Amazon looks to stay beneath regulator's radar

Amazon Photo: Reuters

In Israel, Amazon is looking to avoid the kind of backlash it faced in other countries from businesses and regulators.

Amazon's entry into Israel will pass another milestone on Wednesday. The company will hold an online seminar in which it will try to recruit Israeli sellers currently working with it overseas to also sell their wares on the local website scheduled to go online in the coming weeks. The target group numbers 6,000-7,000 Israeli sellers. This group is an easier target for Amazon, because the sellers are already working with it. The seminar follows an earlier meeting in Tel Aviv a week ago with manufacturers who have used Amazon's platform in the past.

The number of meetings with Israeli sellers will increase during the coming month in preparation for the planned launch of Amazon's Hebrew language website this summer. Until then, the company is busily closing commercial and import agreements with local sellers and dealing with a host of logistic aspects, including guaranteeing home delivery within a short time. Amazon is also embarking on a large-scale campaign to recruit leading retail figures to manage its activity in Israel.

In its entry to Israel, Amazon is striving to leave nothing to chance, especially not its policy vis-à-vis Israeli regulation. A year ago, it had to limit its activity in Australia when local industry and regulators imposed a series of restrictions by adapting local taxation laws. This is precisely the scenario that Amazon is trying to avoid in Israel. It cannot be ruled out that the company will soon seek help in this task from lobbyists.

Amazon's tactics in Israel rely on two complementary principles: keeping as far below the radar as possible in order to avoid alienating anyone and planning and timing its maneuvers to avoid arousing the local regulators against it. One example is the timing of the pitch to Israeli sellers two weeks ago just after the elections, when the politicians are occupied primarily with the formation of a new government.

Amazon's commercial operations in Israel may still lack a local flavor, but its personnel are constantly gathering retail, journalistic, and political intelligence. As of now, they are doing it from Berlin with an Israeli team operating there and slated to come to Israel soon and manage operations from here.

Historic meeting

In order to learn a little about Amazon's plans, it is worthwhile going back to a meeting that took place last week with sellers with whom it has not previously worked.

The meeting was held  in the early afternoon on Monday, May 6 on the 26th floor of Azrieli Sarona Tower. Israeli retailers who had never sold a single item on Amazon sat in a large and not completely full room and listened to an attempt to recruit them to Amazon's range of sellers. They already have ecommerce websites, even if the traffic on them is scarce. Now, however, they have been invited to hear how to do it through the world's largest ecommerce company.

This meeting, which in a sense can be called "historic," was led by Amazon Europe global business development manager Rolf Kimmeyer. He visited Israel a few days after Amazon asked thousands of local sellers active in the company outside Israel to take part in a local online sales plan. To whom was Amazon appealing at this stage? Sellers in clothing, footwear, toys, cosmetics, and handmade products.

A Google search for the name of Amazon's plan as presented to sellers in the local market, Local Delivery, yields no results. Amazon operates slightly differently in each country, so even if the general model for activity is similar, the format is not the same as the model used for its activity in other countries.

Regardless of what name Amazon chooses for the foundations of its activity, however, it is clearly already present. A look at other countries that Amazon entered shows a pattern of activity that we will probably also see here within months: an official launch of a local website that will recruit local and international brands, and an entry with attractive depth bargains for consumers in order to generate a substantial market share. Advertising benefits will be given in order to increase the power of this channel. It is estimated that Israeli sellers already have 6,500-7,000 active accounts for selling merchandise to markets that are larger than the Israeli market.

A backward glance shows a well-planned series of measures in preparation for Amazon's activity. Amazon representatives met with Israeli companies in various sectors as early as 2017. As revealed by former Osem-Nestle CEO Itzik Zaig in a "Globes" interview almost a year ago, Amazon's representatives visited the company's offices in Shoham. "Globes" also reported later that toiletries and personal care products manufacturer Sano met with Amazon, and began selling products to the US market through the ecommerce giant. Sano chairperson Alexander Landsberg told "Globes" a year ago, "If Amazon comes to Israel, do you think I won't sell to it?" Sano CEO Yuval Landsberg, Alexander's son, added, "There will be another player, another channel for consumers, and we'll have to be in every channel that develops. This is an opportunity to sell in more territories."

In May 2018, Amazon recruited translators into Hebrew for its headquarters in Luxembourg, and has since begun making a pitch to the Israeli market in Hebrew. For Amazon, this is an enormous challenge that includes adapting its website to reading from right to left, in contrast to English-speaking countries. Three months later, the company began testing the response and demand among consumers for its services, and began to offer free delivery on orders of over $85, above the ceiling for a VAT exemption, including deliveries to Israel. One month after that, it contacted Israeli sellers in a Hebrew-language survey that contained questions about pricing methods and sales channels in the local market.

