Retail E-Commerce Explodes in Canada Amid COVID-19 Pandemic

Retail e-commerce sales reached a record $3.9 billion in May in Canada, a 2.3 percent increase over April, and a 99.3 percent increase over February ($2.0 billion), according to Statistics Canada.

Year over year, e-commerce sales more than doubled—with a 110.8 percent increase compared with May 2019.

THE EXPLOSION OF ECOMMERCE HAS THE POTENTIAL TO RESTRUCTURE THE CANADIAN RETAIL INDUSTRY

The federal agency said small businesses are increasingly turning to e-commerce platforms and are using these platforms in innovative ways. The degree to which Canadians continue to choose e-commerce purchasing options or return to traditional purchasing methods has the potential to change the structure of the retail trade industry in Canada. Clearly, the retail landscape will evolve, it said.

“These record gains in e-commerce occurred as total retail sales experienced record declines. The impact of COVID-19 is best highlighted using April data. Retail sales plummeted to $33.9 billion in April, a 29.1 percent decline from February and a 26.4 percent decline from April 2019. While e-commerce saw a 63.8 percent monthly increase in April, in-store sales dropped 25.3 percent. In May, total retail sales started to recover, reaching $39.3 billion,” said the federal agency.

“Retail e-commerce sales have risen steadily, with the proportion of online sales rising from 2.4 percent in 2016 to 4.0 percent in 2019. The month of April highlights the peak of the COVID-19 impact, with the proportion of retail e-commerce sales jumping from 3.8 percent in April 2019 to a record high of 11.4 percent in April 2020. In May, as the Canadian retail environment allowed for more in-store purchases, the proportion of retail e-commerce sales was 10.0 percent.”

The report said e-commerce sales increased more among non-essential retailers. All 11 retail trade subsectors with e-commerce sales saw an increase in online sales as a result of COVID-19. From February to April 2020, only the food and beverage subsector experienced an increase in in-store sales (+3.3 percent) and a surge in e-commerce (+107.0 percent).

StatsCan said In-store sales declined for general merchandise stores (-15.1 percent), building material and garden equipment and supplies dealers (-15.8 percent), and health and personal care stores (-16.1 percent). These subsectors had relatively moderate declines compared with other brick-and-mortar operations, it said.

“In contrast, other retail trade subsectors — such as furniture and home furnishings stores (-69.6 percent); sporting goods, hobby, book, and music stores (-79.0 percent); and clothing and clothing accessories stores (-84.2 percent) — saw much sharper declines in in-store sales from February to April 2020. As in-store sales decreased for these subsectors, e-commerce sales increased.

“Mandated business closures that prevented retailers from making traditional in-store sales resulted in a greater shift toward e-commerce. Meanwhile, food and beverage stores — essential services that were allowed to remain open — saw a 38 percent increase in grocery sales in the second week of March compared with 2019, and a surge in sales of certain personal care products.”

EXPERT BELIEVES THAT BRICK AND MORTAR WILL STILL APPEAL TO CUSTOMERS AS ‘NEW NORMAL’ SETTLES

Michael Kehoe, broker/owner of Fairfield Commercial Real Estate in Calgary, said the mandated business closures that prevented retailers from making traditional in-store sales over most of the past five months was a black swan event.

“The spike in retail e-commerce sales over this period is no surprise but there is a robust return to customer visits to physical stores that will likely lead to similar customer footfall levels over the medium term that were seen before the COVID-19 pandemic,” said Kehoe, a veteran of the consumer real estate industry with 45 years of experience.

“Small businesses in the retail sector have increased their e-commerce platforms but as things normalize across the country retailers will rely on their bricks and mortar locations that are essential to any omni-channel retailing strategy. Retailers are the heart and soul of the country we have realized during the pandemic. Shopping will normalize over time as Canadians return to their favourite venues.”

COVID-19 HAS ACCELERATED DIGITAL FULFILLMENT IN THE CANADIAN RETAIL INDUSTRY

Gary Newbury, a retail supply chain strategist and serial transformation executive, said the impacts of COVID-19 for Canadian retailing prompted full attention to digital fulfillment, especially for those non-essential retailers who were forced to close, but also for those in essential businesses as they deployed “in store” fulfillment models.

