Israeli department store chain Hamashbir Lazarchan is making a belated entry into an ecommerce sector excitedly anticipating the start of operations in Israel by Amazon. Sources inform "Globes" that Hamashbir Lazarchan, controlled by CEO Rami Shavit, is taking steps to acquire an online store on Amazon's platform, in addition to starting its own ecommerce website, the launching of which it announced last week through a presentation to investors.
Both measures have the same goal: moving 10% of the company's sales turnover, amounting to NIS 100 million a year, online within three years.
This is an enormous challenge for Hamashbir Lazarchan, which has been stagnating and reporting net losses for a long time. Commencing online sales will be no easy task for the chain. The company is currently considering whether putting online every category in which it operates is worthwhile. As of now, it appears that Hamashbir Lazarchan will not market everything in its stores in its Amazon store. The Amazon store will be restricted to categories in which Hamashbir Lazarchan is the official exclusive marketer, and no local supplier can compete with it.
Concern about a negative effect on profit margins
One of the challenges for Hamashbir Lazarchan is the high costs of activity on Amazon, which are likely to erode the company's profit margins. As of now, Amazon charges a 17% commission in fashions and 15% in other categories, especially for retailers like Hamashbir Lazarchan, which buy merchandise from an external importer that itself charges a commission. When the logistics costs of NIS 30 per delivery are added to the commissions, Hamashbir Lazarchan will have to carefully select the categories in which selling via Amazon is worthwhile for the chain.
Hamashbir Lazarchan's currently online activity is very limited, being conducted through the azrieli.com ecommerce website. The main reason that this is worthwhile is that Azrieli subsidizes the logistics costs of delivery; "all" Hamashbir Lazarchan has to pay is the commission.
Another aspect under consideration by Hamashbir Lazarchan concerns its image. The chain has hitherto operated through its 38 stores, with no ecommerce activity, even though its local competition in fashion, cosmetics, and home products, such as Castro, Fox Golf, and Super-Pharm, have had online activity for two years or more. Hamashbir Lazarchan believes that a presence on Amazon is likely to enable the chain to reach new and younger target groups.
Hamashbir Lazarchan's absence from ecommerce is exceptional in the sector
In addition to establishing an ecommerce store on Amazon, Hamashbir Lazarchan is planning to establish its own ecommerce activity. "We'll bring traffic for the suppliers and make it possible to sell a dress, bed linen, and a ring in a single store," Shavit told "Globes." Hamashbir Lazarchan's own website will be based on an affiliate marketing application with referrals to sales through a wide range of the suppliers that it markets. The suppliers will probably bear the delivery costs, in addition to a click and collect service. In the first stage, Hamashbir Lazarchan will distribute from its storeroom in the Ramle Azrieli branch.
In any case, the absence of Hamashbir Lazarchan from the ecommerce theater is exceptional in the retail sector. In its annual financial statements for 2018, the chain addressed the question of ecommerce and its growth, calling it "another factor with growing influence on the fashion sector in Israel." On the other hand, the cost of overseas flights has fallen substantially in recent years, following the open skies reform, resulting in an increase in overseas travel and the volume of various products purchased directly overseas, including clothing, footwear, and cosmetics. Growth in ecommerce and the volume of direct overseas purchases have affected not only clothing and footwear, but also categories like houseware, toys, and gifts.
The Hamashbir Lazarchan group, which is listed on the Tel Aviv Stock Exchange (TASE) at a NIS 140 million market cap, has department stores and other activity - Club 365 Finance, in which Hamashbir Lazarchan holds a 50% stake. The Hamashbir Lazarchan group's revenue totaled NIS 1 billion in 2018, and its net loss was NIS 10 million. The chain has 110,000 square meters in gross commercial space and 3,200 employees, 1,200 of whom are sales staff and employees of franchise holders.
Published by Globes, Israel business news - en.globes.co.il - on July 23, 2019
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