Internet retail giant Amazon is in talks to open a shipping center in Israel, potentially threatening brick-and-mortar retailers and transforming e-commerce locally. The company seeks to open a giant 25,000 sq. meter warehouse, which is set to be located near the central city of Modi’in.
Currently, Amazon does not operate a site dedicated to Israelis, but its hiring spree alongside the report of establishing a warehouse and shipping center, are good news for Israelis who pay high shipping fees and experience month-long waits when ordering products online. In contrast, American consumers can receive same-day or even three-to-four hour delivery in cities.
Israelis are very active in e-commerce services, especially given Israel’s higher-than-OECD average prices for household goods. According to a Paypal study conducted in September 2017, more than 94% of Israelis who use the Internet shop online, and nearly half of all online shoppers, expressed interest in spending more on internet purchases in 2018. Israelis spent some NIS 11.8 billion ($3.36 billion) online in 2016, and are projected to spend NIS 14 billion ($4 billion) this year, an 18% increase.
Yet online shopping is sometimes more expensive than in-store purchases because of delivery fees and local taxes. In Israel, mail-order purchases totaling less than $75 are VAT-exempt (value added tax), while purchases up to $500 are not subject to import taxes, according to the Israel Tax Authority’s website.
The company faces a number of e-commerce hurdles to overcome before entering the Israeli market. Unlike in the United States, where the mailman commonly leaves Amazon packages outside a home, in Israel, those packages could likely be stolen. And Israel isn’t necessarily known for its customer service culture, or for offering reliable shipping.
A CEO of an Israeli e-commerce footwear company said, “I’ve almost given up on it in Israel, and focus almost all the business abroad. A year or two ago, it was almost impossible to get a parcel from the Israel postal services.”
Local consumers are pressuring the government to raise the tax exemption ceiling, in a bid to lower the country’s high consumer prices. But opposed to that move is the Israel Chamber of Commerce and shopping mall owners, who seek to protect brick-and-mortar retail jobs. Many Israeli apparel chains have not invested comparable sums in e-commerce websites or in offering free shipping.
The company announced last month that it plans to open research and development groups in Haifa and Tel Aviv with a total of 100 employees at the start — some of whom were reportedly offered salaries of nearly NIS 100,000 ($28,500) monthly — around ten times the average Israeli monthly salary.
In 2016, the internet behemoth had $136 billion in sales, most of which was in North America.
Prior to this, Amazon announced on October that they will launch Alexa Shopping research and development group in Israel to be housed in two new office spaces in Haifa and Tel-Aviv. Alexa is a digital personal assistant developed by Amazon. Among other things, Alexa enables people to shop online using voice commands.
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