The turmoil that’s dominated the retail industry over the past year-and-a-half or so has created a bit of a helter-skelter environment for merchants across the country to operate within, with circumstances surrounding the COVID-19 global pandemic serving to disrupt, derail and, in some cases, discontinue the work done by brands altogether. During this time, changes and shifts have occurred that have dramatically altered the market and the landscape in which it resides. And, there have also been trends and behaviours that predated the pandemic which have been accelerated by societal impacts of the virus, namely the remarkable movement by the Canadian consumer from in-store purchases to those made via digital channels. This movement has resulted in astounding increases in ecommerce sales for retailers from coast to coast, going a long way toward making up for a shortfall in recent physical activity. It’s growth that David Nagy, digital pioneer and Founder of eCommerce Canada, is confident will continue. However, he says that the ways in which consumers are spending their money is shifting.
“Right up to the minute, ecommerce demand remains incredibly strong, but it’s shifting just a little bit,” he says. “What we’re seeing currently is a bit of a softening because people are finding other ways to spend their money. Everyone’s been held back for such a long time. The consumer’s been focussing internally, spending on home improvements and vanity purchases, putting things in their closets and basements. Ecommerce has definitely experienced a boom during the pandemic up to this point. And, I don’t think that activity is going to evaporate in any way shape or form. But, over the last couple of months, as tensions around social restrictions have been relieved just a little bit, we’ve noticed a shift in spending toward more lifestyle and experience-based purchases. People are going out to dine, attending events, going to museums and taking in other experiences that they haven’t been able to for a long time. Because of this, product-based retailers are seeing a bit of a soft summer when it comes to online purchases. People have a pent-up desire to experience the world, and it’s showing up in the decisions they’re making with their money, resulting in a bit of a shift in the online ecosystem.”
Continued ecommerce growth
The split of consumer spending between product and services aside, however, the overall growth in ecommerce that occurred in Canada in 2020 was astounding. In fact, according to Insider Intelligence’s Canada Ecommerce Forecast 2021, retail ecommerce in the country grew by an astronomical 75 percent last year. And, the leading research firm doesn’t see any signs of the accelerated trend slowing any time soon. Bolstered by a retail rebound across the country, which is expected to result in an increase of 6.4 percent following a decline of 4.6 percent in 2020, Insider Intelligence believes that ecommerce will account for 13.4 percent of all retail sales in 2021, up from 6.9 percent in 2019. As a result, the firm predicts that retail ecommerce sales will reach $86.52 billion this year, nearly doubling the total of 2019, equating to further growth of around 12 percent. It’s growth that Paul Briggs, Principal Analyst, Canada at Insider Intelligence, believes will continue to be driven, at least in part, by the removal of traditional barriers to online shopping that existed prior to the pandemic.
“We’ve certainly just experienced a period of rapid ecommerce acceleration,” he says. “The pandemic really moved things forward, ahead of what the previous trajectory was prior to COVID. A lot of retailers across the country already had plans in place to implement digital and omnichannel retail in order to meet growing consumer demand. Their timeline for this implementation may have been 18 months or 2 years out. But lockdowns and restrictions made online shopping the only option for many essential goods, forcing retailers to advance their plans to digitize their retail options. And, because people in certain demographics who may have been reticent to shop online and leverage digital channels prior to the pandemic have since done so, and have become comfortable with the option, many of the impediments to that behaviour have been overcome and will continue to make it easier for those particular demographics to continue to shop in that way.”
Increased digital buyers
The demographics that Briggs refers to include the older age groups, specifically those over the age of 55, whose late adoption of online shopping channels has gone a long way toward contributing to the sharp rise in Canadian digital buyers. According to the report, the 65-and-over age group saw an increase of 17.1 percent in digital buyers, while the 55-to-64 age group grew by 7.4 percent. All told, Canada’s digital buyer population grew by 1.2 million in 2020, with the addition of another 600,000 consumers expected to convert to digital channels this year. Including consumers in the 18 to 24 and 25 to 34 age brackets, which accounted for 85.2 percent and 84.6 percent, respectively, when it comes to digital buyer penetration in the country, it’s estimated that there are now 24.2 million digital buyers across Canada, accounting for 74.9 percent of the country’s population.
In addition to the incredible increase in adoption of digital channels by the Canadian consumer, the report also cites an even quicker rate of growth for mobile commerce. Surpassing $25 billion in 2020, mobile commerce grew by 83.5 percent, now contributing to one-third (33.1%) of all ecommerce sales in the country and is estimated to grow to 34 percent by the end of 2021. Further, the report forecasts double-digit annual growth for mobile commerce over each of the next four years, reaching $46.4 billion by 2025, accounting for 36.2 percent of all digital purchases. It’s a rise in mobile consumer behaviour that, according to Briggs, is driven in large part by the pervasive use of smartphones and the continuously improved mobile experience that brands offer.
“Most Canadians own a smartphone today,” he says. “And many are increasingly adopting mobile as a means to make digital purchases. This is really helping to underpin mobile commerce’s performance. But, an even more influential driver is the quality of mobile commerce experiences that are being made available by Canadian retailers and direct to consumer brands today. They’ve realized the value in the device as a touch point with the consumer and as a channel to leverage in order to service the retail requirement. Many of the brands have made it much easier and much more convenient for people to use their mobile phones as a means to make purchases.”
Fluid retail marketplace
Briggs goes on to explain that although the digital channels are those experiencing the most growth, they simply serve to comprise elements of the entire retail ecosystem. Consumers today are increasingly viewing the retail experience and the means by which they can interact with brands and shop and make purchases from them as one holistic marketplace, rather than encounters that are defined by the mode by which they happen.
