2018, hoping to establish itself as the local equivalent to U.S. retail giants Walmart or Target, which offer a wide range of products at attractive prices. It launched American Outlets via an Israeli businessman living in the United States, Gil Elias, and the platform is run by Elias’ company Lev Cargo; Super-Sol ultimately functions as the intermediary and the distributor.

The site, which was promoted via a TV campaign starring celebrity Shiri Maimon, offers U.S. brands and a VAT exemption. Yet half a year after its launch, sales have been sluggish, the website is buggy and deliveries are slow to arrive. Super-Sol has committed to improving the site and the shopping experience, but given progress so far, it’s hard to see the website becoming profitable by 2019, as the company had hoped when it launched the site.

Israel’s fashion companies have had mixed results with their online stores. Fox launched Terminal X in late 2017, where it offers clothes and lifestyle products from Fox and other brands within the group, as well as international and local brands with which Fox has distribution agreements. The site is expected to cost 40 million shekels to operate in its first five years. In 2018, its first year of operations, it had 31 million shekels in revenues and 12 million shekels in losses.

Golf, on the other hand, made a good gamble when it bought Adika. It was the first Israeli fashion chain with a major internet presence, which it established when controlling shareholder Clal Industries bought control of Adika for 40 million shekels in 2015. Under that deal, Adika provided the infrastructure and services to bring all of Golf’s brands online. Three years later, Golf held an initial public offering for Adika at a 210 million shekel market cap. The stock price later dropped 35%, due to investors’ fears of competition, but Golf’s share of Adika is worth 78 million today, meaning the company has profited despite the decline in share price. In the meanwhile, Adika has reported a growing customer base and sales volume, with 1.8 million items sold to 130,000 customers in 2018.

Fashion chain Castro entered the online marketplace even earlier, in 2013, and is planning to invest another 10 million shekels in upgrading its online stores by 2019 or 2020. Last year, possibly in an attempt to compete with Adika, Castro bought the operations of Adila, an online clothing brand catering to young people. Adila has annual turnover of 7 million to 10 million shekels, and some 100,000 customers. Castro is planning to invest another 10 million shekels in Adila, and to make its online stores available to international customers.

Another Israeli fashion brand to launch an online platform is Delta. Delta’s products have been available for several years on online platforms including Amazon, but over the past few years the company has been investing in its own online stores for its own brands, which also include Germany-based Schiesser and France-based Eminence. The company told TheMarker that it has seen good growth through its online platforms.