Israelis Are Shopping Like Mad, but Many Retailers Worry It Won’t Last

The post-corornavirus consumer surge has defied the worst expectations, but what will happen when people can start shopping overseas again?

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Tel Aviv's Carmel Market, this week.
Tel Aviv's Carmel Market, this week. Credit: Hadas Parush

The most pessimistic forecasts saw dark days for Israeli consumer spending in the wake of the coronavirus pandemic: Shoppers would shun malls in favor of online purchases, consumer spending would drop and many businesses would close up.

But two months after Israel’s third lockdown ended and nearly the entire economy is back in business, the reverse has happened: The malls are full, restaurant tables are crowded with free-spending diners and big retailers are issuing announcements about new brands and new stores.

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Many warn that the boom won’t last more than a few more weeks, but in the meantime, Israeli businesses are flourishing.

“March was a record month for turnover like we hadn’t seen for many years in the malls and shops. There are chains that have reported the sales were their highest ever,” said Moshe Rosenblum, CEO of Ofer Malls, one of Israel’s biggest mall owners and operators.

The latest developments got confirmation from the Bank of Israel this week, forecasting gross domestic product will be up 6.3% in 2021, the top end of its previous projection range. “The Israeli economy is recovering rapidly after its exit from the third lockdown, and indicators concerning March point to activity at its highest level since the start of the crisis,” the central bank said.

An analysis of credit card spending by the Bank of Israel shows that when the country extended the third lockdown more than a month ago, the number exceeded the trend line for the years 2016-2019.

There are several explanations for the spending boom. One is that Israeli consumers, who had been splurging before the pandemic on cheap flights and shopping overseas, felt trapped during the coronavirus months from being confined to their own country.

In an analysis prepared for TheMarker, the market-research firm Czamanski & Ben Shahar estimates that in 2019, 10% of Israelis’ non-food purchases (apparel, housewares, etc.), worth a total of 6.2 billion shekels ($1.8 billion), were made while they were traveling abroad. Online shopping at overseas websites accounted for another 10.5 billion shekels. All told, they account for a third of the total.

In 2020, however, overseas shopping plunged to at most 1.5 billion shekels, while online shopping at foreign sites climbed to as much as 18 billion shekels, according to Czamanski & Ben Shahar.

“When Israelis can really begin flying abroad, without quarantines and other restrictions, they’ll pounce on stores in Dubai and London and shop there like there’s no tomorrow,” said Tamir Ben-Shahar, the firm’s CEO.

Jerusalem's Hatachana outdoor mall complex

He predicted that the shopping spree underway now would last until the end of June at least because so many young people on unpaid leave are still collecting unemployment benefits, and restrictions of overseas travel remain mostly in force.

Ben-Shahar isn’t alone in warning that the boom won’t survive the return of global travel.

“When the skies open up again, the market’s nakedness will be revealed,” said one retail-apparel executive, who asked not to be named. “The money now being wasted locally will shrink and the businesses that now look like they’re on their way to recovery will head toward collapse.”

Strong will survive

Another executive said it was too early to tell who would survive the decline but he was quite sure that the big fashion chains would do better than smaller rivals.

Retailers are also worried about online competition. The COVID pandemic forced more Israeli shoppers to buy on the internet and they may continue to do so. The fact that so many shoppers have been storming the malls doesn’t point to a return to brick-and-mortar shopping, but to the desire to get out of the house right now.

“As time passes and the desire for a shopping experience recedes, internet shopping will grow and the main beneficiaries will be international sites,” said a manager at one of the fashion chains. He said the main losers would be small and medium-sized retailers catering to the mass market.

“The international sites sell products of identical quality at lower prices and with fast delivery. The crisis isn’t behind us. It will happen slowly but surely,” he said. “Many players sell brands that don’t allow them to take much of a premium. If their sales fall 10%, their profit will collapse.”

There are already signs that the boom is wearing thin. Data from Retail Information Systems, or RIS, showed the turnover in stores by square meter of floor space declined in April from March. Daily turnover in March was 16% higher than in March 2019; in April it was up just 1.7% so far, compared with two years earlier. At the 30 biggest malls, it was down 2.5%.

Rosenblum of Ofer Malls said he isn’t worried yet. Turnover always falls after the week-long Passover holiday, which this year started March 27. “It’s impossible to know what will be in another few months because it depends on a few variables – whether there are fifth elections or not. I think that we’re in a good period and that it will continue,” he said.

Rami Shavit, who controls the Hamashbir Lezarchan retail group, confirms the RIS data, saying March was one of the group’s best months ever but that the first two weeks of April were “not good,” which be blamed on the timing of the Memorial and Independence Day holidays.

Another sign of worry is that the Bank of Israel chose this week not to raise interest rates even though consumer prices rose 2% in March after a year of declines.

Retailers have been raising prices or say they plan to. “There are shortages of merchandise and shipping costs have been rising,” said Shavit. “A container shipped from China now costs $8,000. Before the coronavirus, the price was $2,000. That alone will cause prices to rise.”

Oded BabaiCredit: Sharon Babai

Prices for inputs are rising, too. Oded Babai, an apparel maker and marketer, said that before COVID he was paying 23 shekels a kilo for fabric from Italy; now his supplier is asking for 35 shekels.

“The cost of shipping is rising and there are shortages of [air cargo] flights and containers,” he said. “I bring my goods in by air, which is costing 25% more than before the coronavirus.” Because of the stiff competition he faces, Babai said he has limited increases in the prices he charges his customers to 5%, and he absorbs the rest.

A lot of the new store openings and new sub-chains and brands being introduced in Israel by retail leaders, such as Fox Group, Castro Hoodies and Electra Consumer, are coming at the expense of smaller retailers, who can’t compete after a year of damage from the coronavirus.

“This is a great time for those with deep pockets,” said one apparel executive. “Your rivals have been weakened and you can go stronger at their expense. It’s also a good time to make deals with international brands, because here the virus is over while in Europe and elsewhere it is still raging. Players have greatly improved their terms versus international brands and signed contracts at lower prices than before.”

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