The State of Canadian Ecommerce
Is the Canadian market attractive for online retailers? Both US and Canadian businesses want to know.
Sadly, market size data is near impossible to find, as are conversion rate and average order value (AOV) benchmarks. The most recent analyst research that's available (Statistics Canada, eMarketer, Forrester Research) dates back to 2007. Newer research should come out soon from both Statistics Canada and Forrester -- we'll keep you updated here on Get Elastic.
Update: New global B2C research is available, including Canada from Aarkstore Enterprise.
In 2008, eMarketer estimated Canadian B2C ecommerce as 4-6% of all retail and predicted that we will see $18 Billion in Canadian online spending (including travel) in 2010, and double digit growth in 2011 and 2012.
Regarding conversion and AOV, analysts can tell us conversion rates are slightly lower in Canada than the US. This is consistent with many Canadian retailers I've spoken to. Of course, your mileage will vary depending on your industry, brand awareness, loyalty and execution of your web strategy. Jim Okamura of JC Williams Group believes lower conversion rates are a function of segmentation and targeting and the lack of choice available. "What drives conversion is selection -- the weakest area for Canadian ecommerce."
The good news is average order value (AOV) is often higher on Canadian ecommerce sites than the average US site. Perhaps this is cultural, Canadians spend 47% more than the average US consumer(hey we're nice and extravagant). Or maybe it's due to the smaller pool of online sellers. You're more likely to be a one-stop shopper if the site's "the only game in town."
But that may soon change, as both Canadian and US retailers start looking seriously at the Canadian online consumer.
For US Retailers
Shipping to Canada opens the gate to over 28 Million Internet users. 50% of Canadians made a purchase online last year according to Forrester Research. Visa Canada found 57% of Canadians shopped online last year, with 48% purchasing from a Canadian site, and 29% from an American business.
"The recession has fueled the trend of Canadian expansion as US retailers looking for new, easy to enter market" says Okamura, who has helped a number of top retailers with their internationalization strategies. The Canadian market is followed by the UK market in attractiveness.
To reach this new market, a US company can easily leverage its existing website with far less up-front costs than the Canadian company entering ecommerce for the first time. However, a .ca domain has advantages -- the ability to geo-target the domain to Google.ca, Yahoo.ca and Bing.ca will help with rankings in those engines, and click through from Canadians that look for .ca URLs.
Third parties like FiftyOne and Canada Post's Borderfree services also make it easier than ever for US retailers to sell to Canadians hassle-free.
Borderfree accepts the US retailer's product catalog in XML format and determines the duty rates of commodities and whether or not the product can be imported, then sends the updated catalog back to the retailer so the necessary duties, taxes and shipping costs can be collected at time of purchase. Borderfree also handles returns. Canadian shoppers can browse the merchant directory to find Canuck-friendly e-shops like Sephora, Eddie Bauer and Crate and Barrel.
FiftyOne boasts customers like Overstock, Drugstore.com, Saks Fifth Avenue and Nordstrom. It offers multicurrency localization, international payment and fraud management, customs clearance, parcel fulfillment and international returns. Neither shoppers nor retailer need to worry about footing surprise customs and duty.
Roughly half of the e-stores using FiftyOne apply geolocation to identify non-US visitors, showing the visitor's country and currency with the option to continue shopping in his or her own currency, or to override and proceed as a US customer.
Another option is a "landed" business that operates in Canada with its own warehouse and customer service staff. Examples include Amazon and American Apparel. Though this eliminates any customs, duty and shipping delays, the costs are appreciably higher and the risk greater. For example, it requires careful inventory planning with foresight into what Canadians want to buy and how much of it you think you can sell.
Regardless of which method used, expanding into Canada could account for 10% of your revenues, according to Forrester. I believe with a good Canadian awareness campaign, a Canadian-friendly site and geo-targeting to Canadian search engines, 5% of total revenues is a realistic figure to shoot for.
Leveraging pay per click is one way to get the word out...
For Canadian Retailers
Offering a cross-channel shopping experience can:
- Bolster customer loyalty and satisfaction
- Expand reach beyond urban centers
- Introduce the brand to new customers through search
- Liquidate clearance merchandise leaving more retail space for regular price merchandise
- Provide a way to monetize the corporate website
But many Canadian retailers are not as bullish on the Canadian ecommerce market as their neighbors to the South. The costs of building an ecommerce site can be as much for a Canadian e-tailer as an American, and for a market less than 1/10th the size of the US it's harder to make the project profitable. Another problem is it's difficult to make solid business decisions with the lack of Canadian specific data on market size and conversion rates.
The fact that some of the largest Canadian brands have recently backed out of ecommerce only adds to the anxiety, though retailers like Lululemon are realizing ecommerce success. Indigo Books enjoyed 17% growth in 2008, The Shopping Channel 9.5% and Mountain Equipment Co-Op 15% according to Internet Retailer.
However, Canadian retailers must consider that online retail is still growing faster than brick-and-mortar sales. B2C ecommerce will enjoy a compound annual growth rate (CAGR) of 10.6% according to eMarketer's projections, and US retailers are well aware of the opportunity and are moving fast.
“Increased competition is forcing Canadian retailers to give their websites a closer look,” says Okamura.
Bonus: Random Characteristics of Canadian e-Consumers
- The catalog industry was never as big in Canada as it was in the US (13,000+ US catalogers vs. 150 in Canada). Much of ecommerce's early success in the US was the online channel made available to catalog shoppers. In Canada, it’s tech-savvy 25-34 year olds with the highest propensity to buy online (Visa Canada / Yahoo) vs. the high discretionary income "Boomer" generation that fueled ecommerce adoption in the US.
- Close to half of all Canadians say they are shopping online because they are finding better deals than in stores.
- Compared to their American counterparts, Canadians have been historically quicker to adopt debit cards, high-speed Internet, online banking and online bill-pay. One of the reasons why online banking took off faster than in the US was Canadian banks made online bill payment free (US banks charged up to $5 per month), bundling the functionality into the checking account.
- Canadians trust their financial institutions much more than retailers. According to Forrester Research, the number one reason Canadians avoid online shopping is the fear of sharing personal financial information over the Internet. A June, 2009 PayPal survey found that 51% of Canadians feel anxious about purchasing online. 40% feel anxiety due to a lack of confidence in the merchant’s security, compared to only 27% of American shoppers.
- Alternative payments like PayPal and online debit may attract these wary shoppers. A June, 2009 study by Visa Canada found 59% of Canadians are interested in a debit card that allows them to purchase online directly from their bank account, 74% among the 18-24 set.
- Canadians are most interested in buying books, CDs, DVDs, apparel, software, travel and entertainment/tickets.
And finally, here are some tips for making your site Canadian-friendly:
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