Why Online Retailers Should Be Heading North of the Border
Canadians are the ultimate online shoppers. They've been shopping with gusto since the start of the e-commerce boom, and digital buying has become ingrained in their daily behavior.
We recently gave Canada the highest rating — five out of five possible shopping carts — in our Borderfree Index and delved into Canada's e-commerce potential in our recently released Canada Country Report, in which we named Canada an "Ideal Market" for retailers looking for cross-border e-commerce opportunities.
Canada was listed as the No. 1 market in 2013 by merchandise volume, and it's easy to see why. Canadians love to shop online, especially from U.S. retailers.
Part of what drives Canada's penchant for shopping from the U.S. is proximity. The majority of Canada's 34.8 million residents live within 100 miles of the U.S. border and cross it regularly, generating strong brand recognition for American retailers. Another reason is Canada's high population of internet users. Around 80 percent of the population (27 million people) is online, and more than half of those people made at least one purchase online in 2014.
Canadians are relatively affluent, too, with an average household disposable income of $82,800. Average annual purchasing is around $1,100 per shopper, with 25 percent of cross-border online dollars being spent in the U.S.
Availability of ground freight shipping allows for even more convenience for the Canadian online shopper. This makes shipping and returns easier and less expensive for customers, and opens up new opportunities for retailers. For example, Sephora now ships cosmetics and fragrances to Canada, whereas much of its merchandise can't be shipped to other international destinations due to air shipment restrictions and regulations.
As in most cross-border markets, Canadians contend with duties and tax on purchases. Canada has an average duty and value-added tax of 18.5 percent, which is high, and a low de minimis of $20 Canadian dollars, both of which can deter shoppers. However, Canadians are well aware that both pricing and merchandise is superior in the U.S. even with duty costs, and that factors into their buying decisions.
To offset shoppers' concerns about tariffs, most U.S. retailers offer free shipping or duty-free shopping to Canada. It's well worth the added investment to attract sales as Canadians have come to expect fast, free delivery and lower prices from U.S. brands.
It's worth pointing out that Canadians’ average order value across the Borderfree network in 2014 was $134, which is lower than in other similar markets where Borderfree sells, like Australia ($201) and the U.K. ($187). This doesn't mean Canadians aren't shopping; it speaks to their shopping preferences. Consumers in Canada shop more for everyday items that are easy to ship rather than luxury items. Cosmetics, party supplies and shirts/tops are the top three purchases, according to Borderfree data.
Looking ahead, winning over Canadian shoppers may become more challenging. Oil is Canada's No. 1 export and drives its economic growth, but our neighbors to the north have been feeling the effects of lower oil prices over the last few months. Additionally, The Bank of Canada also recently cut interest rates, hurting the Canadian dollar, which is trading at around 80 cents to the U.S. dollar. However, these short-term headwinds don't detract from the long-term opportunity for American retailers in Canada.
Retailers expanding into Canada would do well to focus on the customer experience. Offer superior merchandise that shoppers can't get at home and sweeten the pot with free shipping, especially during U.S. and Canadian holidays. With those investments, and an eye towards long-term growth, the road to the north will most certainly lead to checkout.
Kris Green is the chief strategy officer at Borderfree, a provider of global e-commerce solutions, from international logistics and fulfillment to marketing partnerships and strategies.