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Web sales are growing fast but Canadian retailers face challenges

June 9, 2015 04:14 PM
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Online sales in Canada are expected to grow at a compound annual rate of 12.3%, according to Forrester Research Inc., but merchants in Canada should take steps to claim those sales as their own.

U.S.-based retailers take the largest share of e-retail sales in Canada, according to a market analysis from investment bankers BMO Capital Markets, which names Amazon.com Inc., eBay Inc. and Apple Inc. as the top three e-commerce sites by revenue in Canada. Those three companies account for 31% of Canadian online sales, BMO estimates. Other U.S.-based merchants, such as Best Buy Co. Inc. and Costco Wholesale Corp., are also significant players.

The Retail Council of Canada’s E-Commerce Benchmark Survey released last week during the Store 2015 conference in Toronto benchmarks the market, the maturity of Canada’s native e-retailers and points out areas of improvement that may make them more competitive. Forrester collected responses from nearly 170 Canadian retailers about their online operations this spring to produce the survey. 

The majority of Canadian merchants responding to the survey are relatively young: 25% of respondents have been selling online for less than a year, 27% for one to less than four years, 23% for four to less than 10 years and 25% for 10 years or more.

Most, 72%, are store-based merchants that also sell online. Web-only retailers represented 5% of respondents. Manufacturers made up 5%, with the remainder being other forms of multichannel retailers, such as catalog merchants. Taking in responses from all types of merchants, the web generated 16% of these merchants’ sales last year, and 31% of respondents say their online sales grew more than 25%.

Of the top 1000 web merchants ranked in the Internet Retailer Top 500 and Second 500 Guides, 19 are based in Canada. The Guides rank retailers based on their total online sales in the United States and Canada combined. More than half, 547, of the U.S.-based Top 1000 e-retailers sold to Canadian consumers last year.

64% of respondents to the E-Commerce Benchmark survey say improving their marketing is a top priority this year, followed by omnichannel efforts (39%), site merchandising (38%) and mobile (36%). Those priorities are different from what U.S.-based retailers said when asked the same question in the latest edition of Forrester’s State of Retailing Online report, which the consultancy produced for Shop.org, the online arm of the National Retail Federation trade group. For instance, marketing ranked fourth among U.S. retailers’ priorities. “They’ve got marketing down,” said Sucharita Mulpuru, the Forrester analyst behind both reports. “For U.S. retailers, mobile was the top priority.”

Canada has strong traction with mobile, but its “mobile focus lags behind other markets,” Mulpuru said. Sales completed on smartphones in Canada grew 74% year over year, according to the survey, while sales on tablets grew 58%. 9% of total Canadian e-retail sales are completed on smartphones and 13% on tablets.

Marketing is one are where Canadian merchants can boost sales, Mulpuru said, citing the 55% that have an annual marketing budget for their e-retail business of less than $250,000. 56% of retailers say that search engine marketing, including paid search, is one of the most effective ways to acquire customers. But their spending doesn’t back that up. Less than a quarter of Canadian e-retailers allot 41% or more of their budgets to paid search, whereas a third of U.S. online retailers do.

Canadian retailers are, however, putting greater focus on social media. 63% of Canadian retailers say they will spend more on Facebook this year, the top answer, and only 2% say they don’t use Facebook to market to consumers. Across other social channels, 35% say they will spend more on YouTube, 31% will spend more on Instagram, 28% will spend more on Pinterest, 28% will spend more on blogs or message boards, and 4% will spend more on Vine. “In Canada, there’s a lot more experimentation with Facebook, Instagram and other tactics,” Mulpuru said. “Over time we expect more convergence toward certain channels as best practices are developed.”

Another opportunity for Canadian retailers to acquire customers is with online marketplaces. 62% of respondents do not sell through online marketplaces, and only 8% cited them as a priority for their business this year. Mulpuru recommends Canadian e-retailers, especially small and medium-sized merchants, take a closer look at how online marketplaces could help them reach more customers.

 

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