The figures at 10 percent do not show the potential. This potential is split between three key factors, he said:

1. Canadian’s propensity to order abroad having their items imported (which are not tracked by Stats Canada);
2. How retailers choose to report their online sales, there are some classification challenges; and
3. The lost opportunity for many retailers to “shine” during this time with a combination of curbside and home delivery services to help drive brand loyalty during a period of extreme uncertainty for many consumers.

“The significant uptick in volume of online order fulfillment is an important trend. It also is a time for reflection for retailers who were often forced to ‘get their digital side of their business up and running’, to attempt to scale their services from a standing start, or were, frankly, in their element as they had already been operating at volume and welcomed the extra demand, especially if their stores were closed to consumers,” said Newbury.

“Given many consumers are fearful or, at best, reluctant to “get back to normal” with their shopping habits, it begs the question, will the recent rise in online sales continue to grow?

“My thoughts are that there are many factors that relate at category, brand and consumer level. I believe there will be a massive flight to value during this year and early next and uncertainty will prevail for 18-24 months. This seismic demand movement will tend to mean there is no prospect of profit for many retailers looking to operate an online business. Only those making significant investments now will likely be in good shape to buck this trend. Those still looking at eComm as a bolt on to their store distribution network will run into all manner of problems and will conclude the best way forward will be to close the online store.”

He said retailers are starting to rethink their merchandising approaches and are looking to have more clear propositions both in store and online, often by removing proliferating SKU (stock keeping unit) assortments and going back to basics.

At the end of the day, whether the percentage online will grow, stabilize, or reduce will be as a result of consumer perceptions of value, how quickly they want to acquire products and the relative friction they experience between channels (store and online), much of which is in the retailers hands to manage, he added.

“Many people experienced online services for the first time over the last four months, some had a great experience, some not so great. If somewhere in the order of 50 percent of people would prefer to avoid retail stores (lots of friction currently), this is a big prize for retailers to go after, however, they need to approach this opportunity with care, ensure they elicit the help of digital fulfillment experts, be open to look at digital retailing in a different way (skip the extended aisles and pricing mechanisms etc), and ensure they fully comprehend the financials of online if they are going to develop a profitable online business,” said Newbury.

Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said the Statistics Canada report confirms what many people hypothesized: as brick and mortar retail softened in many cases, e-commerce sales soared during the key months of the pandemic (thus far).

“The multi-million-dollar question is what will e-commerce sales look like from now until a potential vaccine is developed and administered and what will e-commerce sales look like post vaccine,” he said.

“One can argue that the growth in e-commerce during wave one of the pandemic allowed consumers to sample the convenience, safety and endless aisle of online shopping - leading to a permanent uptick in this channel. Sadly, we will probably see wave two sometime soon which will reinforce online shopping's benefits.

“An important point however, is to recognize that existing e-commerce infrastructure is lacking as witnessed by countless order delays, missing products and charging errors during wave one. As we have already seen from Walmart and Empire, retailers (and suppliers) have begun to pivot to quickly increase online shopping and delivery capacity to meet anticipated needs.”

STORE COUNTS WILL DIMINISH BUT BRICK AND MORTAR WILL PREVAIL

This will have, as we have already seen, retailers reviewing store counts and closing unproductive locations that have been pushed into the red. There will be fewer stores from many legacy brands as a result, added Winder.

“New digitally native brands will emerge though and have the benefit of building brick and mortar infrastructure based on this evolving environment. They will integrate all channels so that the shopping experience involves less friction than today's incumbents,” he said.

“The tough part for retailers is learning how to make money on e-commerce sales - especially if they don't sell their own brand. Even with the required scale, technology and partner infrastructure, it won't be easy and net profit margins could be considerably less than traditional brick and mortar channels that have been refined for decades. Will suppliers help pay for this gap as per Walmart's announcement to add new discounts to vendors last week?

“Nevertheless, this is a transition that must happen as the customer is demanding it. Those that can make the successful jump to profitable e-commerce will survive, those that cannot will be swept away as online retailers like Amazon, who have been readying for this day for decades, will dominate."