Why did Amazon stop its free delivery service to customers in Israel a few days after it began, and is it related to preparations for its anticipated entry into the Israeli market? A week before last Friday, the ecommerce giant, led by founder, chairperson, and CEO Jeff Bezos, began a free worldwide delivery service that for the first time included Israel. Israelis were able to buy products with free delivery, but only for a purchase of over $80. Last Thursday, Amazon abruptly terminated the offer. Informed sources are now telling "Globes" that the bargain offer was actually another step by Amazon towards assessing the territory before setting up business here.
The sources explained today that the campaign was a trial run, not just a delivery bargain. They added that the goal of the offer was to assess and rate the new countries included in it and test the profitability and economic viability of setting local delivery websites in these countries in cooperation with local suppliers. The same sources also said that similar steps had been taken before Amazon's entry into new territories in which it was now operating.
As revealed by "Globes," Amazon has held talks with a number of Israeli delivery companies, including Boxit (which belongs to FedEx's Flying Cargo), a company that delivers packages to lockers located around the country. Amazon apparently discussed improvement and streamlining of its delivery system in Israel. Another delivery company whose name was linked with Amazon was buzzr. It is reasonable to assume that Amazon's current bargain campaign was aimed at assessing the efficiency and speed of delivery.
The sources further stated that another problem is the attitude of Israeli consumers towards purchases to which tax is added. The tax exemption for overseas orders currently applies up to $75 (NIS 275). Amazon's bargain applied to an order of over $80, above the exemption threshold, and Israelis were therefore obligated to pay VAT. Many consumers complained about this and wondered whether Amazon was aware of the taxation threshold in Israel. Information obtained by "Globes", however, indicates that Amazon deliberately set the threshold for its free delivery offer above the threshold for VAT because it was attempting to determine whether adding VAT would deter Israelis from buying, since local activity with a logistics warehouse in Israel would mean that customers paying VAT on all purchases, of whatever size. It is believed that Amazon was actually trying to find out whether Israelis would be willing to buy through it even if they had to pay VAT.
Potential market earthquake
Amazon currently has activity in 11 of the world's leading economies, including the US, France, Germany, the UK, India, Canada, China, Australia, and Japan. It sells to customers from 180 countries worldwide through 109 delivery warehouses around the world in over 30 activity categories.
As far as is known, Amazon is considering at this stage entering Israel in non-food sectors, i.e. fashion and textiles, books, media equipment, and electronics products. These are products with long shelf lives that have no sell-by dates. Such a step by one of the international online giants constitutes a potential earthquake in the Israeli retail market. The power of Amazon, listed on Wall Street at a huge $880 billion market cap, far outstrips anything seen in the domestic market and threatens to upset the local applecart, and players in the local retail market are following developments with concern.
Regardless of its intention to enter retail activity in Israel, Amazon currently has hundreds of employees in Israel in a number of spheres: developing chips for its cloud servers based on the activity of Annapurna Labs, which it acquired, and commercial activity related to cloud computing (Amazon Web Services - AWS); improved technology for ordering products through the Alexa Voice application; development of technology for Amazon's Go store, which operates without checkout counters; and computerized vision.
Published by Globes [online], Israel business news - www.globes-online.com - on July 15, 2018
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