What keeps online retail in Canada from clicking?

TORONTO — The Globe and Mail

Shop.ca co-founder and chief executive officer Drew Green. (Deborah Baic/Deborah Baic/The Globe and Mail)

Canada is a land of dissatisfied online shoppers. From high-end fashion to hardware, Canadians are the poor e-commerce cousins to Americans in just about every way: Higher prices for poorer selection; shipping costs are often more expensive; and, for items ordered from abroad, duty and customs-related charges can drive up total costs.

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Large Canadian retailers have struggled to serve their customers on the Web: Canadian Tire abandoned online selling three years ago, and while it now has plans to return, the only thing customers can buy through its website are tires. Hudson’s Bay Co. is straggling back after shutting down its online efforts in 2009. And Holt Renfrew and Shoppers Drug Mart only offer e-flyers and directions to their nearest stores online. Their U.S. peers, meanwhile, operate full e-stores.

Dealing with foreign retailers also leaves much to be desired. Canada seems like an afterthought to them. Amazon.com Inc.’s Canadian site has been adding categories, but the selection is a fraction of what is available in the United States. Fashion retailer J. Crew Group Inc. prompted an angry response when it launched its Canadian website last summer with higher prices than its U.S. site – and customs fees (which it later dropped). Online shoe merchant Zappos, frustrated by the hurdles it faced to offer Canadians the same service as it does in the U.S., simply gave up.

“We’re like an e-commerce colony and have developed a mentality that we can’t do anything about it,” digital economy guru Don Tapscott said. “You suffer in silence and hope you have a U.S. relative.”

Canadian online retail, in short, looks a lot like Canadian retail did 20 years ago: unimpressive, outdated and at threat of being thrashed by American retailers – many of which are already making steady progress in better serving this market.Despite the country’s reputation as one of the world’s most wired and digitally social people, Canadians only spent $18-billion online in 2010, or 3.4 per cent of total retail sales, according to Boston Consulting Group – well behind other developed countries such as the U.S. at 5 per cent and the United Kingdom at 13.5 per cent. While online spending is expected to nearly double by 2015, Canada is expected to fall even farther behind. “Canada has been a little sleepy as far as getting online” to shop, said Jeffrey Grau, an analyst with U.S. market research firm eMarketer.

Some blame the lack of a catalogue-buying tradition in Canada, but demand clearly goes unfulfilled here: Four in 10 dollars spent online goes abroad, meaning a large portion of spending isn't going back into the Canadian economy, at a time when the retail industry is on rocky footing and facing new competition from foreign rivals such as Target Corp. Getting e-commerce right is a part of making the sector more productive and competitive – a vital step in a country where consumer spending represents some 60 per cent of economic activity.

This month, a startup with a snappy URL and huge ambitions is hoping to change that. The business, Shop.ca Network Inc., opens its virtual doors and sets in motion what its owners hope will become Canada’s top shopping website – an Amazon of the north, with free shipping, free returns, a big selection and even a loyalty program.

Shop.ca has signed up close to 850 retailers and suppliers to offer their wares through its website, and claims to offer the largest selection of any Canadian site, with more than 15 million items and 4,000 brands including adidas, Canon, Nine West and Stanley.

At first glance, Shop.ca seems like a throwback to the 1990s dot-com era. The firm is adding staff by the week and recently outgrew its 1,600-square-foot loft space in a converted knitting factory near Toronto’s hip Distillery District. Employees work around the clock, come to the office in jeans and untucked shirts (no ties, of course), and drink beer on the roof on Fridays. The tone is confident and the talk is big. “Our mission revolves around changing the dynamic of e-commerce in Canada,” chief executive officer Drew Green said.

Shop.ca’s leaders are a group of thirty- and fortysomething Canadians who have abandoned high-flying, high-paying careers and invested in the business. They’ve also impressed investors – including Mr. Tapscott, media magnate Gary Slaight, former Microsoft Canada boss Jeff Dossett and NHL star Eric Lindros, who, along with others, have put up more than $5-million . “I rarely get involved with startups ... but I think this is going to transform shopping in Canada,” Mr. Tapscott said.

When Bay Street financier Michael Tait met the 37-year-old Mr. Green last year, “he said, ‘We are a bunch of money away from [being]a billion-dollar company,’ ” Mr. Tait said. “You don’t hear a lot of Canadian entrepreneurs say that.” Mr. Tait invested and is helping to raise more funds for the firm.

But the risks are considerable. Shop.ca has yet to book any revenue, and like any startup, faces long odds. To succeed, it must not only attract masses of customers, but keep them coming back. That’s an audacious goal going up against Amazon, a growing player in Canada with a track record for crushing competitors. Canadian retailers are not competitive online now, but that could change. And what if Canadians don’t actually care for a better online shopping experience?

Whether or not Shop.ca can successfully lead the revolution it is courting, there’s no doubt the opportunity is real. Customers are getting savvier, and using the Web to price-compare and ensure they’re getting a good deal. And the competition to win over Canadian shoppers online is heating up.“It’s a risk and an opportunity for Canadian retail businesses because the direction of travel is clearly toward e-commerce,” said Paul Zwillenberg, a partner with Boston Consulting Group. “If Canadian retailers aren’t thinking about how to service information-hungry customers, they will find it challenging.”

The origins of a big idea

It’s 8:37 a.m. on an overcast Tuesday in Toronto in early May, just weeks before Shop.ca opens for business. Four senior leaders of Shop.ca are crowded into the office of chief technology officer Gary Black for their daily briefing, with two more linked in on his computer screen. Everyone is on their feet.

