Israel - eCommerceIsrael - eCommerce
Israel represents an excellent opportunity for foreign sellers of consumer goods because of high retail prices in Israel and the lack of domestic ecommerce competitors. The country’s middle class is looking for high quality, less expensive goods and are willing to buy from foreign ecommerce merchants
According to research firm Statista, 2016 ecommerce revenues in Israel will amount to $3.6 billion and rise to $4.9 billion in 2020, a compound annual growth rate of 8.3 percent. Consumer electronics and media comprise the largest sales segment, garnering 32 percent of all revenue. Food and beverages are the second largest category.
While Israel is known for innovation and sophisticated technology, its consumer goods are often inferior in quality to those made in foreign countries and more expensive. Residents are eager to purchase everything from jeans to shoes to kitchen gadgets from foreign countries. China’s Alibaba, the largest ecommerce company in the world, has invested in several Israeli technology startups. Israelis like to purchase goods from Alibaba, which contributes to Chinese companies, collectively, being the top ecommerce destination for Israelis.
Current Market Trends
Having a strong presence of foreign eCommerce in Israel has created a more competitive environment and has pushed the Israeli players to offer equivalent services and products in order to retain their position in the local market. That said, statistics show that foreign eCommerce is responsible for more than 50 percent of the general eCommerce income in Israel, and 75 percent of Israelis purchasing online buy mainly through foreign eCommerce sites.
The average annual revenue per user is $904. Males dominate both the 25-to-34 and 35-to-44 age groups of ecommerce buyers. However the 16-to-24 age bracket is heavily female.
Earlier this year the Israeli government changed its rules to make foreign companies subject to VAT collection on digital services. A company must collect VAT if it has an online presence targeting Israeli consumers, has representatives seeking to find Israeli customers, or has a web presence targeting Israeli consumers. Downloaded apps, software, music, games, television programs, films, and online gambling are all subject to the country’s 17 percent VAT.
However, physical products are often exempt. Physical goods worth up to $75 are exempt from all taxes and purchases of up to $500 are exempt from VAT. So, for example, Amazon has to charge VAT on virtual products like ebooks, but not on physical books costing less than $75.
Domestic eCommerce (B2C)
Only one-quarter of Israeli businesses sell online and their prices are much higher than those of foreign companies because of high value-added taxes (VAT) and monopolies on many consumer goods.
Israel has a variety of B2C sites and has increased in the past few years due to the increased awareness of the consumer and the demand that it generates. However, their prices are much higher than those of foreign companies because of high value-added taxes (VAT) and monopolies on many consumer goods.
The largest domestic ecommerce site in terms of visitors is Shufersal Yashir, the digital branch of the largest supermarket chain in Israel. One Israeli company, Buy2Networks, is attempting to implement one-day delivery to most major cities.
With a population of 8.2 million, Israel may not seem like a particularly profitable ecommerce market. However because of unique domestic circumstances, Israel is an excellent candidate for cross border ecommerce.
According to the Israel Internet Association, 75 percent of Israelis make online purchases — mostly from China, followed by the U.S., the U.K., and Brazil. Seventy-nine percent of online Israeli shoppers have made purchases from foreign sites, according to a joint study from PayPal and Ipsos, the global research firm.
The B2B eCommerce concept is popular for companies to exchange documents, catalogues, and even complete deals online.
Receiving goods ordered online from an Israeli company can be an ordeal. Many domestic online orders are never delivered by Israel Post and orders that do reach customers can take weeks to arrive. In contrast, orders from Amazon are delivered usually in five days. Foreign goods are also much less expensive, putting Israeli companies at a disadvantage.
Despite the economic growth that occurred within the last five years in eCommerce, there are some service related key factors that drive Israelis away. They include:
- User Resistance – Users may not trust the site being an unknown, faceless seller. Such mistrust makes it difficult to make users switch from physical stores to online/virtual stores.
- No Free Shipping – Free shipping is rarely offered to Israeli customers
- Higher prices – Some products will cost more with shipping/customs/VAT/tax.
- Limited Selection – Some products are not available for shipment to Israel
- Difficult Customer Service – Customer service is more difficult for less technical-savvy individuals because of language and/or time zone barriers.
- Unreliable lead-time - Lead times are not always accurate because the local postal service is slow and difficult to monitor and track
- Nearby Physical Stores – Strong competition by local nearby stores
eCommerce Intellectual Property Rights
Popular eCommerce Sites
Israelis are avid credit cards users with MasterCard being the most popular. PayPal is growing in popularity. Other leading payment processing firms include the following.
AllCharge, based in Israel, specializes in billing and processing services formerchants. The company is a full-service provider offering credit card processing, fraud and risk management, and content management.
ImGlobal Payments is an Israeli payment service provider offering payment solutions and multi-currency processing (supporting 150 currencies).
Tranzila is a merchant services and ecommerce payment processor based in Israel. Tranzila offers credit card processing in addition to ecommerce hosting, ecommerce management, and fraud detection.
Zooz enables merchants to link back-office functions to global payment systems. It connects with multiple financial institutions and integrates acquirers, e-wallets, alternative payment methods, fraud management, and other third-party services, while routing transactions through the payment process.
Despite Israel’s size, it is ranked number 12 worldwide in smartphone penetration (over 100%). 57% of the general population owns and uses a smartphone. Furthermore, according to Consumer Barometer via Google Israel is one of the leading countries for eCommerce transactions made by Smartphones
Major Buying Holidays
- Local Holidays: Passover, Rosh HaShana Holiday (Jewish New Year), Sukkot (Feast of Tabernacles) and Hannuka
- Black Friday
- Cyber Monday
Social eCommerce has become a strong division of eCommerce that involves social media platforms and online media that support social interaction and consumer contribution to assist online buying and selling of products/services.
Today, social eCommerce has become the focus of competition between eCommerce companies. As a country, Israel is very active on social media. According to Internet World Statistics there are nearly 4 million Facebook subscribers, which accounts for 50% of the population. As a result, eCommerce companies spending increasing resources on social presences.
The Internet World Stats - http://www.internetworldstats.com/
Ernst & Young - http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert-Israeli-Tax-Authorities-publish-draft-circular-regarding-internet-activity-of-foreign-companies-in-Israel
Practicable eCommerce -http://http://www.practicalecommerce.com/Ecommerce-in-Israel-Cross-Border-Shopping-Dominates
Israel’s ICT overview 2015 report by IATI - http://www.iati.co.il/files/files/IATI%20Israeli%20ICT%20Industry%20Review%202015.pdf
Israel eCommerce Industry Trade Development and Promotion eCommerce