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, it was reported on Sunday.
The company seeks to open a giant 25,000 sq.m. (270,000 sq.ft.) warehouse, near the central city of Modi’in, the financial news site Calcalist reported, citing “people familiar” with the negotiations.
Amazon does not currently operate a site dedicated to Israel, but its hiring spree, along with reports of a new warehouse and shipping center, may spell good news for Israelis who currently pay high shipping fees and experience month-long waits when ordering their products online. In contrast, American consumers in some cities can receive same-day or even three-to-four-hour delivery.
Israelis are increasingly turning to e-commerce services, like other Western consumers, 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 ($3.4b.) online in 2016, and are projected to spend NIS 14b. ($4b.) 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, free from 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 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 be easily stolen. And Israel isn’t necessarily known for its customer service culture, or for offering reliable shipping.
“I’ve almost given up on it in Israel,” said David Bleicher, CEO of Invertex, an Israeli e-commerce footwear company that does almost all its business abroad. “A year or two ago, it was almost impossible [here] to get a parcel from the postal services.”
Local consumers are pressuring the government to raise the tax exemption ceiling, Calcalist reported, in a bid to lower the country’s high consumer prices. But opposition to that move has come from the Israeli Chamber of Commerce and shopping-mall owners, who seek to protect brick-and-mortar retail jobs. Many Israeli apparel chains have also not invested comparable sums in e-commerce websites or in offering free shipping.
Amazon announced last month the opening of research and development groups in Haifa and Tel Aviv, starting with a total of 100 employees – some of whom were reportedly offered monthly salaries significantly higher than the average Israeli monthly wage.
In 2016, the Internet behemoth had $136 billion of sales, most of which was in North America. An Amazon spokesperson did not respond to comment as of press time.