US e-commerce behemoth Amazon is preparing to launch retail sales activities in Israel and is in talks to rent 25,000 sq. meters (260,000 sq. ft.) of storage space in central Israel to provide the local market with products, the Calcalist business daily reported Sunday.
Amazon is working in Israel via local and foreign teams to scout the market and study local consumer trends, services and logistic and distribution networks. Information about the US giant’s activities has reached local retailers who fear that Amazon’s entry into the market will boost online sales and hurt traditional stores, Calcalist said.
The internet retail giant had $136 billion in sales in 2016, of which 66.4 percent was in the US and 10.4% was in Germany. Thirty-three percent of Amazon’s products sold online are electronic products, with just some 11% in books and media, its original sales focus.
Israeli customers who buy products online,generally order via Amazon, eBay, and China’s AliExpress, which deliver to Israel from their foreign warehouses. Products from Amazon make their way to Israel from Germany, the UK and sometimes from the US, Calcalist wrote. This leads to higher delivery prices and longer delivery times.
If Amazon sets up a warehouse locally, then it may lower the price of Amazon products for the Israeli consumer and cut back on delivery times, Calcalist speculated. In the US, Amazon offers 24-hour delivery for certain products in some local markets.
Even if Israel is a small market – with just 8 million citizens – the country is an OECD leader in online acquisitions per capita, according to data released by PayPal. Israelis spent some NIS 11.8 billion ($3.4 billion) in internet spending in 2016, and are forecast to spend some NIS 14 billion this year, Calcalist said. That is because many items acquired online are cheaper than the same bought in Israel.
What makes online purchases more expensive is the delivery costs and taxes. Israelis are exempt from Value Added Tax (VAT) for products that cost up to $75 dollars, and from custom taxes for acquisitions up to $500. Local consumer groups, the Israel Postal Company and foreign online stores have been recently lobbying the government to raise the exemption ceiling to lower the cost of living locally, Calcalist said.
In October, Amazon announced that it was setting up research and development team in Israel, and has started to aggressively target programmers and developers in Israel, TheMarker financial website reported earlier this month.
Amazon started its operations in Israel with the acquisition of Annapurna Labs for $350 million in 2015. The firm today employs some 200 people in the development of chips to improve the efficiency of the servers that Amazon uses in its retail and cloud computing businesses, TheMarker business daily said.
A spokeswoman for Amazon in Israel said the firm does not react to “rumors and speculation.”