Photographer: Ken James/Bloomberg

Israeli Merchants Hurt as Shoppers Favor Speedy, Faraway Amazon

  • Population adopting online shopping but not from local stores
  • Domestic retailers now innovating richer e-commerce platforms

Israelis shopping online have an odd dilemma these days. Buy from a local retailer, but possibly incur long waits for delivery -- or get the prospect of faster shipping and lower prices but order from foreign giants.

To many tech savvy Israelis looking to beat the country’s high cost of living, it’s a simple decision: look to foreign e-commerce sites that have more variety and lower prices from the outset. That’s great for Amazon.com Inc. and EBay Inc. but not so great for Israel, where local store sales are falling, and the failure rate for small businesses is high.

The trend is forcing local enterprises to invest in and adapt home-grown technologies --already helping to fuel global retail giants like Alibaba Group Holding Ltd. and Amazon -- in order to keep local shoppers buying from local retailers.

“Israeli merchants are starting to understand they have to take e-commerce seriously and invest and build a good infrastructure, or they will become irrelevant, and Israelis will buy abroad,” said Efi Dahan, PayPal’s regional director of Sub Saharan Africa and Israel.

A joint PayPal-Ipsos study found Israelis were among the top three nationalities spending cross-border online last year, with 79 percent of those surveyed stating they ordered from outside of the country, with China the most popular destination, followed by the U.S. and the U.K.

But the local market still has a long way to go if it wants to play in the global shopping place. Only about one-quarter of businesses had an e-commerce presence at the end of 2014, while about 75 percent of Israelis were buying online, Meytal Schwartz at the Israel Internet Association said..

Building virtual businesses properly

Benefiting from the move online is Buy2 Networks Ltd., one of Israel’s largest e-commerce platforms, that saw revenue jump 45 percent in the first three quarters of 2015 and sales from an annual event called shopping.il nearly triple as Israelis realized online shopping was a way to beat high prices.

Last year, Buy2 saw unique monthly users grow 55 percent to 1.4 million, and Chief Executive Officer Aviv Refuah expects domestic Israeli e-commerce to grow quickly as long as merchants build their virtual businesses properly.

“Israelis are technologically adept, adapt quickly and learn fast. It’s all about doing the work and making the investment,” he said, adding that Buy2 received an investment double its market value on Jan 12. from Cargo Amerford, an Israeli logistics company that recognized the potential for growth.

Education required

“The cobbler’s children have no shoes,” said opposition Labor lawmaker Erel Margalit, a lobbyist for small-to-medium enterprises and former venture capitalist. “In Israel people think the tech economy is separate from the local economy, and it is about time they come together and merge.”

As retail sales at brick-and-mortar stores fall -- dropping 5.5 percent in January 2016 from a year earlier, according to Retail Information Systems -- it’s increasingly important for local retailers to build an online presence. The Israel Internet Association offers courses for small business and the Economy Ministry has identified a lack of cohesive government policy as one reason why retailers have been slow to get online.

More than 99 percent of Israeli businesses are small and medium sized and contribute to more than half of GDP of the business sector. Yet the rate of failure is high. According to Israel Radio figures that cited the trade group Israel Small and Medium Enterprises Authority (ISMEA), more than 42,000 businesses closed last year.

The first buy is with the eye

Crucial to encouraging more Israelis to buy from domestic merchants, and more retailers to sell online, is technology that improves consumer experience. 

In particular is the ever-present problem of delivery times, said Rani Argov, head of digital and innovation strategy at Israel-based Trigger-Foresight, a member of Deloitte Brightman Almagor Zohar. When Israelis order from Amazon and receive a purchase in five days, it’s hard for them to be encouraged to use a local alternative knowing the wait may be even longer.

Already a growing number of startups have technologies aimed at improving the online experience, including virtual reality technologies to support fashion shopping. Buy2 last year started offering one-day delivery to most destinations in Israel after it teamed up with startup Buzzr, a startup that blends a same-day courier service with user-friendly software to track delivery progress. “Last year we saw a little bit of a closing of the gap, but it is a process that takes time,” said Argov.

Dahan says that if offered a comparable service, Israelis will buy from local sites. “It’s in their language, they feel safe, and they know they can always get into a car and go to the store.”

Monopolies benefiting from charging extortionate amounts for items like razor blades or pacifiers are part of a stranglehold holding back e-commerce, said Margalit. He recommends a national strategy like that adopted to nurture the Israeli cyber security industry, which according to preliminary government figures captured about 20 percent of global private sector investment in the first six months of last year.

“Israel is a country that builds lots of e-commerce platforms for others," said Margalit. "It is about time we built platforms for ourselves.”

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