Canadian eCommerce Market Overview

The Grow Big Initiative, via its parent organization’s (Getting to Global) Strategic Partnership with the U.S. Commercial Service, has been fortunate to capture the insights from Tracey Ford, U.S. Commercial Service International Trade Administration Specialist based in the U.S. Embassy in Ottawa, on the “Why and How” to sell into the Canadian online consumer market!

Here is the Q&A in written and video form:

Question 1:

Josh Halpern – 江宏: So, why should a U.S. exporter think about selling into Canada?

Tracey Ford: Canada is often the first place many US companies look when considering exporting.  And for good reason!  For the most part, Canada has a shared language, culture and lifestyle similarities to Americans and Canada has a stable economy with similar laws to the United States. The USMCA trade agreement also provides many advantages to do business here.

Canada is an affluent, high-tech society with a market-oriented economy, low inflation, and high living standards.  In 2021, Canada ranked the 9th largest economy in the world by the World Bank and 23rd among 190 economies in the ease of doing business. Like the global economy, the Canadian economy is expected to transition from pandemic recovery-driven growth to more normal growth in 2022 and BDC has estimated that growth will reach 3.5%.

eCommerce offers great potential for US companies wishing to sell here.  Canada’s business to consumer e-commerce market is said to resemble the US market in terms of features and preferences.  The biggest difference is that Canada’s e-commerce market is much smaller, due mainly to a significantly lower population, about 1/12 the size of the population in the United States.  That said, the market opportunities in Canada in e-Commerce are not insignificant.  The pandemic is a primary reason for this growth as it pulled eCommerce adoption in Canada ahead by 5-10 years. Canadians have tried doing certain things online for the first time or shifted their routines to be more dependent on the internet and therefore shifted the country to a more digital economy. Year over year, eCommerce sales have more than doubled, with a 110.8 percent increase compared with May 2019.  These record gains in eCommerce have occurred as total retail sales experiences record declines.

When it comes to online shopping, almost every Canadian with an internet connection is participating, with 88 percent reporting making a purchase online in the last 12 months.

While smaller businesses in the retail sector have increased their eCommerce presence, the top online channels in Canada remain Amazon.ca, Walmart.ca and Costco.ca.

Question 2:

Josh Halpern – 江宏: Let’s talk eCommerce.  What are the trends that answer the ‘why now’ for selling online into Canada?

Tracey Ford:

The first trend I’d like to touch on is the increase of mobile and social commerce.Mobile commerce keeps growing in Canada, accounting for about 36 percent of all eCommerce sales.  Perhaps not surprisingly, young consumers have shown a greater trend toward mobile purchases and are more responsive to mobile ads.

The adoption of social commerce also accelerated during the pandemic.  In January 2022, there were an estimated 33 million social media users in Canada and these numbers are on the rise! Recent data from Statista showed that market leader Facebook accounted for 65.5% of all social media visits in June 2022, followed by Twitter with 13%. Instagram ranked third with 7.65% visits.

The second trend is the growth in the buy now / pay later option.

Buy now/pay later is a service that is often offered by online retailers at the time of check out and allows the purchaser the ability to break up the cost of a purchase into several smaller payments, and it’s taking Canada by storm.  Overall, users of this service then to be younger with the largest group being in the 18-34 age group spending on average more than $200 buying furniture or appliances, electronics, or clothing. The most common platforms being used in Canada for this feature are Klarna, Affirm, PayBright , Zip Co, Afterpay and Sezzle.

The third trend is the growth in cross border shopping. Many Canadians are quite familiar to cross border shopping as 80 percent of Canadians live within 180 kilometers of the US border, but eCommerce is increasing that trend.  Canada’s homegrown eCommerce market was slow to develop, and this created a strong cross-border shopping culture.  The pandemic has fueled that trend, coupled with a demand for lower prices and better selection in the US market.

Wholesale sales are Increasing Online

As Canadian retail comes to recognize ecommerce as a necessity, business-to-business suppliers are also beginning to explore online opportunities to better serve their customers unique needs.  For the most part, Canadian companies have been slow to respond to this trend as a result, there is a virtually untapped, expanding digital market in Canada that could prove to be a significant competitive advantage for U.S. distributors.

Finally, interest in interactive shopping using virtual reality.

