A day after the announcement that Amazon is launching ecommerce operations in Israel, the Israeli retail market is expressing both hopes and fears about what is in store. Amazon is sparking a war between all the links in the value chain, from the manufacturer to the sales floor, for example concerning the delivery times to which we have become accustomed.
Actually, the big change that Amazon is introducing in the local retail market is that different links in the supply chain, which hitherto worked together, will begin competing with each other. In other words, in Amazon's plan, Israeli manufacturers have the right to sell directly to the consumer, with only one intermediary link - Amazon.
For example, Sano, which up until now sold its products through chains such as Shufersal, Super-Pharm, etc., is becoming a sales platform itself by selling its products through Amazon, thereby competing with other sales platforms that previously worked with it. Sano, which already operates a store on Amazon, will still need Super-Pharm and Shufersal, but will also compete with them.
The looming change will therefore almost certainly affect the connection between the retailer, whose brand is a chain like Walmart, Target, Super-Pharm, or Hamashbir Lazarchan. The change will also be relevant to the connection between the distributor, who is the link connecting the retail chain, and sometimes also holds a franchise for its own brands, and the manufacturer who owns that brand that the consumer orders for his or her home, such as Sano, L'Oreal, or Dr. Fischer.
In the situation of which Amazon is a part, all of these parties want to be the brand that the consumer encounters and prefers. This gives the manufacturer, as the first part of the chain, some advantage, in contrast to the distributor and the chain marketing and selling the brand.
In addition to a possible loss of sales, the system of balances we are familiar with will change. Suppliers in the sector say that local retailers are hinting that the suppliers should avoid entering platforms like Amazon in order to avoid harming the retailers' sales and competing with them.
Major challenge to the fashion chains
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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