Shufersal Bid to Become Israel’s Amazon Fizzles

American Outlets sought to combine best of local, overseas online shopping experiences

Shufersal Deputy CEO Uri Kilstein presents American Outlets at a press event in Tel Aviv, November 4, 2018.

When it was launched in late November, American Outlets was touted as “Shufersal’s online revolution.” Israeli shoppers finally had a homegrown alternative to Amazon, Asos and eBay to do their clothing and other shopping with a Hebrew interface.

Israel’s biggest supermarket chain, Shufersal, saw American Outlets and a host of other websites it has launched to sell everything from vacations to electronics and furniture as turning into Israel’s Amazon. American Outlets offered at least 2.5 million fashion items from the United States.

Two and a half months later, Shufersal is trying to figure out where it went wrong. Sales have been so poor and customer dissatisfaction so high that the retailer weighed shutting down American Outlets altogether and rebuilding it before relaunching it.

In the end, the company decided to fix the problems on the fly by improving customer experience and delivery times without shutting down first.

Shufersal declined to comment on the overhauls, saying only that it was instituting “updates, changes and adjustments in line with the insights and lessons we’ve learned since the pilot launch of the site.”

Shufersal is Israel’s unchallenged grocery leader, with sales of 12.5 billion shekels ($3.4 billion) in the past 12 months. When it sets its mind on a new strategic thrust, it has the financial resources to spend heavily to build and the executive talent to do it.

E-commerce is growing rapidly in Israel, with one estimate that online sales will grow to 15 billion shekels, or 12% of all retail turnover, in 2020, from 7 billion and 6% of all sales in 2016. But thanks to favorable customs and value-added tax advantages, not to mention lower prices and greater selection, overseas websites have captured most of the market. Shufersal recognized the challenges it faced, but apparently underestimated their size.

In order to offer low prices and enable customers to qualify for the customs exemption on shipments costing less than $75, Shufersal formed a tie-up with Lev Cargo, a U.S. company owned by an Israeli living in Miami. Lev Cargo is the registered owner of American Outlets, and Shufersal is simply the marketing company that collects fees on each sale. The website homepage is billed as “American Outlets in cooperation with Shufersal.”

The downside of the arrangement is that Shufersal had no effective control over the site. It could instruct Lev Cargo’s small U.S. staff, but it couldn’t build the website or set up a call center and other critical functions it could have if it owned the site.

After three months of operations, the significant problems with the website are easy to detect. American Outlets’ prices aren’t especially competitive with those overseas, both in bricks-and-mortar stores and online. Many products came with no warranty, delivery charges were high and delivery times were longer than for other Israeli e-commerce sites.

American Outlets promised prices on par with U.S. outlet stores. That makes its prices lower than what is available in Israel (albeit mainly due to the customs exemption, which other Israeli retailers have to pay and pass on to their customers), but they weren’t competitive with international websites.

An informal survey by TheMarker found that American Outlets’ prices were almost always higher than at overseas sites. For instance, a 60-milliliter bottle of Hugo Boss’ Hugo Hombre Extreme perfume costs 182 shekels ($49.80), including delivery, on American Outlets. On eBay it was 9% less, at 165 shekels.

American Outlets offers the popular men’s Uniqlo down jacket for 288 shekels, but on eBay it’s priced at 236 shekels, 18% less. Likewise, prices for Lancome Rouge in Love lipstick and Sony headphones were considerably cheaper on sites other than American Outlets.

For a pair of Adidas Lucas Premier Mid sneakers, American Outlets had a small price advantage over Asos at 299 shekels versus 312 shekels, but only because it offered discounted shipping: $5 on purchases over $40, versus a normal charge of $15 to the customer’s home and $13 to a collection point.

American Outlets’ other big disadvantage is the relatively slow delivery times, which run from seven to 14 business days. That’s no more than overseas sites promise, but local ones get orders to customers faster. Some offer next-day delivery, or a maximum of a few business days.

Another drawback is that Shufersal offers no warranties or local service on items bought on American Outlets, so buyers take the same risk as they would ordering on Amazon or Ebay. Buying from an Israeli site typically includes both.

American Outlets also doesn’t offer a complete Hebrew interface. The product categories appear in Hebrew, but the product names and descriptions are in English and prices are posted in dollars, so the shopper has to make his or her own estimates of what the cost in shekels will be.

Ironically, many overseas shopping sites, such as Asos and Ali Express, post prices in shekels, and eBay even offers an option to add in tax and shipping costs in shekels.

The one small advantage American Outlets has is that it can time its sales to Israeli holidays instead of Christmas or Presidents’ Day. It also offers products that meet Israeli standards, for example electrical items with plugs that fit into Israeli outlets.

Nevertheless, these are relatively minor advantages that won’t make the site a serious alternative to local and overseas competition.