April 1, 2012, 12:00 AM

The Northern Opportunity

The Canadian border is more than a speed bump, But avid online shoppers await on the other side.

Lead Photo

The Canadian market represents an alluring opportunity to U.S. e-retailers, provided they can clear the not-insignificant hurdles of international commerce.

Plus-size apparel e-retailer OneStopPlus.com, a unit of Redcats USA, started selling into Canada in June 2011 at the same time it launched international sales to consumers in 91 other countries. The e-retailer says it began exploring global sales because consumers said they wanted its products, a sentiment expressed primarily through posts and comments on social networks. "They were very vocal for not delivering into Canada specifically, and that made us wake up and take this opportunity seriously," says Jim Lofgren, vice president and brand manager for OneStopPlus.com.

Canada is now the e-retailer's second-largest international market, after Australia, and Lofgren says OneStopPlus.com intends to have double-digit market share of the plus-size apparel market there in three to five years. "The competition is so limited there," he says.

Competition may be limited, but shipping costs to Canada are high, packages can take their time clearing customs and getting delivered, and duties and taxes can significantly increase the total cost of a purchase. Some e-retailers have decided to tackle these issues on their own, while others are engaging international shipping and service providers to make Canadian expansion easier.

Canadians, by and large, are similar to Americans in culture and language, and its most populous cities are a stone's throw from the U.S. border. Canadians also consume U.S. media and are familiar with U.S. retail brands--and they're plugged into the web. 79% of Canadian households had access to the Internet in 2010, and more than half of online Canadians ordered products and services on the web that year, spending the equivalent of US$15.02 billion, according to Statistics Canada, the government agency that conducts the nation's census and collects economic data.

Cross-border shoppers

More growth lies ahead. Canadians' spending with e-retailers was projected to reach the equivalent of US$18.6 billion in 2011, according to eMarketer Inc., which predicts e-commerce in Canada will grow approximately 14% annually through 2014. By contrast, total retail spending in Canada grew 4% in 2011 from 2010. Although Canadians' online spending represents only about a tenth of what U.S. consumers spent online last year, that's in line with the relative size of the two countries, as Canada's population of 33.4 million is 10.7% of the 311.5 million in the United States.

But perhaps more important for U.S. retailers is Canadian retailers have been slow to embrace e-commerce. Many Canadian retail brands that are household names in Canada don't have transactional e-retail sites, or haven't been at it for long. Canadian Tire Corp., a mass merchant with 480 stores, for example, stopped selling products from multiple categories online in 2009, but re-entered e-retailing last summer selling online only tires, which consumers must pick up or have installed at a retail store. The Bay, a department store chain, relaunched online operations in 2011 after a failed attempt in the early 2000s.

Canada's immature online retailing space is one reason why 60% of Canadians made at least one purchase from a U.S. e-retailer in 2010. "The selection just wasn't there, but now more Canadian retailers are coming into the market," says James Connell, vice president of e-commerce and marketing at Roots Canada, a Toronto-based multichannel retailer of Canada-made leather goods and apparel.

"Canadian retailers have been slow adopters in establishing an e-retail presence, but there is a lot of momentum among Canadians around shopping online," says Toronto-based e-retail consultant Andrea Elliott, who helped launch the international online operations of Gap Inc. and Williams-Sonoma Inc.

Barriers to entry

That disconnect between Canadian e-retailer offerings and Canadian consumers' willingness to shop online means there's room for U.S. e-retailers to pick the low-hanging fruit Canada represents. But U.S. e-retailers say the obstacles can be daunting, and that the costs of moving goods across the border make the opportunity less appealing for retailers that sell low-priced goods.

Some U.S. e-retailers have decided Canada is not worth the trouble, at least for now. Zappos.com, the shoe and apparel e-retailer that is a unit of Amazon.com Inc., for example, closed its Canadian e-retail site last year after about three years in business after it couldn't iron out the logistics of serving consumers there from its distribution hub in Nevada, says Chris Nielson, Zappos' chief operating officer. "The issues ranged from customs, to transport of goods, to our being able to track where things were on the delivery side of things," he says.

In addition, Zappos was unable to sell particular brands to consumers in Canada that it could sell in the United States because of licensing restrictions. "We couldn't offer the selection we wanted and we ran into shipping issues that prevented us from delivering the customer experience that is so much of who we are here at Zappos," Nielson says.

At OneStopPlus.com, Lofgren says the main roadblock to growth is the customs fees Canada levies on nearly all purchases coming into Canada worth $20 or more in Canadian dollars. Canada's border services agency charges $8.50 for packages that come through the mail and meet this threshold, and the fee is collected from recipients ahead of delivery by Canada Post, the nation's equivalent of the U.S. Postal Service. The entry fees for packages sent via parcel delivery services like DHL or FedEx vary depending on how e-retailers arrange for customs broker services, but the import duty collected is typically about 15% of the order value.

Many, but not all, e-retailers opt to collect the fee from consumers when they place orders, along with the various required government and provincial taxes, so consumers don't have to fork over more money at delivery. But it does significantly raise the total Canadian consumers have to pay, which can cause sticker shock. Elliott, the e-retail consultant, says a $50 order can easily end up costing $100 by the time it makes its way to a Canadian doorstep.

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