Two more months passed, after which "Globes" reported that senior Amazon executives had visited the local market for a series of meetings with local delivery companies, some of which are already delivering Amazon's products in Israel, among them Bar Marketing and Distribution and UPS. Things have been somewhat quiet since, but meanwhile, more and more local players have begun thinking about how to prepare for Amazon's entry into Israel, including an option for establishing online stores in Hebrew relatively quickly.

Suppliers like Sano are not the only ones. Retailers like Hamashbir Lazarchan and Ricochet are also making preparations with the help of local advisors. Players who have already been operating on Amazon for a while are already exporting their products around the world, such Laline (jointly owned with the Fox-Wizel group) and the Ahava brand of Dead Sea products. It is also likely that dry good products will be sold on Amazon in the future, ranging from coffee capsules made by manufacturers such as Strauss, which already sells its product in the US through Amazon under the Sabra label, to pet food of manufacturers such as Osem-Nestle, which already markets these products directly to consumers online, and consumer products such as diapers, which are being sold now on Azrieli.com, the ecommerce website of the Azrieli group.

Still without commercial operations in Israel, Amazon is maintaining an impressive physical presence locally. The world's largest online retailer and cloud services provider signed a huge deal two years ago to rent 25,000 square meters in the Azrieli Sarona Tower in Tel Aviv. It was reported at the time that the deal was the largest in the tower.

Overreaction?

Quite a few reports published by analysts in recent weeks make it seem as if Amazon's entry is not all that it is cracked up to be, and that the response of investors on the TASE two weeks ago, when the share prices of retailers and shopping mall companies fell precipitously, was probably an overreaction. Keep in mind, however, that it is natural for analysts to analyze events from a business perspective, not a consumer one (Amazon's entry has a significant consumer aspect where consumer welfare is concerned). In this case, the consumer aspect is consistent with the statements and assessments of public companies in the sectors liable to be affected by Amazon's entry into Israel.

These optimistic forecasts appear biased in the short term. As several analysts emphasized, no overnight earthquake is likely to occur in Israel, although we believe that it will take place fairly quickly. Nevertheless, it probably constitutes a continuation of a clear trend towards ecommerce, with Amazon being the real deal that people have been waiting for, and which has already changed the state of affairs in the US. Israeli ecommerce websites are not the same as a local Amazon. At the same time, Amazon is not yet setting up a logistics center in Israel, so it appears that the world is now changing for all the companies in the relevant sectors in Israel, but that this change will not be immediate.

What the regulator thinks

In addition to the questions arising among domestic players as a result of Amazon's entry into Israel, questions are also being asked by Israel regulators. One indication of this can be found in a letter sent by Federation of the Israeli Chambers of Commerce president Uriel Lynn to Minister of Finance Moshe Kahlon demanding that he "prevent Amazon from entering Israel until equal competition terms are established between local sales and sales by foreign suppliers through personal imports." Lynn asserts that as soon as Amazon begins activity in Israel, it will not be restricted to sales by local suppliers to the local market; "It will also utilize personal imports." He says that in Europe, the VAT exemption is currently deliveries of up to €22, "It has already been decided to eliminate this exemption completely and finally in 2021."

Lynn did not address, however, the question of the already existing tax exemption for imports of products from Amazon to Israel, which is troubling the Federation of the Israeli Chambers of Commerce, the representative of its Israel importer members. Amazon's current measure is aimed mainly at recruiting sellers to use the company to sell in and out of Israel. At least on paper, the transactions involved will not be tax exempt. In any case, it appears that a local lobby will swing into action in an attempt to block measures likely to threaten the industry when certainty about Amazon's local activity increases.

As of now, Competition Authority head Adv. Michal Halperin has spoken positively about the entry of Amazon. At a conference last October, she said, "If ecommerce giant Amazon enters Israel, it will bring about an extraordinary consumer revolution, with strong competition and lower prices. We want this presence, and welcome it." At the same time, she also warned, "The giant companies must behave according to the local rules, and if the Israeli consumer and competition in Israel are harmed, we have enforcement tools for use against these companies. She added, "The fact that the Internet giants are global and located in Ireland will not keep us from taking enforcement measures against them if we believe that they are breaking the rules. The rules must apply equally to the Internet giants and the local companies."

Published by Globes, Israel business news - en.globes.co.il - on May 14, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Amazon Photo: Reuters
Amazon Photo: Reuters
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