“People like to engage with brands in a number of different ways,” asserts Briggs. “And this is a sentiment and behaviour that is only going to intensify going forward. People like to go into physical retail locations as much as they do shopping on their phones, tablets or desktops. It’s a much broader type of behaviour that the digital channels help support for the consumer, providing retailers with multiple avenues toward purchase. And this expansion concerning the ways that people can shop is really going to drive the retail industry forward.”
The recent rapid growth in digital channels has not only influenced consumer behaviour, however, it’s also created a need for many retailers across the country to enhance and advance their digital initiatives. This advancement for many has meant the development of ecommerce capabilities, the execution of alternate modes of delivery and product transfer and an overall shift in the way retail businesses are run. All told, Briggs says that the digitization of the retail industry is not something that’s been caused by the pandemic, by any means, but is a trajectory that’s been heightened by its impact. He adds that it’s a hastening of retail innovation and development that will ultimately serve to benefit the customer in the end, helping the entire industry to leverage all of the possibilities made available by the latest technologies.
“The digitization of the industry is really leading many retailers to begin using data, or to use data to greater effect than they ever have before,” he says. “It’s providing brands with the ability to understand their consumers at a much deeper level than they did prior to the pandemic. It’s allowing them to understand more clearly what the consumer wants, what products they’re interested in, the ways they want to shop and interact with retailers and the type of experiences they’re looking for. The Amazon type expertise around leveraging data to understand and get closer to the customer is becoming more widely practiced, improving the ways that retailers operate and enhancing the experiences that they offer their customers.”
Accompanying the growth of the digital channels, helping to prop up ecommerce numbers over the past year-and-a-half, is the explosion of curbside click-and-collect transactions being made by digital buyers. Insider Intelligence estimates that 12.5 million Canadian internet users aged 14 and older will make a purchase via click-and-collect in 2021, accounting for 54.6 percent of all digital buyers in the country. It’s a number that’s increased by 7.2 percent from 2020, adding to the 15.8 percent increase the mode of product delivery experienced last year. It’s function and service that Briggs says has been driven primarily by the expense of last mile delivery in Canada, allowing retailers to avoid many of the logistical challenges and costs in delivering to the countries population while providing a great retail experience. Nagy agrees, adding that it’s become an integral piece of the retail digital offering.
“The click-and-collect phenomenon and behaviour by the consumer are not going to recede,” Nagy asserts. “In fact, it’s become an expected convenience now by the customer who prefers it. People don’t want to go into the store to pick up certain products, especially in a dining scenario, and they don’t want to wait around. It’s not even about the concern or fear of being around other people anymore. It’s just something that’s suitable for a lot of lifestyles. A lot of people are on the move and just want to grab and go. Finding product in an online catalogue and picking things up on the fly is proving to provide a really great retail experience. It’s just something that needs to be baked into a retailers operating system, adding to the service and offering that they provide.”
Another aspect of consumer behaviour that continues its upward trajectory is the penchant among Canadians to purchase from websites and brands outside of Canadian borders. According to the Insider Intelligence report, cross-border digital buying is a “staple behaviour” in the country, estimating that more than 12 million Canadians will make purchases on non-Canadian sites in 2021, representing more than half of all digital buyers in the country. The reasons for this behaviour are varied, explains Nagy, citing the breadth of options as well as inadequate customer duties, levies and policies on foreign goods entering the country as a couple of examples that lead many to shop elsewhere online.
“I’ve long been concerned about Canadian small and medium-sized businesses when it comes to cross-border buying,” he admits. “Concessions that have been made on the Canadian side with the amount that can be spent on foreign goods have not helped retailers in the country. The average Canadian shopping cart online is about $110. That opens up thousands of retailers in the US as a result of inadequate de minimis levels on goods entering the country. It precipitates billions of dollars of consumer spending across the line. In addition, the value proposition coming out of the US at the moment is just that much better. They have larger catalogues, more product to offer and more in stock. Their marketing ecosystems are better. Their teams are better. Their skillsets with respect to the way they can put product in front of people, as well as their latitude to run websites, are stronger than Canadian retailers across the board. By comparison, a US company that’s selling the same product as a retailer in Canada probably has five to ten times the revenue and so can play in the market much more effectively. Until there’s some kind of contraction within some of the verticals, it’ll be difficult for Canadian retailers to put any kind of dent in cross-border purchases and behaviour.”
Differentiation is key
Approaching what’s hopefully the end of an extremely difficult period in retail history, the role that ecommerce and the digitization of business have played in bracing operations by making up for a lack of physical footfall is alarmingly apparent. The importance of the online channels as paths to purchase are also underscored by the many digital pivots and shifts made by brands throughout the industry. And, although it may be more than challenging for Canadian retailers to go head-to-head with their American counterparts when it comes to resources supporting their online efforts, Nagy suggests that the things that stand them apart will continue to serve as perhaps the most significant tool in winning the spend of today’s digital consumer.
“Retailers absolutely need to identify their piece of the market, the things that make them special, the ways they do things differently, and communicate that story repeatedly. The mistake brands make when they launch online is in their generalization of their brand and offering with a storefront that’s meant to serve everyone. But no brand or offering is for everyone. You have to know your customer and how to speak in your customer voice. Canadian retailers are really good at this in brick-and-mortar retail, developing a look, a feel and a tone with respect to the way their store presents itself. Everything about the in-store experience is designed with the customer in mind. But we do none of that online. Retailers in the country have got to do a better job of understanding exactly who their digital consumer is, targeting them and communicating the uniqueness of their brand to them. If they can do that, they can truly differentiate themselves from their competition and attract the attention and spend of their willing digital audiences.”