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Online Retailers in Canada Facing Barriers to Entry Amid Growing eComm Competition: Expert Interview

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It’s almost passe now to discuss the “shift” in consumer behaviour and preferences with respect to the recent movement of purchases away from brick-and-mortar locations toward online channels. It’s behaviour that, once precipitated by impacts of COVID-19, became set and is not likely to revert back to pre-pandemic norms. As a result, many businesses across the country and, indeed, the world are placing greater focus and emphasis on investments to enhance their digital ecosystems in order to capitalize on the current online boon. They are investments that are very much intended to facilitate and generate further revenue for organizations as they expand the channels by which their customers can purchase their goods. However, as David Nagy, digital pioneer and Founder of eCommerce Canada, points out, simply putting product online doesn’t guarantee success and growth. In fact, he suggests that in order to reap the rewards currently available in the omnichannel world, retailers must first determine their capacity to succeed.

“There’s no question that a ton of opportunity has recently opened up online for Canadian retailers,” he says. “But those who think that they just need to replicate their in-store inventory on their website or a third-party marketplace to increase their sales are approaching their digital transformation from the completely wrong angle. Extending a retailers’ presence online means leveraging channels and opportunities to build community and perpetuate their message. It’s about reaching a likeminded audience that they never would have had the chance to communicate and interact with. And, this audience, for every retailer, exists in every country throughout the world. Digital has proven to be the most effective, efficient and low cost means by which to broadcast the brand and its message. It represents growth of engagement and impressions in the market and the ways in which you’re being shared by people. Pragmatically speaking, however, because businesses are judged by the revenue they bring in, success online is ultimately evaluated by increases in sales. And, there are a few things that every successful online business has in common.”

Creating critical differentiation

In fact, as Nagy explains, there are three distinct qualities or attributes displayed by retailers that not only succeed online but, in some cases, realize opportunities to expand their businesses significantly, at a global scale. The first of these three attributes, rooted in a brand’s uniqueness, should provide initial indication to any organization whether or not pursuing real growth online is worth their time, effort and the financial investment that will be necessary in order to build out and enhance their digital ecosystem.

“One of the most dramatic and obvious impacts of the pandemic, not just from a retail point-of-view, has been the accelerated digitization of everything around us,” he asserts. “It’s changed the way we communicate and share information. And, at the onset of the pandemic, there was a lot of opportunity for those who could get past the technical hurdles and get their products online. However, the market has become flooded with competition since then with commoditization happening in just about every vertical. As a result, there’s a lot of digital noise out there at the moment, which correlates to increases in costs related to acquiring new customers and effort required to get the attention of the digital consumer. Today, in order to cut through the noise and preserve any chance at all of achieving success online, retailers have got to create or highlight differentiation between themselves and their competitors. This is most effectively done through the way in which they tell the story of their brand and their ethos – what their organization believes in. If executed genuinely and effectively, a strong brand message will inevitably create white space for retailers looking to stand themselves apart from others in the market.”

Barrier to entry

Another consequence of the recent spike in ecommerce activity among Canadian consumers, despite the number of online competitors out there, is the bounty of opportunities that have popped up, somewhat arbitrarily, for drop-shippers on third-party marketplaces. Nagy recognizes that it’s a fantastic way to move inventory and capitalize on the moment. However, many of these instances are rarified, driven by hot trends, that are not sustainable with respect to generating and growing success over the long term. In order for a brand to equip itself with a sustainable approach to online sales, their product, in addition to their message and brand positioning, must also possess qualities of differentiation and uniqueness.

“We’ve seen too many times before the scenario in which someone sells a product that’s being driven by a fad,” he muses. “Initially, it sells really well and the person or brand selling it thinks that they’re going to make a million bucks. But, usually sooner rather than later, a competitor or competitors enter the market with more of that product at a cheaper price and the opportunity evaporates. The online ecosystem is very smart and unbelievably predatory. So, in order for brands to distance themselves from this trap and any potential competitors, they’ve got to ensure that there’s clear differentiation around their product, like the acquisition of significant intellectual property or mastery over an aspect of the supply chain. What this does is make it extremely difficult, preferably impossible, for anyone else to easily and cost-effectively enter the market with the same or similar product. It inhibits others from replicating what the leading brand is doing, preventing them from catching up to them.”

Market expansion

In addition to establishing adequate uniqueness and differentiation within the brand and its product, two critical components of a successful ecommerce business, retailers will want to assess their ability to grow in the digital space. It isn’t often enough to do well regionally online, explains Nagy, adding that the very nature of the digital landscape and ecommerce business is all about scale. In order to understand whether or not a business has scalability within the online world, he says, the brand has to analyze and, if possible, remove any hurdles that might be in its way.

“If there are inhibitors or restraints to expanding a retailers’ market, then it may be more challenging for them to find success online,” he says. “Profitability online is dependent on the ability to scale. If things like shipping, packaging and talent acquisition prohibit a retailer from growing their market and operation, then they may not possess enough scalability on the internet. Selling to other provinces, countries or people of different languages might also be an issue. In addition, there are, at times, marketing agreements with distributors and suppliers that may also prohibit growth outside of Canada. There’s a whole host of things that could prohibit and prevent a business from scaling online. It’s up to the retailer to understand all of these factors at play and determine whether or not they pose any restrictions to their growth on the digital landscape.”

Patience and focus

It seems that retail, along with most other industries around the world, is changing, entering in full into a new age of digitization and evolution. And, as part of this evolution, brands are realizing the massive amounts of opportunity that are available to those that can achieve differentiation through the storytelling, experience and product that they offer. They are opportunities that Nagy is well aware of. However, he advises that in order for a brand to properly and effectively establish itself online – for a retailer to really succeed and grow in the digital space – patience and focus are paramount.

“These three attributes are possessed by every great ecommerce brand that I’ve ever come across. And, if you can achieve these three things within your business, you’re probably on the cusp of globalization. However, you’ve really got to be smart about picking your battles. Growing too quickly can kill a business. So, timing is critical. When the water parts for you just a little bit – when you know that you’ve checked these three boxes and you’re confident in the profitability of your operation – you might be ready to really ramp up efforts toward growth and market expansion.”

For information about the ways in which eCommerce Canada can help your business compete in a digital world, visit ecommercecanada.ca

Article Author

Sean Tarry
Sean Tarry is an experienced writer who leverages his unique storytelling abilities to bring retail industry news and analysis to life. With 25 years of learning, including over a decade as Editor-In-Chief of Canadian Retailer magazine, he’s equipped with a deep understanding of the unique world of retail and the issues, trends, and innovators that continue to influence its evolution and shape its landscape.

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