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Slow out of online gate, can Canadian retailers make up lost ground?

Canada's online retail business still looks like a toddler. It grows in big spurts every time you look at it – but that's a reminder of how much growing it still has to do, and how stunted its development looks compared with its cousin to the south.

Statistics Canada reported Monday that the value of online retail orders totalled $18.9-billion in 2012, up 24 per cent from 2010, the last time the national statistical agency conducted a survey of online shopping and Internet usage. Considering total retail sales rose a modest 6.7 per cent in the same period, this looks like a veritable online boom.

But a little perspective is required. That $18.9-billion represents just 4 per cent of Canada's total retail sales in 2012. (Contrast this with the United States, where online retail sales account for close to 8 per cent of all retail sales.) And only 56 per cent of Canadians said they ordered something online last year – up only modestly from the 51 per cent who did so in 2010. Nearly half the country didn't shop online at all last year. And given that a similar percentage of Americans shopped online in 2012, clearly Canadians who do buy over the Internet are not doing so as frequently as their U.S. counterparts.

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Canada's lag in adopting online shopping is a bit hard to grasp, intuitively. Statscan noted that 83 per cent of Canadians used a computer for personal purposes in 2012, which is among the highest rates in the world. Only the Nordic countries routinely report significantly higher usage numbers than Canada, and they share a key trait with Canada that makes Internet commerce a particularly attractive option: Long, cold winters that all but beg shoppers to stay in the comfort of their own homes.

Certainly some of the problem lies at the feet of Canada's big retailers, many of whom have been late to embrace cogent e-commerce strategies. More nimble U.S.-based retailers have been grabbing a handsome slice of the Canadian online pie, at our domestic retailers' expense.

Statscan's survey found that 82 per cent of Canadian online shoppers placed their orders from Canadian sources, but that number is wildly misleading. Those include orders from Canadian websites of big U.S. online retail operations such as Amazon and Wal-Mart – companies that have aggressively made big inroads into Canada's online retail market. A report on Canadian online shopping earlier this year by Forrester Research found that Amazon was the single most-used retail website among Canadian shoppers, followed by eBay, iTunes and Best Buy – all U.S.-owned operations.

Indigo Books & Music Inc., Canada's best-known and most popular home-grown online retail operation, saw essentially no growth in its online sales in 2011 and 2012. Even after more than a decade online, only about 10 per cent of Indigo's sales came from the Internet last year.

But perhaps there's hope to be found in the story at Hudson's Bay Co., Canada's oldest retailer and a notorious Internet laggard. When this decade started, the company had essentially no online business at all. Now it's up to 6 per cent of total sales, and grew 63 per cent last year alone.

Hudson's Bay's experience shows that the online retail potential in Canada can still be unlocked relatively quickly by a retailer committed to tapping a still undertapped market. The question is whether they can get there before their U.S. competitors.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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