Canadian retailers are dogged by their US rivals’ online offerings
TORONTO (Reuters) – Canadian retailers are struggling to fortify their defenses against aggressively expanding US e-commerce operators in an effort to stave off further loss of market share and erosion of profit margins in a brutal retail market.
Moves over the past year include: Hudson’s Bay Co.’s C$60 million ($47m.) investment in robotic technology at a Toronto distribution center; and second-largest grocery chain Metro Inc.’s C$400m. investment to automate its warehouses.
Four of the top five firms in Canadian e-commerce are from the United States, led by Amazon.com Inc. and Wal-Mart Stores, according to a 2017 ranking of 45 retailers that operate in Canada done by digital analytics company Chasm.
In contrast, four of the bottom five are Canadian, including Empire Company’s Sobeys, grocery operator Loblaw Co. Ltd. and its pharmacy chain, Shoppers Drug Mart.
Canadian retailers risk missing out on strong consumer demand at a time of economic prosperity and ending up with a fate similar to Sears Canada, T Eaton Co. and Zellers Inc., all of whom collapsed after failing to adapt to customer needs, analysts say.
Analysts point to corporate cultures that are reluctant to expand digital capabilities, fear that online operations could cannibalize in-store sales and the scale already built up by US players that makes them hard to dislodge.
“Most of the Canadian companies are fundamentally the same types of businesses they’ve always been, while the world around them is changing,” said Ashish Anand, chief executive at Vancouver-based Chasm, which specializes in the retail sector.
The aggressive expansion of US companies also makes it harder for Canadian operators to hire the best talent, putting them even further behind, Anand said.
Amazon, eBay Inc., Apple Inc., WalMart Stores, Costco Wholesale Corp. and Home Depot Inc. account for about 40% of annual Canadian e-commerce revenues of almost $20 billion, according to Boston Consulting Group (BCG), which predicts more than 35% of all Canadian retail sales growth will come from online in the coming decade.
ERODING PROFIT MARGINS
Retailers who do not move aggressively risk further erosion in operating profit margins, already below 5%, analysts said.
Canadian consumers research and make online purchases as frequently as US shoppers, said Dan Bodley, a principal, and Matt MacKenzie, a partner, at BCG.
Even so, their eventual purchase baskets are about half the size of their US counterparts, likely due to the smaller selection available online in Canada, they said.
As a result, Canadian retailers are losing consumers not just to the US retailers’ local operations but to US websites, where Canadians now do more than a third of their online spending, according to BCG.
“Customers now have more choice, and they can buy globally,” said Sonia Boisvert, a partner at PriceWaterhouseCoopers in Montreal, which found that Amazon is the top choice for 77% of Canadians who plan to shop online this holiday season. “That makes the customer attractive but difficult to get into your own store.”
Canada’s biggest grocery chain, Loblaw, has introduced five e-commerce businesses, expanded its clickand-collect service to almost 200 stores and engaged several “e-commerce innovators,” including Instacart, said Jeremy Pee, the company’s senior vice president for e-commerce.
Despite such moves, “those that are adopting digital technologies and transforming are doing so very slowly,” Chasm’s Anand said. “They have significant challenges ahead.”