Real Estate CEOs: Amazon Isn’t Killing Malls, It’s Getting Israelis to Shop More

Malls need to reconfigure the selection of stores they offer, but that doesn’t mean they no longer serve a purpose, the three chief executives said in a panel discussion

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Azrieli Rishonim mall in Rishon Lezion, December 31, 2018.
Azrieli Rishonim mall in Rishon Lezion, December 31, 2018.Credit: Amit Geron
Guy Erez
Guy Erez

Online shopping isn’t an existential threat to Israel’s malls; rather, it’s getting Israelis to shop even more.

That’s the contrarian take on retail trends offered by the heads of three major Israeli commercial real estate companies – Gazit Globe’s Chaim Katzman, Melisron’s Avi Levy and Big’s Eitan Bar-Zeev.

They were speaking last week in a panel discussion at credit rating agency Midroog’s offices, and all three have big portfolios of shopping malls in Israel – and in the case of Gazit, overseas as well.

They have their work cut out to convince investors who have seen (and probably participated in) the Israeli surge in online shopping in recent years. All three companies have seen their share prices drop sharply, though this is also due to the overall drop in stock prices in recent months.

Malls and strip malls need to reconfigure the selection of stores they offer, but that doesn’t mean they no longer serve a purpose, the three CEOs said.

While statistics suggest that Israel’s retail world is likely to expand, due to factors including population growth and growing disposable income, the rate of growth is likely to decrease, said Eran Heimer, the CEO of Midroog. The main reason for this is the growth of online shopping, and the younger generation’s changing shopping habits.

Currently, online sales account for 6% of Israeli commerce – a relatively low percentage compared to Europe, and significantly lower than in the United States, where it’s 12%, Heimer said.

Levy noted that only two major shopping centers opened in Israel in 2018 and that none are slated to open this year. The next big centers will open in 2020 or 2021. Instead, some are likely to shut down, he said. Melisron is turning a mall in Ashdod into a residential complex that includes commercial space, he noted.

“We’re not going to be the last ones to do that,” he said.

As for the threat posed by Amazon, which is rumored to be setting up operations in Israel, Katzman said, “Amazon has been losing [money] from ecommerce for 25 years. They’re profiting from streaming and cloud services. How can you explain their purchase of Whole Foods, where they spent $30 million per store? Even they realized there’s no alternative to where stores are located .... They didn’t manage to build a model where ecommerce is more efficient or more financially worthwhile than a store.”

Ecommerce has positioned itself as a legitimate retail tactic, and that’s changing Israel’s malls, Katzman said.

“The Zara outlet will be the center, and you’ll be able go there to return a shirt you bought online, and then you’ll buy other things while you’re there,” he said.

Levy added that two or three years ago, many people thought Israel’s mall owners should get online. Big and Azrieli Group did just that, and it was a mistake, he said. “Big wrote off the investment, and Azrieli is still online with a massive investment, and I don’t know how that’s going to end,” he said.

“With all due respect to Melisron, we won’t have an advantage” online compared to Ebay, Asos or Amazon, he said. Israeli clothing brands Castro and Golf aren’t investing in their websites because increased online sales have translated into wider losses, he said. The clothing retail website Adika understood that to increase its sales, it needed brick-and-mortar stores at malls, Levy added.

“Adika makes its big money at its outlets,” he said. “The internet coexists very well alongside store space.”

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