SAVVY CROSS BORDER SHOPPERS: HOW TO SELL TO CUSTOMERS

IN CANADA

At Flow, we want to make it as easy as possible for retailers and brands to engage in cross border e-commerce. Each installment of this “How to” series will focus on a different country and will provide the resources and knowledge needed to launch a successful e-commerce business in that market. The first of this series will examine the United States’ northern neighbor: Canada.

INTRODUCTION HOW TO SELL TO CUSTOMERS IN CANADA

Canada’s e-commerce sales are on the rise. Over 80% of Canadians have made an online purchase in the last year. It’s pre-dicted that e-commerce sales will reach $43 billion American dollars (or $57 bil-lion Canadian)1 in 2018—a 26.3% increase from 2017. Accounting for 9% of total retail sales, e-commerce in Canada is expected to show a compound annual growth rate (CAGR) of 7.4% between 2018 and 2022.2

THECANADIAN MARKET

THE CANADIAN MARKETHOW TO SELL TO CUSTOMERS IN CANADA

There are some key differences between the U.S. and Canadian e-commerce mar-kets to consider. Canadian e-commerce has not yet become as pervasive as in the U.S. While the percentage of Cana-dians with internet access is higher than the U.S. percentage (87% vs. 81%),3 only 49% of consumers in Canada buy online at least once a month as opposed to 69% of consumers in the U.S. Currently, U.S. av-erage online spending is almost twice that of Canada,4 however we expect Canada to catch up quickly. Retailers and brands selling in the Canadian market will benefit from this growth.

THE CANADIAN MARKET HOW TO SELL TO CUSTOMERS IN CANADA

CANADIAN CROSS BORDER E-COMMERCE GROWTH

2017 2021

$10BN

$30BN

$20BN

Source: Boston Consulting Group4

When it comes to cross border growth, there is a significant opportunity in Can-ada. Cross border shopping is strong, especially for merchandise coming from the United States. Some estimate that two-thirds of Canadian online shopping purchases come from retail sites in oth-er countries. According to Paypal’s Cross Border Transactions 2016 Merchant & Consumer Comparison USA Report, it is estimated that 56% of foreign purchases come from the U.S, 18% come from China, and 7% from the United Kingdom. This re-port also reveals that Canadians buy on-line from other countries because of lower prices, better selection and stronger offers than what local retailers can provide.

THECROSS BORDEROPPORTUNITY

THE CROSS BORDER OPPORTUNITYHOW TO SELL TO CUSTOMERS IN CANADA

The concern of domestic brands that on-line stores would cannibalize their brick and mortar presence has been a strong contributor to the rise in Canadian cross border shopping. The hesitance of Canadi-an brands to further their presence online has opened opportunities for brands and merchants in the U.S. and abroad. Only recently have domestic retailers in Canada started incorporating best practices like competitive shipping rates, easy returns, and digital payments. Like most consum-ers, cross border shoppers in Canada seek low-cost shipping, transparent duty, tax and customs costs, and, of course, the ability to pay in their local currency.

THE CROSS BORDER OPPORTUNITY HOW TO SELL TO CUSTOMERS IN CANADA

CONSIDERATIONS & RISKS

CONSIDERATIONS & RISKSHOW TO SELL TO CUSTOMERS IN CANADA

Before entering the Canadian market, it is important to understand the potential cultural differences and logistical pitfalls. Retailers and brands must take into ac-count the regulatory policies and cultur-al sensitivities of the country. Canadians are particularly savvy deal shoppers5 who make purchase decisions based on the lowest price or the best deal as opposed to choosing a particular brand. They also expect to see prices in Canadian dollars, and in Quebec, they expect your website to be both in French and English as man-dated by law. Another consideration when going into Canada is the remote location of some customers, which can make shipping more expensive and more complicated.

Selling in Canada requires a keen under-standing of various factors including cus-toms, regulations, logistics, and the use of price comparison sites like Google shop-ping search. Note that Canadian consum-ers are particularly savvy on what the ex-change rate should be, so if the exchange rate is padded for extra margin, they will notice.

