In the competition for the clicks of Israeli online shoppers, it’s long been the big international merchants, such as Amazon and Alibaba, that were winning. The coronavirus pandemic has led to a sea change in Israeli buying habits.
CAL, the Israeli credit card issuer, said that from March through the end of August, online purchases by Israelis at overseas websites plunged on average 37% from levels a year ago. Shopping at Israeli websites saw an average increase of 10%.
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KSP, an Israeli online merchant, was one such beneficiary. “Our online grew a lot during the coronavirus because overseas [buying] became less attractive, not relevant,” said Avichai Schachter, KSP’s business development manager. ”We’ve seen increases in sales in all categories from shampoo and perfume, strollers to laptops.”
If it holds, the trend could mean a lifeline to Israeli retailers, which have been hit hard by growing web shopping. Last year, online buying reach 19 billion shekels ($5.7 billion at current exchange rates), of which between 65% and 70% was done at overseas sites such as Asos and Next of the U.K. and India’s iHerb.
The figures, which CAL prepared at the request of TheMarker, probably understate the extent of the change in Israeli shopping behavior, said Nir Zigdon, a partner in the firm ecommunity, which advises business how to sell online.
“There’s been consistent growth of at least 10% annually in online shopping overall, so if we’re seeing a 9% drop in turnover on overseas sites in July-August, in practice that means a drop of at least 19%,” he said.
March-April drop was sharpest
CAL said the sharpest decline in shopping on international sites – a 57% year-on-year fall – came immediately after the government imposed a lockdown in mid-March and lasted until the end of April. A decline in consumer confidence caused a sharp dropoff in overall consumer spending, especially for non-essentials like apparel and vacations. Limits on international air travel cut the number of flights available for online merchants to ship goods and increased shipping costs.
As lockdown and other measures were eased, online shopping at overseas sites continued to fall but at a more moderate 37% rate in May and June, compared with the same time in 2019. In July and August, the decline moderated further, but it was still down by 9% year on year, according to CAL.
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The Israeli online merchants who saw their turnover rise the most were those selling products consumers needed the most during the lockdown. Thus, online sales of food, tobacco and exercise equipment soared as did products needed for remote work and schooling, such as tablets and cameras.
CAL said many Israeli websites did a lot better than the 10% average suggests because it includes sites that sell airline tickets, hotel reservations and tickets to events, whose sales plunged during the lockdown.
The surge in online buying helped raise sales two of the supermarket chains that have invested the most in their web operations – Shufersal and Rami Levy. But, according to the two food retailers’ financial reports, profitability shrank. That is due to the structural problem online selling is still contending with, for instance, functions like assembling orders and getting them to customers’ homes that in brick-and-mortar stores are done for free by the shopper. Online, it’s be done by paid employees.
At Shufersal, for instance, online sales grew to 19.9% of total turnover in the second quarter from 13.7% a year earlier, but the increase cut into its gross profits and slowed its rate of operating profit growth. At Rami Levy, online sales more than doubled to 9.5% from 4.5% year on year in the quarter, but operating margins dropped sharply. Rami Levy struggles even more than Shufersal to keep online logistics profitable.
As to restaurants and cafes, their online turnover has soared between 80% and 104% since the onset of the coronavirus. But not all of the sector has thrived equally. Eateries with menus that accommodate takeout – for instance, pizzerias, hamburger joints and restaurants featuring Asian food – saw their online business grow so much that it offset the drop in their eat-in sales.
But restaurateurs note that some categories enjoyed almost zero online business during the lockdown and those that did suffer significantly lower profitability in their online sales.
“For cafes, online had no role at all. At the Asian restaurants we operate, the increase in sales online meant that overall sales were almost unhurt at all during the coronavirus period, but profitability fell,” said Ronen Nimni, whose Cafe Cafe Group operates 15 different restaurant chains.
For Israeli online merchants, too, the surge in coronavirus shopping also created problems. “The coronavirus period pushed the limits of our logistical capacity. We had to cope with double the number of shipments and even more, bigger orders and with customer experience issues – really big challenges at the level of keeping the network up and running,” said KSP’s Schachter.
Customer is king
The experience has taught the company a lot. One thing is that the challenge isn’t just to fill an order on a technical level but to win over the consumer. Another is that KSP has to compete globally, which means KSP now monitors prices of big overseas rivals and tries to beat them on price. “The consumer doesn’t care from where he’s ordering online – he simply wants the most attractive offer in terms of service and price,” said Schachter.
Competing with the likes of Amazon isn’t easy, he said. “To offer the best price, we sometimes will profit more and sometimes barely profit at all. But if someone buys at an overseas site a low-priced product and it’s delivered fast, he won’t be coming back to me,” he said. “We have an opportunity. The fight is over customers – we want them to get used to our platform, so the next time it will be easy and efficient for them to use and they’ll come back.”
Reut Levinberg, who owns Reut Buy It for Me website, counts 111,000 members, said many overseas sites had failed to win back the Israeli shopper because they were still not giving good deals on shipping. More importantly, Israeli online merchants have become more aggressive rivals.
“I’ve noticed that Israeli sites are putting up a good fight [on price] and doing good work. For instance, I’ll see a sale on Amazon and suddenly they’re messaging me from Lastprice.co.il or KSP that they can match the price or at least come close to it. Because they can include a warranty and customer service in Hebrew, I often prefer to recommend their sales,” said Levinberg.
Israeli fashion chains have enjoyed a more than 80% year-on-year sales rise, but they were far from ready for the customer onslaught when the coronavirus began. The ones that were ready were Fox Group’s Terminal X and Golf’s Adika. By contrast, Castro-Hoodies only announced last week the launch of an upgraded website.
SimilarWeb, which provides web analytics services for businesses, said Terminal X saw the biggest rise in traffic. Adika’s performance was weaker due reportedly to an internecine dispute in management. Traffic at mall owner Azrieli Group’s Azrieli.com site has grown strongly in recent months and launched a dedicated apparel site called One Project together with the Mega Sport chain.