Israelis have become online shopaholics in the last few years, but their ability to take advantage of low prices and convenient shipping is severely constrained by the fact that none of the big global online vendors have a physical presence in Israel.
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Ordering from Amazon and Alibaba means navigating sites in English, paying in foreign currency and long delivery times.
Industry experts are divided about when, if ever, the big players will establish logistic centers and warehouses in Israel anytime soon because Israel is such a small market. But Israeli retailers – who are being pinched by the existing online shopping boom – aren’t taking any chance and getting ready for the day before it comes.
“Amazon is shipping to Israel on a very small scale and so its impact is remote. The minute it establishes a physical presence in Israel it will be like an elephant in a china shop – the entire Israeli retail sector will have to be built anew, physically [with stores] and online,” said Yaniv Ben-Tovim, CEO and founder of the delivery company E-Post, which competes with Israel Post to deliver packages.
Dan Bendler, CEO of the startup Shopic, which develops high-tech solutions for brick-and-mortar stores, said he doubts Amazon will be present in Israel anytime soon. “But it’s certainly possible that it will decide soon to allow deliveries to Israel from Amazon’s European warehouses,” he said. “The Israeli customer could get the entire Amazon range of products at lower delivery costs.”
Working with an American partner, Super-Sol, Israel’s biggest supermarket chain, is taking on the challenge with plans to launch an online platform in the first quarter of 2018 that will let shoppers buy food and other products from the U.S. via a Hebrew-language site at lower prices than they could ever find in Israel.
“There are a lot of opportunities in the sector because Amazon and the other big e-commerce sites haven’t come to Israel as they have other places,” said Zvi Baida, vice president for customer service. “Amazon, for example, hasn’t discovered the potential in Israel and that’s opened a door for us.”
Online supermarket shopping is a particularly challenging business, said Baida. Even Amazon has limited its AmazonFresh service to the U.S. and Britain 10 years after launching it, although more recently it agreed to buy the U.S. supermarket chain Whole Foods.
“In Israel it’s even more complicated because of special characteristics like kashrut, long supply chains from Europe and the U.S. and the small size of the market for international players,” he said.
The biggest victims of the move by Israel to online shopping are the apparel and sports retain chains – and the shopping malls that rent space to them.
A survey conducted by the retail consulting firm Czamanski Ben-Shahar of 1,500 people found that 15% of all apparel shopping among respondents was done online last year. Forecasts are that online shopping by the average household will grow to up to 30% within five years.
Czamanski Ben-Shahar estimates that each 1% of sales malls lose to the internet represents 10,000 square feet of retail space.
Anxious mall managers are jumping into the online market. Last year, Azrieli Group, Israel’s biggest mall operator, paid 62 million shekels ($17.6 million) for the Buy2 site, which it has redubbed Azrieli.com. Big, another mall operator, launched Big Plus, which lets shoppers collect their wares at its 22 shopping vendors around the country.
Among mall operators, only the No. 2 firm, Ofer Group, has opted for now to put all its resources into brick-and-mortar stores.
Apparel chains have also gone online. Golf acquired the e-commerce site Adika, while Fox has developed its own, called Terminal X, that will be going live soon and will feature products its stores in Israel don’t carry.
“The global e-commerce sites have taught many Israeli companies that they have to be players in this field, but even today there are only a few who understand that it’s not enough just to create a site without added value that looks like just another store of the chain,” said Tamir Ben-Shahar, a Chamansky Ben-Shahar partner.
As a result, he predicted, “small Israeli chains will disappear, and strong chains that will learn how to do business online will strengthen. The same goes for the malls.”
Adam Friedman, one of the partners in the Good-Pharm chain, warned that making the transition to online is tricky and that at least in Israel brick-and-mortar shopping is far from dead.
“In the last two mnonths we’ve been trying to sell our products online with Big Deal and Groupon, but it didn’t work because distribution was very expensive and consumers very often weren’t prepared to pay for it,” he said. “Also, in Israel people like the experience of touching the product. Anyone who thinks that there will be only online and that offline will disappear is making a big mistake.”
Michael Mitrani, who is in charge of digital innovation at the Super-Pharm chain, which recently launched its own e-commerce site, said Israeli retailers are lagging behind the U.S.
“The race there is no longer over who is getting into e-commerce but who has better and faster service,” Matrini said. “I believe that within one or two years there will be the same kind of race among retailers in Israel – not about who has a site but about who is the one who can deliver the product within an hour. Our promise now to get an order to the customer by the next day will be old hat within a year.”