CONSIDERATIONS & RISKS HOW TO SELL TO CUSTOMERS IN CANADA

In Canada, customs compliance varies depending on whether postal operators or express carriers have imported the ship-ment. NAFTA allows for duty-free status for imports worth more than $2,500 and accompanied by a NAFTA Certificate of Origin. For shipments from countries that are not part of NAFTA, the country of or-igin must be indicated in order to deter-mine eligibility for free trade agreement benefits. Furthermore, every item entering Canada must be assigned an appropriate tariff classification code in order to deter-mine the rate that must be paid. The Can-ada Border Services Agency (CBSA) col-lects the duties based on whatever trade agreements are in effect with that particu-lar country of origin.

CUSTOMS

CUSTOMSHOW TO SELL TO CUSTOMERS IN CANADA

Certain goods are subject to permits and restrictions such as firearms, food items, and agricultural products, so make sure you research these rules.6 The Canada Anti-Spam Law, known as CASL, requires global organizations sending commercial emails within, from or to Canadian citizens to receive consent from recipients before sending messages.7 Examples include emails from retailers that contain a coupon or information about a promotion or sale. And be sure to follow the Charter of the French Language, which applies to resi-dents of Quebec. Any person or company that sells products or services in Quebec has to follow the language requirements of the Charter, and anything written on a product sold in Quebec, on its package, or in documents included with the prod-uct (for example, instructions for using the product and warranties) must also be in French.8

REGULATIONS

REGULATIONS HOW TO SELL TO CUSTOMERS IN CANADA

French is the mother tongue of about seven million Canadians (22.3% of the Canadian population). Most native French speakers in Canada live in Quebec, where French is the majority and sole official language.Source: Charter of the French Language, June 2018

DID YOU KNOW?

With some parts of Canada being remote, retailers may need to contract with spe-cialized carriers in order to deliver prod-ucts to those regions and allow for addi-tional time. The cost of delivering outside an urban area can be quite expensive. Consumers are very sensitive to being charged more because they live in a rural area, but it can cost many times more to deliver to a remote part of Manitoba than to Toronto. Retailers and brands must consider this paradox carefully to find the right balance for their business.

LOGISTICS

LOGISTICSHOW TO SELL TO CUSTOMERS IN CANADA

When marketing your products online in Canada, it is important to understand the behaviors of Canadian online shoppers. Consider a mobile-first marketing strategy since mobile usage in Canada is steadily growing, including for retail purchases.9 The most popular social network in Can-ada is YouTube, followed closely by Face-book.10 Marketers in Canada are realizing that social platforms can both access a larger audience and target a specific cli-ent base. Marketers’ spending on digital advertising has been steadily rising since 2014 and reached $5.2 Billion in 2017.11 And according to Landmark Global’s Can-ada Cross-Border Trading Report, the cost of advertising in Canada is slightly less than in the U.S.

MARKETING

MARKETING HOW TO SELL TO CUSTOMERS IN CANADA

Another popular channel for marketing in Canada is price comparison sites like ShopBot.ca, ShopToIt.ca and Nextag.ca. Brands can also geo-target Search Engine Marketing ads to focus on urban centers where there is a greater number of poten-tial consumers. Search Engine Marketing is more cost-effective than in the U.S.12 and can be an effective channel for reaching a broad Canadian audience.

MARKETINGHOW TO SELL TO CUSTOMERS IN CANADA

SEARCH ENGINE SHARE COMPARISONS: US VS. CANADA

United States

Source: Landmark Global

Canada

Google Bing Other

65%

85%

20%

10% 5%

10%

When it comes to pricing products in Can-ada, there are a few guidelines to follow. Include prices in Canadian dollars, and offer free shipping to compete with the local retailers, as most offer free shipping over a threshold. Remember that Canadian consumers are in tune with exchange rates and will do their own research on the price of an item to make sure they’re receiving the best possible deal. When pricing your products and determin-ing landed cost, be sure to factor in the ef-fects of trade agreements, category-spe-cific taxes and duties, shipping costs and exchange rates. Usually, duties and taxes are not included in the price.

PRICING

PRICING HOW TO SELL TO CUSTOMERS IN CANADA

The landed cost includes the original price of the product, transportation fees (both inland and ocean), customs, duties, taxes, tariffs, insurance, currency conversion, crating, handling and payment fees. The average ship rate of an American product to Canada is about 25% lower than in the U.S. while the landed cost is about 125% higher.13 Become informed of all the different components contributing to the landed cost as this can have a material im-pact on decisions for your product assort-ments and pricing strategy in the Canadian market. Finally, it’s also important to compare the effective cost of an item to a locally pur-chased product to ensure the offering is price competitive.

