At Malls and Cafes, Israel's Retail Bubble Is Bursting

Merchants say consumers have cut back on shopping and leisure amid signs of a slowing economy.

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The Super-Sol at Glilot Junction. Israelis still have to eat, but consumer spending is down.
The Super-Sol at Glilot Junction. Israelis still have to eat, but consumer spending is down.Credit: Daniel Tchetchik

The CEO of a major retail chain recently turned the tables on journalists at an event he organized, pumping them for information about whether other retailers were experiencing the same horrible business conditions that he was encountering. And if so, he asked, why was this happening now and when would it end?

That executive is not alone in his concern over the recent decline in consumer demand in Israel. Some businesses have stepped up their advertising and offered more enticing sales promotions, but in many cases, it simply hasn’t helped.

“Consumers seem to have less money and have also become more skeptical of businesses,” said an executive at a shopping mall management company. “Israeli consumers have developed a contrarian attitude.”

Tamir Ben Shahar of the Czamanski & Ben Shahar consulting firm says there is simply less money for consumers to spend.

“We’re beginning to feel a slowdown in the economy,” said Ben Shahar. “Wages after inflation aren’t rising and household expenses for items like housing and regular expenses are growing. That leaves less money for spending on retail items such as food and clothing.” When you look at overall spending compared to the overall average income of Israeli households, you find that for other than the top 30%, expenses exceed income, Ben Shahar said. “And now the spending bubble is bursting.”

On the positive side, the treasury has seen a boost recently in tax revenues, which would seem to indicate a robust economy. However, the Central Bureau of Statistics reported Sunday that consumer spending during the first quarter declined by 2% on an annualized basis and by 4% on a per capita basis. Inflation in April, a month usually characterized by a spike in prices due to Passover spending, rose by just 0.1%, an indication of relatively weak consumer spending power.

“When it rains, it rains on everyone,” said the owner of a well-known cafe chain who spoke of a 5% to 8% decline in sales since the beginning of the year. “When there are fewer people in the malls, you also see fewer people at cafes. Daily traffic is down, and people are sitting at cafes less.”

According to Retail Information Systems Israel, which based its findings on data from 3,500 stores, sales volume at malls of all kinds declined by 5.2% during the first four months of the year, compared with the same time last year.

In its latest financial statements, the Fox apparel chain reported a 72% decline in first-quarter net profits and a 12% drop in revenues. Fox attributed the poor showing to the timing of the Passover holiday, which occurred in the second quarter this year and the first quarter last year. The chain also said the mild winter in the first quarter hurt end-of-season sales in January and February. Fox added, however, that it isn’t seeing a drop in overall consumer demand.

The retail food sector is among those experiencing a decline in sales volumes. According to the StoreNext market data firm, in the two-week run-up to Passover, supermarket sales were down by 1.6%, compared with last year. Beverage sales were down 5.1%, cosmetics and toiletries 2.9% and food sales 0.9%. First-quarter financial results for Super-Sol, the country’s largest supermarket chain and the only one to release those results this year, show a relatively dismal picture. The company attributes part of that to the timing of Passover, but its sales would have declined 2.5% even if the influence of the holiday is factored out.

Credit clearing company Gama Management & Clearing reported that the average food purchase during the first third of this year was 149 shekels ($43), compared with 173 shekels the same time last year. “People are buying less food and are making fewer trips to the store,” said Gama CEO Ariel Genut.

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