As customers get more comfortable buying products through social media, it opens up a whole new way to interact through those platforms and virtual experiences are leading the way. While this is still several years from being common place in Canada, there is a great deal of interest in learning more.  Even Canadian ecommerce platform company Shopify is getting on board.  Shopify launched a virtual reality application for merchants and fashion designers that delivered a new way of examining clothing designs within a virtual studio.

Question 3:

Josh Halpern – 江宏: People tend to think Canada is easy to enter and then find out it isn’t…What are the main challenges your clients run into?

Tracey Ford: The border between Canada and the U.S. is the longest land border in the world, which provides great opportunities for U.S. businesses. For many Canadian consumers, it’s easy to access the U.S. to do business, to travel for shopping, or even to pop across the border to pick up parcels.  In fact, Canadians and Canadian businesses purchase more goods and services from the U.S. than any other country in the world.  That said, there are some challenges to doing business in Canada and sometimes the hardest part is just knowing what you don’t know.  I’d like to just touch upon a few things you need to think about.

1. Canada is a bilingual country. Meaning, there are two official languages at the federal level in Canada, English and French.  In addition, each of Canada’s provinces and territories has adopted its own official language policy.  Understanding Canada’s language requirements will be very important to you when you start to do business here because where you do business and who you sell to will dictate the level of French you need to incorporate into your dealings.  For example, should you wish to engage potential clients in the province of Quebec, you will need to have a sales rep or distributor that can speak that language.  Bilingualism also affects your packaging and labeling requirements.
2. The Canadian Consumer Packaging and Labeling Act requires that all labels be bilingual, in English and French, and that the following information appear on the package/label of consumer goods sold in Canada:

A. Product identity declaration

B. Net Quantity Declaration

C. Dealers name

In addition to the information being in English and French, all weights and measurements must be in metric and there may also be a requirement for the inclusion of items like hazardous symbols.

1. With regards to shipping and logistics, Canada is the 2nd largest country in the world by landmass. There are six time zones, ten provinces and three territories. At the same time, although Canada is large, the population is roughly 1/10 the size of that in the U.S., with 38 million people.  So, while Canada is physically bigger than the U.S., it has only a fraction of the population. This can create a challenge for shipping and logistics in that there can be great distances between distribution locations and client sites and since 80% of Canada’s populations lives within 180 kilometers of the border, the further north your products go, the more challenging it can be to get them there.  This can mean increased costs and shipping times.
2. Product certifications and standards – Regarding standards and certifications, Canada has a high degree of alignment with the United States.  Standards and certifications are commodity specific, and there is a general rule of thumb that if your product needs a standard or a certification in the US, it will probably require a Canadian version of that standard or certification in Canada.  For example, if your product requires a UL certification in the US it will probably require a CUL certification in Canada.  It can be challenging to determine which regulations, permits and licenses may apply to your product as there is no one place to look this information up.  The best way to determine your requirements is the contact the Canadian Standards Association.
3. Duties and Taxes – It’s important to consider the effects of duties, taxes and other clearance charges when determining an international shipment’s total costs.  Goods sold into Canada may be subject to duties and taxes, including the GST (federal goods and services tax), PST (provincial sales tax), HST (harmonized sales tax) and/or the QST (Quebec Sales tax). Tariffs depend on the country of manufacture, not the country from where the product is purchased.  USMCA eliminates tariffs on all goods that are manufactured in the U.S. and shipped to Canada.  However, if your product includes components that were manufactured outside of the U.S., then your Canadian customer will need to pay tariffs on those items.One of the biggest complaints when a Canadian consumer purchases something from a U.S. vendor is that they receive two bills.  This is because while the US seller pays the GST at the point of importation, it is usually the importer or record or buyer’s responsibility to pay any additional taxes, duties and fees from the border to their destination. To make your sale transparent to your Canadian customer, you may wish to consider the Non-Resident Importer program.
4. The Non-Resident Importer program was developed by the Canada Border Services Agency | Agence des services frontaliers du Canada and makes the US seller both the importer of record and the exporter of record.  By doing this, the US seller takes on the responsibility of paying the duties and taxes, offering one invoice with all the complete costs thereby making it a seamless transaction for the Canadian consumer.

To become a Non-Resident Importer, you will have to register with the Canada Revenue Agency – Agence du revenu du Canada and get a business number, then you work with your customs broker to apply for an account with Canada Border Services Agency.

In 2021, CARM was announced. CARM is an additional requirement for all NRI importers of record to register in @CBSA’s Assessment Revenue Management system and input all import documents and payments into this system before shipment.  Some of the details of the CARM program are still being worked out but this final phase to implementation is expected to be completed by in 2023.

