At Flow, we want to make it as easy as possible for retailers and brands to engage in cross border e-commerce. Each installment of this “How to” series will focus on a different country and will provide the resources and knowledge needed to successfully launch e-commerce in that market. The focus of this first post is the United States’ northern neighbor: Canada.
The Canadian Market
Canada’s e-commerce sales are on the rise. Over 80% of Canadians have made an online purchase in the last year. It’s predicted that e-commerce sales will reach $43 billion American dollars (or $57 billion Canadian) in 2018— a 26.3% increase from 2017. Accounting for 9% of total retail sales, e-commerce in Canada is expected to show a compound annual growth rate (CAGR) of 7.4% between 2018 and 2022.
There are some differences between the U.S. and Canadian e-commerce markets, which create a huge opportunity for cross border commerce. Canadian e-commerce has not yet become as pervasive as in the U.S. While the percentage of Canadians with internet access is higher than the U.S. percentage (87% vs. 81%), only 49% of consumers in Canada buy online at least once a month as opposed to 69% of consumers in the U.S. Currently, U.S. average online spending is almost twice that of Canada, but we expect Canada to catch up quickly and retailers and brands selling in the Canadian marketing will benefit from this growth.
The Cross Border Opportunity
When it comes to cross border growth, there is a significant opportunity in Canada. Cross border shopping is strong, especially for merchandise coming from the United States. Some estimate that two-thirds of Canadian online shopping purchases come from retail sites in other countries. According to Paypal’s Cross Border Transactions 2016 Merchant & Consumer Comparison USA Report, it is estimated that 56% of foreign purchases come from the U.S, 18% come from China, and 7% from the United Kingdom. Canadians buy online from other countries because of lower prices, better selection and a more advanced offering than the capabilities of local retailers.
Another reason behind the rise of Canadian cross border shopping is the hesitance of strong domestic brands to cannibalize their brick and mortar presence, which has left a gap filled by U.S. brands and merchants. Only recently have domestic retailers in Canada started incorporating best practices like competitive shipping rates, easy returns, and digital payments. Like most consumers, cross border shoppers in Canada seek low-cost shipping, transparent duty, tax and customs costs, and, of course, the ability to pay in their local currency.
Considerations & Risks
Before entering the Canadian market, it is important to understand the potential cultural differences and logistical pitfalls. Retailers and brands must take into account the regulatory policies and cultural sensitivities of the country. Contrary to popular belief, it’s not just “America Lite.” Canadians are particularly savvy deal shoppers who make purchase decisions based on the lowest price or the best deal as opposed to choosing a particular brand. They also expect to see prices in Canadian dollars, and in Quebec, they expect your website language to be both in French and English as mandated by law. Another consideration when going into Canada is the remote location of some customers, which can make shipping more expensive and more complicated.
When marketing e-commerce in Canada, it is important to understand the behaviors of Canadian online shoppers. Consider a mobile-first marketing strategy as mobile usage in Canada is steadily growing, and this includes retail purchasing. The most popular social network in Canada is YouTube, followed closely by Facebook. Marketers in Canada are realizing that social platforms can both access a larger audience and target a specific client base. And according to Landmark Global’s Canada Cross-Border Trading Report, the cost of advertising in Canada is slightly less than in the U.S. Overall, Canadian ad spend on social media was expected to reach almost $835 million Canadian dollars in 2017.
Another popular channel for marketing in Canada is price comparison sites like ShopBot.ca, ShopToIt.ca and Nextag.ca. Brands can also geo-target Search Engine Marketing ads to focus on urban centers where there is a greater number of potential consumers. Search Engine Marketing also is more cost-effective than in the U.S.
When it comes to pricing products in Canada, there are few guidelines to follow. Include prices in Canadian dollars, and offer free shipping to compete with the local retailers, as most offer free shipping over a threshold. Remember that Canadian consumers are in tune with exchange rates and will do their own research on the price of an item to make sure they’re receiving the best possible deal.
When pricing your products and determining landed cost, be sure to factor in the effects of trade agreements, category-specific taxes and duties, shipping costs and exchange rates. Usually, duties and taxes are not included in the price.
The landed cost includes the original price of the product, transportation fees (both inland and ocean), customs, duties, taxes, tariffs, insurance, currency conversion, crating, handling and payment fees. The average ship rate of an American product to Canada is about 25% lower than in the U.S. while the landed costs is about 125% higher. Finally, it’s also important to compare the effective cost of an item to a locally purchased product to ensure the offering is price competitive.
Payment & Checkout
In Canada, credit cards remain the top payment method of choice, followed by Paypal. The preferred credit card is MasterCard with a 53.6% share. Alternative payment methods that are unique to Canada include Instadebit and Interac.
When configuring the checkout flow for Canada, make sure to default to local currency and allow users to select their preferred method of shipment. Generally, products ship in 2 to 7 business days in Canada and customers have 30 days to return.
Carriers like UPS and FedEx are both viable options as well as Canada Post. Some more remote locations in Canada receive infrequent service and packages may require additional costs and time to arrive at their destination.
While the e-commerce market in Canada lags behind the U.S. in certain aspects, it’s a growing opportunity for most U.S. based retailers and brands. Although Canada seems similar to the U.S. in several ways, retailers must become familiar with the behaviors, regulations and overall business landscape in order to be successful in the market.
No need to go in blind — global e-commerce solutions, like Flow, help clients navigate the global commerce landscape. Download Flow’s free eBook, “Savvy Cross Border Shoppers: How to Sell in Canada.”