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E-commerce goes north, forcing Canada’s retailers out of hibernation

Canada’s Prime Minister Justin Trudeau is swarmed by employees at a new Amazon fulfillment center in Brampton, Ontario, Oct. 20, 2016. (Nathan Denette / Associated Press)
Canada’s Prime Minister Justin Trudeau is swarmed by employees at a new Amazon fulfillment center in Brampton, Ontario, Oct. 20, 2016. (Nathan Denette / Associated Press)
By Sandrine Rastello Bloomberg

Canadian retailers are getting serious about selling stuff over the internet. You can thank Inc. for that.

After years in which e-commerce seemed like an afterthought for many Canadian stores, more retailers are making the pricey investments in online shopping platforms that are needed to attend to a vast and sparely populated country. As Amazon steadily ramps up its own operations in Canada, local rivals are scrambling to avoid the same sort of fate that doomed many of their counterparts south of the border.

“They can look at what’s happening in the U.S., they can look at what’s happening in other markets, and almost get a road map of realizing, ‘This is going to happen to me too if I don’t change my practices,’” said Robin Sherk, a Toronto-based director of digital and retail insights at consulting firm Kantar Retail.

Retailers have a lot of catching up to do. Canadians spent $26.6 billion shopping online last year, or about $730 per capita, according to researcher eMarketer and Bloomberg calculations. That’s far off from the $1,230 that U.S. consumers spent on average, and it masks a quirk in Canada’s e-commerce network. Some prominent retailers, such as department store Canadian Tire Co., let buyers place their orders online, jump in their cars and pick up the goods themselves instead of having them delivered.

That’s where Amazon comes in.

The e-commerce behemoth has opened a fulfillment center every year in Canada since 2011, including the first automated facility outside of Toronto last year, as well as a new data center near Montreal. It’s also expanding the number of cities eligible for free one-day shipping as part of its C$79-a-year ($58) Prime loyalty program. There’s plenty of room to grow: Only about 4 percent of Canada’s primary household shoppers were Prime members as of May 2016, compared with 37 percent in the U.S. as of December, said Kantar’s Sherk.

“Amazon is pushing a lot of traditional retail in Canada to up their game and offer better online shopping,” said Paul Briggs, an analyst with eMarketer.

A few Canadian retailers seem up for the challenge, and eMarketer forecasts online sales to surge 64 percent by 2020. Hudson’s Bay Co., owner of Saks Fifth Avenue, opened its own robotic facility in November to get online orders out faster. Women’s clothing chain Reitmans Ltd. has been closing stores and redesigning its distribution center to support e-commerce sales, which rose 51 percent last year.

Canadian Tire’s sporting-goods division, Sport Chek, is running a pilot for same-day delivery in the Toronto region, a direct challenge to Amazon’s claim-to-fame. Canadian Tire, which reports first-quarter earnings on Thursday, said in February that e-commerce sales aren’t yet having a meaningful impact on revenue growth in its stores.

Well-known Canadian entrepreneur Alexandre Taillefer, whose electric-car fleet is going head-to-head with Uber Technologies Inc. in Montreal, is also mulling a plan. His private equity firm, XPND Capital, is trying to drum up support among local stores to band together and create a single platform to hock their wares, with ties to local media.

“E-commerce in Quebec is behind, we don’t have a major player like Wal-Mart or Amazon. But we have relevant local players,” he said in an interview. “Media are in a crisis, retailers are in a crisis, why not work all together for joint success?”

While Amazon’s big push into Canada definitely has retailers rattled, it doesn’t necessarily portend the same sort of bloodbath that swept through the U.S. retail industry and caused a record number of bankruptcies. For one thing, Canada’s shopping-mall square footage per capita is about 30 percent less that in the U.S., suggesting there’s not as much excess capacity.

It’s easy to see why e-commerce has been slower to catch on in Canada. The nation’s 36 million people are spread out over 3.9 million square miles, including hard-to-get-to and frigid regions, making logistics in the country considerably more costly and complicated than in the U.S. or U.K.

That’s one reason why some retailers with large networks of brick-and-mortar stores, like Canadian Tire and grocer Loblaw Cos., have clients drop by to collect their online orders. Montreal-based Aldo Group Inc., which sells shoes in more than 100 countries, goes a step further. Customers can order and receive goods anywhere, switching between online and in-store shopping as they wish as data on their tastes and habits make the two increasingly connected.

“Retailers have to move fast,” said Gregoire Baret, who oversees the so-called omni-channel strategy and a recently revamped e-commerce site at Aldo. “Sometimes Canadian markets are assessing what is going on in the U.S. before acting, which is great but which is also potentially a risk.”

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