Bricks vs. Clicks: Why is Canada lagging behind in e-commerce?

By Jennifer Marron and Peter Henderson

Ten years after the iPhone ushered in the smartphone age and put a shopping mall in the palm of your hand, Canada is lagging behind the rest of the world when it comes to shopping online.

Canadians spend $730 per capita on online shopping, compared with $1,230 per person in the United States. Among developed countries, only Australia has lower e-commerce penetration. And Statistics Canada data show that in 2013 just 13% of Canadian businesses were selling online.

Even more embarrassing, roughly half of Canadian small businesses do not have a website.

Canada outranks places including South Korea, Germany and even the U.S. when it comes to the number of households connected to the Internet. So isn’t offline Canadian commerce moving online?

Selling online is no easy feat

For retailers, adding e-commerce options isn’t as simple as building a website over a weekend.  Successful digital retailers typically manage an inventory much larger than their bricks-and-mortar competitors, with the added challenge that each order has to be delivered to the customer’s home. Online pharmacy Well.ca offers more than 40,000 products online, versus 1,000 in a typical local drugstore. For many businesses, both small and large, the challenges of warehousing and delivery are too much to manage.

Another barrier influencing businesses is that traditional one-size-fits-all marketing doesn’t work. Established retailers tend to send out one mass flyer a week. E-commerce requires personalized marketing e-mails sent at a frequency and volume determined by individual customers, regular marketing and merchandising updates, as well as the constant evolution (and cost) of search-engine optimization and marketing, not to mention managing content on affiliate sites. If that description is lost on you, you’re not alone.

Lastly, our home and native land is simply too vast. It’s a known retail fact that geography shrinks profit margins. The cost of picking and packing thousands of goods is no different than paying store employees. Once they leave the warehouse, however, the cost of distributing hundreds or thousands of packages across the second-largest country in the world quickly becomes prohibitive. And in a world of Amazon Prime and two-day free shipping, there’s no way a company can pass that cost on to the customer.

The Canadian exceptions

The challenges for small and medium-sized businesses going online aren’t the same for the established retail giants. Hudson's Bay Co. opened a distribution and order processing centre staffed by robots in November 2016, using its existing expertise in logistics to fight back against online rivals. Women’s apparel retailer Reitmans has closed stores, consolidated inventory and redesigned its own distribution centre to better support its e-commerce sales, which rose 51 per cent last year for the chain.

Canadian Tire’s sporting-goods subsidiary, Sport Chek, is currently running a pilot for same-day delivery in the Toronto region. The retailer said this past February that e-commerce sales aren't yet having a meaningful impact on revenue growth in its stores.

Those winning in the retail wars are using digital platforms to engage with consumers, tailor ad campaigns, and strengthen customer loyalty. Shoppers Drug Mart’s  Optimum program, for example, is now sending targeted coupons/promos direct to members via text messages.

2017: The year of retail bankruptcy

Those Canadian bright spots are important to highlight amid the doom and gloom emanating from the retail sector down south. More than 5,000 stores have closed in the U.S. so far in 2017. More than two dozen retailers have sought bankruptcy protection over the past two years, including American Apparel, Toys ‘R’ Us, RadioShack, and Payless ShoeSource.

Bottom line — Canadians need to focus more on e-commerce and embrace the ability to sell to every corner of the world where prospective customers have web access.

One turn-key platform to do this is Shopify, which allows users to create an online store in as little as 30 minutes. Shopify has 500,000+ platform users across 175 countries, and uses the mantra, “retail everywhere”.

So which retail categories will dominate? Who will be best positioned to take advantage of this growth? And who will be left behind? It’s time for Canada to focus on digital commerce, sooner rather than later.

Want to hear more about the Shopify story and global e-commerce trends? Join us for the next #RBCDisruptors: The future of e-commerce on Nov. 8. We’ll be joined by Shopify COO Harley Finkelstein. Tune in via Facebook Live and follow the conversation on Twitter using #RBCDisruptors.