Canada gets serious about e-commerceWednesday, September 02, 2015 > 09:57:25
After a slow start, Canadian consumers are turning to online shopping as domestic and foreign retailers, including many with U.S. roots, make e-commerce more attractive.
E-retailing in Canada has evolved at a slower pace than in the United States; last year e-commerce accounted for about 6% of total retail spending, excluding sales of goods not commonly purchased or available online, or about three percentage points less than U.S. figures, according to Forrester Research Inc. E-retailers and experts cite multiple reasons for this—from web access and infrastructure to ingrained shopping habits to lack of selection to the sheer cost of trying to serve a market spread across a country that’s slightly larger in geographic size than the United States but has only about 10% as many people.
But Canadian consumers are catching onto online shopping as domestic and foreign retailers, including many with U.S. roots, make shopping online more attractive. Forrester projects that in 2019, online spending will account for 10% of Canadian retail spending, pulling it nearly equal, on a percentage basis, with the 11% expected in the United States.
“Once the Canadian consumer understands how easy it is to shop online and how easy returns are, we see a lot of repeat buyers,” says Nathalie Belanger, vice president of e-commerce, interactive and insights at Reitmans Ltd., a Montreal-based apparel chain retailer that began selling online in 2010 and had all its retail banners up and running online by 2013. “The nut to crack is to convince Canadian consumers that this is a viable solution and to deliver service in the first few orders so that it becomes a habit to shop online.”
That doesn’t mean running an e-retailing business to serve the Canadian market is easy, or profitable. Transportation costs are significant and have kept some merchants from getting into e-commerce. “The only reason e-retailing has taken longer to catch on in Canada is the cost of shipping as a percentage of the sale,” says Jeff Booth, president of BuildDirect.com, a Vancouver-based e-retailer of building supplies that does 95% of its business in the United States and 5% in Canada. “If you are selling one shirt for $10 and it costs $15 to deliver it, you are giving it away for free,” he says. “You don’t want to get into e-commerce in Canada without some real thought on the operations and logistics infrastructure.”
Increasingly, however, Canadian and U.S.-based retailers are taking on the challenge, establishing and investing in their e-commerce capabilities in the country. U.S.-based retailers including Amazon.com Inc., Best Buy Co. Inc. and Wal-Mart Stores Inc., have made significant moves in the market. BMO Capital Markets, in a research note that estimated Canadian web sales of retailers, ranked Amazon.com Inc. as the No. 1 e-retailer in the country with CA$1.9 billion ($1.53 billion) in 2014 sales, and Amazon.ca—Amazon’s site for Canadian consumers—and Amazon.com are the No. 1 and No. 2 most trafficked retail sites by Canadian shoppers, according to web analytics vendor Alexa Internet Inc., a subsidiary of Amazon.com Inc.
As the Amazon traffic data illustrates, any estimate for Canadian online sales has to look beyond .ca sites. Canadian shoppers seeking a greater selection or better terms routinely look to retail sites that operate outside of Canada for goods.
Data from Statistics Canada, Canada’s national statistics agency, back up the claim that Canadian shoppers are shopping beyond their national borders. In 2012, the last full year for which data is available, Statistics Canada says Canadians spent CA$7.7 billion online with retailers based in Canada, whereas it estimated total online spending at CA$18.9 billion. In other words, nearly 60% of the money Canadians spent online in 2012 was with sellers outside the country.
But more recent data shows this divide is shrinking as retailers increase the selection of goods available from sites designed to serve the Canadian market. Two-thirds of Canadian online shoppers buy from sites outside of Canada, according to retail and marketing consultants J.C. Williams Group, while sites based in Canada accounted for 49% of total digital spending in Canada in July 2014. J.C. Williams’ data is based on a quarterly survey it runs among 1,000 Canadian online shoppers.
Many shoppers in Canada have shopped online with U.S.-based merchants or with merchants further afield because they couldn’t find what they wanted from a Canadian merchant, says James Connell, vice president of e-commerce and marketing at Roots Canada Ltd., a Toronto-based apparel retailer. But their satisfaction with their purchase may vary, depending on whether the e-retailer collected the right taxes and duties at checkout—Canada requires duties be paid on online purchases of CA$20 or more than come into the country—and if returning a product was troublesome. But happily, he says, consumers are now finding more of what they want closer to home, leading them to shop more often at Canadian websites.
Retailers like Wal-Mart Stores Inc. are citing happy growth statistics for Canada, and show why some are bullish on the market’s sales potential. Wal-Mart, in its first quarter earnings call in May, highlighted the strength of Walmart.ca’s sales growth. While e-commerce sales for the retailer grew globally at a rate of 17% during the first quarter, Walmart.ca sales grew “greater than 40%.” Walmart.ca gets about 400,000 daily visitors, according to the company. It is the ninth most-visited e-commerce site by Canadian consumers, according to Alexa data.
The retailer announced this spring it will invest CA$35 million ($28.1 million) to expand and improve Walmart.ca, and another CA$75 million ($60.3 million) to build additional distribution centers to expand its fresh food and e-commerce capacity in Canada. In July, it launched an e-grocery service in Ottawa, Canada’s capital.
Wal-Mart does not break out Canadian web sales in dollars, but BMO Capital Markets estimates Canadian consumers spent CA$482 million ($387.7 million) online with the retailer last year, placing it eighth among the highest-selling e-retailers selling to Canadian consumers.