Amazon only threatens those who don't adapt to change

Amazon packages Photo: Shutterstock
Amazon packages Photo: Shutterstock

Amazon is the enemy of players unable to adjust to the improvements it offers to consumers.

Amazon has stirred up a retail hornets' nest, and not only in Israeli retailing. Late last week, the ecommerce giant announced that it would shorten its maximum delivery time for subscribers to its Amazon Prime dues-paying club from two days to one day at a cost of $800 million per quarter. This announcement sent the share prices of major US retailers Walmart and Target tumbling by 2% and 5%, respectively.

In the few days that have passed since that announcement, the global market responded directly to Amazon's measure. Walmart signaled that it would launch a same-day delivery service. In contrast to Amazon, Walmart will not require customers to pay dues to a members' club in order to obtain this service. ("Free same-day deliveries… without membership fees. This is what is called a breakthrough. Watch for it." Sainsbury's, one of the three largest retailers in the UK, opened its first store with no checkout counters, utilizing a manual scan (similar to Amazon Go). Other major retailers, such as Target and Tesco, also launched their own measures.

This is not, however, the first time that Amazon has clearly dictated market standards. Only recently, Amazon founder, chairperson, and CEO Jeffrey Bezos attacked, albeit indirectly, Walmart in a letter to investors, calling on it to grant its employees the same conditions and salary provided by Amazon. In response, a senior Walmart executive posted on Twitter, "Why don't you pay your taxes?".

Why is this relevant? The effect is also being felt in Israel, with drastic falls in the shares of shopping mall groups and fashion retailers, which lost over NIS 1 billion in market cap two days ago, when Amazon announced its entry into Israel. The shares lost another 2% yesterday. There is no doubt that like in the US, local retailers will have to hurry to adapt themselves to the changes. Amazon is not the retail market's enemy; it is the enemy of medium-sized players incapable of making adjustments to changes in consumer habits.

How big an ogre is Amazon in the local market? With a $950 billion market cap, Amazon is worth more than all of the retail companies in the Israeli market and all of the income-producing real estate companies in Israel put together. Amazon's growth rates are prodigious; its revenue, which totaled $66 billion in 2006, ballooned to $232 billion in 2018.

As of now, Amazon is reporting higher revenue every year. This growth encompasses all of the three main markets in which the group operates, with its most important being its original market - North America. Amazon also has huge storage space - its logistical distribution centers have 115 million square meters in aggregate area.

Delivery and logistics companies are celebrating

This means that starting two days ago, Amazon is introducing a new challenge to Israeli retailers who have hitherto not been in the game: delivery within five days, and within two or three days for certain products. This is the pace, and those who cannot keep up, either without Amazon or outside it, will be pushed aside.

"All of the local online retailers will have to switch to five-day delivery," Nir Zigdon ecommerce expert and founder of e-Community, which provides consultant services to companies seeking to establish ecommerce activity, told "Globes." He added that in the past 24 hours, he had spoken with online players in Israel, "and they realize that they now have no choice. Amazon is dictating the pace and determining what will happen. If it switches to delivery in two hours tomorrow, the world will have to follow suit."

How the Israeli market can and should prepare for this new situation

Delivery and logistics companies have a reason for celebrating. The sector believes that the new situation will dramatically increase the volume of Amazon's deliveries, because more retailers and suppliers will want to distribute their merchandise via Amazon, and there will be more packages under the Amazon brand name. Some delivery and logistics companies are even dreaming of exclusive long-term agreements for providing delivery or logistics serves to Amazon, a method used by the company in India, for example.

UPS is one of the companies that made preparations for Amazon's entry. UPS recently opened a giant logistics center in Modi'in with 16,000 square meters at a cost of NIS 100 million. "We opened it under the assumption that Amazon would enter Israel," UPS Israel CEO Yair Assael told "Globes." "We developed the ability to accept and release packages from customs there with our independent customs terminal. Our service also includes delivery, which makes it possible to close the entire delivery chain cycle in a single location."

Israeli consumers are already making substantial purchases on Amazon, but the fact that the delivery costs of products will be cut for local players is likely to significantly increase the volume of consumption in the local market. The step that will push these assessments forward is the possibility of Amazon introducing a Hebrew-language website, which will naturally increase the volume of consumption, because language still constitutes a barrier for certain groups.

For the large shopping mall and retail groups in Israel, the situation is not yet an earthquake, but it has the potential for significant and powerful expansion. Although the damage seems limited at the moment, the large shopping mall groups also realize the threat posed by the new situation, and are preparing shelf plans, some of which include a change in the mix of their activity for a possibility not yet visible on the horizon - the establishment of logistics warehouses.

The opportunity: Creating a private brand for Amazon

Another opportunity arising with Amazon's entry into Israel is the possibility of creating a private brand and benefiting from its marketing services and promotion, with a short delivery time. Today, there are local players already producing private brands for Amazon, such as the Delta fashion group and Emilia Cosmetics (formerly Careline) in the personal care sector under the Visage Entry brand.

As previously revealed by "Globes," Emilia Cosmetics is expanding this cooperation to over-the-counter drugs, so that when the necessary regulatory changes are made, it will become a player in this sector in Israel.

In any case, we will probably see additional suppliers trying to sign agreements with Amazon to create a private brand for the latter in the near future, certainly at a time when delivery time is being shortened and logistics costs are being cut.

At the same time, the situation is complicated. Overseas, Amazon provides marketing support for its private brand, and sales of the brand are promoted as its supplier. In Israel, at least at this stage, Amazon is not supplying brands by itself, so here, too, the question arises of whether the suppliers will be able to independently market the brands.

Amazon packages Photo: Shutterstock
Amazon packages Photo: Shutterstock
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