Amazon is demanding that Israeli sellers offer maximum delivery times of five days, with a shorter two-to-three day range available.
After over a year of testing the water, Amazon is setting foot in Israel for the first time by launching online commercial operations in the local market. A number of Israeli buyers received an e-mail in Hebrew calling on them to join a plan for Israeli customers called Local Delivery.
This means that Israeli sellers will be able to use their Amazon accounts to directly sell and supply orders to consumers in Israel. International players will be able to sell to Israelis through local warehouses.
As of now, Amazon does not operate a Hebrew-language website. Typing in Amazon.co.il automatically connects surfers to Amazon.com in English. At least in the foreseeable future, no logistics warehouses will be built in Israel. As in other countries around the world, what is happening now is an initial step towards operations in the local language.
A plan similar to the one now being launched in Israel was put into operation in Turkey three months ago, before Amazon commenced operations in Turkish, with an Internet address having a Turkish ending. It is believed that the current measure in Israel means that Amazon will start working in Hebrew in two-to-three months, which will substantially boost use of the website by Israelis.
Why is the retail market now being shaken up? The plan begun by Amazon makes it possible for Israelis to use Amazon in order to sell to consumers in Israel without going through the US or Europe, as has hitherto been the prevailing practice. This will naturally cut logistical costs and shorten delivery times. Here, too, however, Amazon is not leaving delivery of packages to chance; it is demanding that sellers in Israel offer maximum delivery times of five days, with a shorter delivery range of two-to-three days. Similar to the commission that Amazon charges sellers overseas, sellers in Israel will also have to pay a 15% commission on each transaction.
Today, in the countries in which Amazon does not operate logistical warehouses, it does not supply merchandise directly to the end consumer; it merely serves as a trading platform, so that every seller is responsible for delivery. In its activity in Israel, Amazon tells sellers that every seller can charge delivery fees according to the delivery service provider he or she selects, but states explicitly, "The customers are more inclined to buy products when delivery is free of charge. In other words, Amazon is suggesting that the sellers bear the delivery costs.
Amazon is therefore proposing that Israeli sellers join a plan that means that the seller is willing to commit to delivery within five days. When an Israeli customer enters Amazon, the products being marketed will appear in the first search results for the Israeli customer.
Israeli sellers are also being offered another option. International companies that did not previously sell in Israel, or whose delivery was expensive and not worthwhile for Israeli customers, can store their merchandise in a logistics warehouse in Israel and supply the merchandise from there. Here, too, delivery prices will fall, and the goods will appear in the first search results for local consumers.
Amazon's preparations for establishing local operations
The next step will not come as a surprise. Amazon instituted a number of major preparatory measures over the past year to prepare the spadework for entering the local market. A year ago, in May 2018, Amazon began recruiting translators into Hebrew for a job in its headquarters in Luxembourg, from where it manages its main activity in Europe. Two months later, in July, Amazon began to provide free delivery for orders of over $85 in order to test Israelis' response to purchases that include VAT. It was a resounding success.
A month later, Amazon published a survey in Hebrew aimed at Israeli sellers about pricing methods and sales channels. Two months after that, senior Amazon executives visited Israel for a series of meetings with local delivery companies. Things were fairly quiet after October 2018, at least with respect to Amazon's announced activity. Local industry sources said that Amazon was considering the consequences of the taxation effects in the local market.
In recent months, the Israeli economy was busy mainly with the elections. It is entirely possible that Amazon was also keeping track of these aspects in the local market. In any case, it appears that all of these measures, including the current one, make it clear that Amazon is setting its sights on the Israeli market.
Taxation is an important aspect in Israelis' fondness for online overseas purchases. As of now (the new government is likely to change this situation), online purchases of up to $75 are exempt from tax - a significant advantage for consumers. This advantage will be lost when Israeli consumers have to pay VAT on purchases from local sellers, which will directly affect the price and make it impossible to maintain the current competitive advantage in online orders from overseas.
In its current measure, Amazon does not mention VAT, but makes it clear that the seller is responsible for issuing an invoice to the customer. Amazon writes, "You are responsible for issuing invoices to customers. It is recommended to consult your tax advisor if you have other questions." In other words, issuing a local invoice requires paying VAT.
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The challenge to the fashion sector, which is already undergoing a crisis, is huge. Such a measure will intensify competition and require local players to create significant differentiation, and especially to improve the terms and service that they provide online. Retail chains and department stores that do not sell an exclusive brand with significant differentiation are liable to lose substantial sales.
At the same time, small businesses with an interesting brand, a unique product, and deep enough pockets to absorb the set-up costs can benefit from the virtual shopping mall. Amazon now has thousands of Israeli sellers with quite a few recognized brands, including Laline, Ahava, Michal Negrin, and Mommy Care baby products. Activity in the local market will be easier for them.
A significant threat to shopping malls
For the large shopping mall groups, there is a significant competitive threat here, on top of the ongoing slide in sales in the past year, as reflected in the figures published by Retail Information System (RIS). Given the fact that as of now, Amazon is not setting up logistics centers in Israel, the threat so far is limited.
Nevertheless, in contrast to BIG and Melisron, which do not operate in ecommerce, Azrieli operates an ecommerce website under the Azrieli.com name, which also offers a platform for brands. What advantage will it have over Amazon if Amazon later launches a Hebrew language website?
The CEO of Azrieli.com previously told "Globes" that the company's working assumption was that Amazon was already part of the competition here. In any case, a future entry into Hebrew-language ecommerce is likely to intensify its direct competition.
Published by Globes, Israel business news - en.globes.co.il - on May 1, 2019
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