5. Canadian Anti-Spam Legislation (CASL) – Canada’s anti-spam legislation (CASL)  is a law that protects consumers and businesses from the misuse of digital technology, including spam and other electronic threats is said to be one of the most draconian in the world.

It significantly limits the way companies send Commercial Electronic Messages (CEM), like emails and this legislation will affect your potential marketing campaigns.

There are basically three requirements:

1. You must have the consent of the recipients before a commercial electronic message is sent to them
2. You must have identifying information in all commercial electronic messages
3. All commercial electronic messages must also include an obvious unsubscribe mechanism

U.S. companies doing business in Canada must comply with the legislation.

Question 4:

Josh Halpern – 江宏: – So, for the Chief Digital Officers, CEOs, and eCommerce experts listening, going back to their desks after this, what should the be doing to adapt their platforms for eCommerce sales into Canada.

Tracey Ford: Companies selling via eCommerce to Canada may struggle to reach their Canadian prospects even if they have a Search Engine optimized, English language U.S. website.  It may be a good idea to keep a few things in mind when trying to sell to Canada via eCommerce.

First of all, you should localize the URL, if possible. In Canada, the correct top-level domain to use is ‘.ca’. .CA is an established, top-level domain and recognized as a safe, secure and trusted resource for Canadians. It also tells your Canadian customer that your business supports the Canadian economy, you charge in Canadian dollars, and you pay and collect Canadian taxes.  The Canadian Internet Registry Authority (or CIRA) has been managing the registry since 2000, and you can apply for a .ca domain through them.  The only downfall is that you must have some form of presence in Canada.  If you don’t have a presence in Canada, the next best thing is to have an option to toggle to a Canadian facing website from your U.S. ‘.com’ site. You’ve probably seen U.S. sites with a Canadian flag in the top right corner that allows you to go to a site for Canadians.

Regardless of whether you are able to create a ‘.ca’ website or you have a Canadian facing site, you should consider localizing the content for Canadians.

This includes consideration for Canada’s Bilingualism laws – The Official Languages Act of 1969 makes Canada an officially bilingual country with both English and French being spoken.    Because of this law, it is compulsory for the federal government’s websites and related agencies to be in both English and French but there is no mention of business organizations.  So, private organizations don’t have to serve clients in another language apart from English.  This applies to every province except Quebec, where, according to Article 5 of the Charter of the French Language, companies carrying out commercial activities have to provide content in French.  That said, having websites in both French and English is good business and a sign of cultural sensitivity and good corporate citizenship.

Just to confuse the matter a little more, the French spoken and written in Canada differs quite heavily from that spoken in Europe and there are a number of dialects across Canada.  We recommend using a Canadian translator  to ensure you don’t commit any faux-pas.

Language and culture – Canadians and Americans share a lot, including our media, commercial brands, and lifestyle pursuits but remember, they are two very distinct nations.  There are some significant differences when it comes to language, culture, and societal norms and you should be aware of these differences to localize the content for your potential Canadians clients.

For example, Canadian English spelling is the same as British English spelling and that differs from American English in many cases. Words that would end in ‘-or’ in the US are spelled with an ‘-our’ in Canada such as the words colour, flavour and behaviour and words like esthetic in the US are written with an ‘-ae’, as in ‘aesthetic’ in Canada.

Canadians also use the metric systems and Celsius for temperature instead of the imperial system and Fahrenheit, what are used in the US.

Canada has its own slang as well, just like in the US and including the correct slang words familiarizes the content for Canadians.  Some examples of Canadian slang include the use of the word ‘washroom’ instead of ‘restroom’ or ‘bathroom’, or the word ‘pop’ or ‘chocolate bar’ instead of ‘soda’ and ‘candy bar’.

Finally, U.S. businesses should consider offering pricing in Canadian dollars.  The exchange rate plays a very important role in the bilateral business relationship.  End-user prices of U.S. products and services to Canadian customers can be substantially affected by exchange rate changes between the U.S. dollar and the Canadian dollar.  Although relatively stable, the exchange rate can fluctuate and has done so regularly. If you choose to make sales in Canadian dollars, it’s important to develop a hedging strategy to help offset the exchange rate.  Whoever you are banking with should be able to have a conversation on you a hedging strategy.

So, a word of wisdom: when launching in Canada, don’t copy your American strategy. You’ve got to localize for Canada just like you would for any other country.

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