SAVVY CROSS BORDER SHOPPERS: HOW TO SELL TO CUSTOMERS IN CANADA
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1 SAVVY CROSS BORDER SHOPPERS: HOW TO SELL TO CUSTOMERS IN CANADA
2 INTRODUCTION 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 launch a successful e-commerce business in that market. The first of this series will examine the United States northern neighbor: Canada.
3 THE CANADIAN MARKET 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) 1 in 2018 a 26.3% increase from 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
4 THE CANADIAN MARKET There are some key differences between the U.S. and Canadian e-commerce markets to consider. 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%), 3 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, 4 however we expect Canada to catch up quickly. Retailers and brands selling in the Canadian market will benefit from this growth. CANADIAN CROSS BORDER E-COMMERCE GROWTH $30BN $20BN $10BN 2017 Source: Boston Consulting Group
5 THE CROSS BORDER OPPORTUNITY 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. This report also reveals that Canadians buy online from other countries because of lower prices, better selection and stronger offers than what local retailers can provide.
6 THE CROSS BORDER OPPORTUNITY The concern of domestic brands that online stores would cannibalize their brick and mortar presence has been a strong contributor to the rise in Canadian cross border shopping. The hesitance of Canadian brands to further their presence online has opened opportunities for brands and merchants in the U.S. and abroad. 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.
7 CONSIDERATIONS & RISKS 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. Canadians are particularly savvy deal shoppers 5 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 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.
8 CONSIDERATIONS & RISKS Selling in Canada requires a keen understanding of various factors including customs, regulations, logistics, and the use of price comparison sites like Google shopping search. Note that Canadian consumers are particularly savvy on what the exchange rate should be, so if the exchange rate is padded for extra margin, they will notice.
9 CUSTOMS CUSTOMS In Canada, customs compliance varies depending on whether postal operators or express carriers have imported the shipment. NAFTA allows for duty-free status for imports worth more than $2,500 and accompanied by a NAFTA Certificate of Origin. For shipments from countries that are not part of NAFTA, the country of origin must be indicated in order to determine eligibility for free trade agreement benefits. Furthermore, every item entering Canada must be assigned an appropriate tariff classification code in order to determine the rate that must be paid. The Canada Border Services Agency (CBSA) collects the duties based on whatever trade agreements are in effect with that particular country of origin.
10 REGULATIONS REGULATIONS DID YOU KNOW? French is the mother tongue of about seven million Canadians (22.3% of the Canadian population). Most native French speakers in Canada live in Quebec, where French is the majority and sole official language. Source: Charter of the French Language, June 2018 Certain goods are subject to permits and restrictions such as firearms, food items, and agricultural products, so make sure you research these rules. 6 The Canada Anti-Spam Law, known as CASL, requires global organizations sending commercial s within, from or to Canadian citizens to receive consent from recipients before sending messages. 7 Examples include s from retailers that contain a coupon or information about a promotion or sale. And be sure to follow the Charter of the French Language, which applies to residents of Quebec. Any person or company that sells products or services in Quebec has to follow the language requirements of the Charter, and anything written on a product sold in Quebec, on its package, or in documents included with the product (for example, instructions for using the product and warranties) must also be in French. 8
11 LOGISTICS LOGISTICS With some parts of Canada being remote, retailers may need to contract with specialized carriers in order to deliver products to those regions and allow for additional time. The cost of delivering outside an urban area can be quite expensive. Consumers are very sensitive to being charged more because they live in a rural area, but it can cost many times more to deliver to a remote part of Manitoba than to Toronto. Retailers and brands must consider this paradox carefully to find the right balance for their business.
12 MARKETING MARKETING When marketing your products online in Canada, it is important to understand the behaviors of Canadian online shoppers. Consider a mobile-first marketing strategy since mobile usage in Canada is steadily growing, including for retail purchases. 9 The most popular social network in Canada is YouTube, followed closely by Facebook. 10 Marketers in Canada are realizing that social platforms can both access a larger audience and target a specific client base. Marketers spending on digital advertising has been steadily rising since 2014 and reached $5.2 Billion in 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.
13 MARKETING SEARCH ENGINE SHARE COMPARISONS: US VS. CANADA United States 65% 20% 10% Canada 85% 10% 5% Google Bing Other Source: Landmark Global 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 is more cost-effective than in the U.S. 12 and can be an effective channel for reaching a broad Canadian audience.
14 PRICING When it comes to pricing products in Canada, there are a few guidelines to follow. PRICING 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.
15 LANDED COST 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. LANDED COST The average ship rate of an American product to Canada is about 25% lower than in the U.S. while the landed cost is about 125% higher. 13 Become informed of all the different components contributing to the landed cost as this can have a material impact on decisions for your product assortments and pricing strategy in the Canadian market. 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.
16 PAYMENT & CHECKOUT PAYMENT & CHECKOUT DID YOU KNOW? 41% of Canadian e-commerce consumers say they would not feel comfortable making purchases online in a foreign currency. Source: PayPal Cross Border Transactions 2016 Merchant & Consumer Comparison 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. 14 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.
17 FULLFILLMENT Carriers like UPS and FedEx, in addition to Canada Post, are viable options for shipping to Canadian customers. Some more remote locations in Canada receive infrequent service and packages may require additional costs and time to arrive at their destination. FULFILLMENT While the e-commerce market in Canada isn t as developed as that of its neighbor to the south, this market offers a growing opportunity for savvy U.S. based retailers and brands to explore. 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.
18 VISIT Flow is a global cross border e-commerce platform that enables brands and retailers to sell their products to customers internationally by creating a localized shopping experience. Flow automates and simplifies every aspect of the international e-commerce process for its customers, removing the challenges facing cross border commerce by offering benefits such as multi-currency pricing, cost efficient and rapid shipping, international payment options, well-defined taxes and duties, and simple returns. Brands and retailers use Flow s cloud-based software solution to better manage cross border logistics, to reach a broader international customer base and to enhance the customer experience. For more information, visit SOURCES copenhagen-economics-2017-e-commerce-imports-into-canada-sales-tax-and-customs-treatment.pdf OTHER SOURCES 1 E-commerce in Canada 2018: emarketer s Latest Forecast, with a Focus on Grocery, emarketer, January E-commerce Report 2018: Canada, Statista Digital Market Outlook, June Will Canadian Retailers Meet Demand as E-Commerce Takes Off?, Boston Consulting Group, June Will Canadian Retailers Meet Demand as E-Commerce Takes Off?, Boston Consulting Group, June American and Canadian Consumers: Not as Similar as You Think, Buxton Company blog 6 Other Government Departments and Agencies: Reference List for Importers, Canada Border Service Agencies 7 Canada s Anti-Spam Law: FAQ, Deloitte 8 Charter of the French Language, LegisQuebec, June Want to Sell Online to Canada? Four Things Your U.S. Business Needs to Know, BigCommerce.com 10 Penetration of leading social networks in Canada as of the 3rd quarter of 2017, Statista, Insights Into the Growth of Canadian E-commerce, PayPal, Canada Country Guide 2017: Cross Border Trading Report, Landmark Global 13 Proprietary data from Flow.io 14 WorldPay Global Payments Report: Canada,
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