LANDED COST

LANDED COSTHOW TO SELL TO CUSTOMERS IN CANADA

In Canada, credit cards remain the top payment method of choice, followed by Paypal. The preferred credit card is Mas-terCard with a 53.6% share. Alternative payment methods that are unique to Cana-da include Instadebit and Interac.14 When configuring the checkout flow for Canada, make sure to default to local currency and allow users to select their preferred method of shipment. Generally, products ship in 2 to 7 business days in Canada and customers have 30 days to return.

PAYMENT& CHECKOUT

PAYMENT & CHECKOUT HOW TO SELL TO CUSTOMERS IN CANADA

41% of Canadian e-commerce consumers say they would not feel comfortable making purchases online in a foreign currency.Source: PayPal Cross Border Transactions 2016 Merchant & Consumer Comparison

DID YOU KNOW?

Carriers like UPS and FedEx, in addition to Canada Post, are viable options for ship-ping to Canadian customers. Some more remote locations in Canada receive infre-quent service and packages may require additional costs and time to arrive at their destination. While the e-commerce market in Canada isn’t as developed as that of its neighbor to the south, this market offers a growing op-portunity for savvy U.S. based retailers and brands to explore. Although Canada seems similar to the U.S. in several ways, retailers must become familiar with the behaviors, regulations and overall business landscape in order to be successful in the market.

FULFILLMENT

FULLFILLMENTHOW TO SELL TO CUSTOMERS IN CANADA

Flow is a global cross border e-commerce platform that en-ables brands and retailers to sell their products to customers internationally by creating a localized shopping experience. Flow automates and simplifies every aspect of the interna-tional e-commerce process for its customers, removing the challenges facing cross border commerce by offering benefits such as multi-currency pricing, cost efficient and rapid ship-ping, international payment options, well-defined taxes and duties, and simple returns. Brands and retailers use Flow’s cloud-based software solution to better manage cross border logistics, to reach a broader international customer base and to enhance the customer experience. For more information, visit www.flow.io.

SOURCES

https://www.statista.com/topics/2728/e-commerce-in-canada/

https://www.emarketer.com/Report/E-commerce-Canada-2018-eMarketers-Latest-Forecast-with-Focus-on-Grocery/2002204

https://www.statista.com/outlook/243/108/e-commerce/canada

https://cira.ca/factbook/e-commerce-trends-in-Canada

https://www.statista.com/statistics/441017/online-shopping-payment-method-canada/

https://www.copenhageneconomics.com/dyn/resources/Publication/publicationPDF/9/379/1488447427/copenhagen-economics-2017-e-commerce-imports-into-canada-sales-tax-and-customs-treatment.pdf

https://www.thepaypers.com/payment-methods/canada/13

https://www.imrg.org/data-and-reports/cross-border-e-commerce/canada/

HOW TO SELL TO CUSTOMERS IN CANADAVISIT WWW.FLOW.IO

9 Want to Sell Online to Canada? Four Things Your U.S. Business Needs to Know, BigCommerce.com 10 Penetration of leading social networks in Canada as of the 3rd quarter of 2017, Statista, 2018

11 Insights Into the Growth of Canadian E-commerce, PayPal, 2017 12 Canada Country Guide 2017: Cross Border Trading Report, Landmark Global

13 Proprietary data from Flow.io

14 WorldPay Global Payments Report: Canada, https://worldpay.globalpaymentsreport.com

6 Other Government Departments and Agencies: Reference List for Importers, Canada Border Service Agencies 7 Canada’s Anti-Spam Law: FAQ, Deloitte 8 Charter of the French Language, LegisQuebec, June 2018

5 American and Canadian Consumers: Not as Similar as You Think, Buxton Company blog

3 Will Canadian Retailers Meet Demand as E-Commerce Takes Off?, Boston Consulting Group, June 2017 4 Will Canadian Retailers Meet Demand as E-Commerce Takes Off?, Boston Consulting Group, June 2017

1 E-commerce in Canada 2018: eMarketer’s Latest Forecast, with a Focus on Grocery, eMarketer, January 2018 2 E-commerce Report 2018: Canada, Statista Digital Market Outlook, June 2018

OTHER SOURCES