Mr. Black has good news: The day before, he got the data storage system up and running at Bell Canada’s host site. “That’s a big rock crushed,” he says. “On-boarding” is a key topic: Six employees have joined in the past week (bringing the total to 22). The meeting moves rapidly, but there’s time for laughs. On screen, business development head Rick Belanger, brandishing a giant Nerf gun, states his top priority is “to take no prisoners.”

With his easy-going manner and 100-watt grin, Mr. Green comes off as an unlikely assault leader. Sporting an untrimmed beard, swept back hair, circles under his eyes and dressed in a light jacket, untucked shirt with two buttons undone, sneakers and jeans, the paunchy 6 foot, three-inch CEO looks the host of a wild party, the morning after. He works hard, sleeps little (he’s 37 but looks older) has two young boys and a solid résumé, having served as a top sales executive with major e-commerce firms, including DoubleClick Inc. (where he worked with Mr. Black). His likes to say: “Life is a journey and not a destination” and “Turn every day into two.” His staff look tired and busy.

By the late 2000s, Mr. Green, who organized parties as a teenage entrepreneur in Scarborough and ran a personal training business during university, knew he wanted to return to his enterprising roots. He asked friends in the U.S. and Canada where they shopped online. South of the border, seven out of 10 said Amazon or eBay. In Canada “if you asked, you got 10 different answers,” he said. “That was a good qualitative data point – there is no market leader in Canada.”

Mr. Green hit upon his big idea: to create an online marketplace similar to Amazon, aimed at Canadians, bringing shoppers and retailers together. Shop.ca would handle the transactions, dispatch orders and take a cut of every sale; the retailers and suppliers would pack and ship items, adhering to strict standards to uphold Shop.ca’s service promise. All product had to be sent from Canada and priced to include shipping. Shop.ca would also have a loyalty program – a Canadian staple – where buyers would earn virtual dollars with every purchase and by recommending the site via social media.

Mr. Green bought the Shop.ca domain name (he won’t say for how much) and partnered with lifelong friend Trevor Newell, a senior operations and systems application specialist who had worked at GE Power and Oracle but also wanted to do his own thing. While Mr. Green focused on vision and selling people on the concept, Mr. Newell worked on the details to get the venture going.

By spring 2011, the time looked right, and the two friends quit their jobs (Mr. Green, working in Chicago for a mobile advertising firm, moved back to Toronto) to focus on the business. HBC had returned to online selling and Wal-Mart was ramping up its e-commerce presence in Canada. Meanwhile, small Canadian retailers were doing well online. For example, Snuggle Bugz, a baby goods retailer with two stores in the Golden Horseshoe, decided in 2010 to get serious about online selling. It stopped using store staff to fill orders through its lacklustre website and improved its Web presence with a new site and by investing to ensure it placed well in online product searches. It added a warehouse and 10 staff dedicated to its Web business. Two years later, online sales are up by 1,000 per cent and account for a majority of revenue, up from 10 per cent, said owner Ben Burmaster, who has signed up with Shop.ca.

Technological progress has also made it cheaper and easier to run an online store. “If we had launched this business five years ago, it wouldn’t have been the right time because the technology was not developed,” Mr. Black said. “Now, a lot of this is assembling building blocks.”

Shop.ca’s online platform is from IBM. Data is stored on Bell Canada’s network, giving Shop.ca more flexibility to handle the expected Christmas rush. Mr. Newell’s former employer, Oracle, sells call centre systems for millions of dollars, but Shop.ca pays just $100 a month to access a recently developed tool that provides toll-free numbers and 10,000 minutes of inbound calls routed over the Internet through its computers. Another $100 a month per agent buys Shop.ca an app to manage calls and interact with customers by e-mail, Twitter and Facebook.

If the e-commerce space has matured, so have the people in the business. Shop.ca’s senior team is comprised of accomplished executives in their late 30s and early 40s, most of whom are ex-work colleagues of the two partners. They give the impression that they know exactly what they’re doing. “I shy away from the notion we’re a startup,” says Mark Daprato, a 44-year-old marketer who led accounts for Clearnet and Swiss Chalet before joining Shop.ca as chief marketing officer in February. “We treat this as an established company that happens to be new.”

Success in e-commerce relies on driving people to your website and converting those “leads” into repeat buyers. Mr. Daprato’s job is to get Shop.ca’s target shoppers – young, social and tech-literate single adults and thirtysomething plugged-in moms – to visit, buy and return. His team is working on a marketing push including a splashy launch event at Toronto’s Dundas Square in June and incentives for early adopters.

But having a website that’s easy to use is crucial. On this day in early May, Mr. Daprato leads a meeting to review the site’s design. The group debates what colour the text under the “Buy It Now” button should be (all agree: not red), the placement of key messages on screen, even the use of capital letters and fonts. “We’re making final decisions now,” he says later.

In a few weeks, he’ll find out if they’ve made the right ones.

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HOW SHOP.CA WORKS

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1. Retailers and merchants sign agreements with Shop.ca to offer their wares for sale through its website. They list and manage the products themselves, and must offer their full catalogue at prices no greater than they themselves charge online.

2. Shop.ca sells the products and sends the orders to the merchants.

3. Merchants ship the orders directly to Shop.ca’s customers within three to five business days.

4. Shop.ca pays a negotiated percentage of the sale price to the merchants after delivery.

5. Shop.ca doesn’t maintain an inventory or warehouse. It pays for returns, but these are sent directly to the merchant.

Shop.ca’s loyalty program - Shop.ca Rewards:

Shoppers earn virtual dollars to be used against future Shop.ca purchases every time they buy a product on the site. They can also earn dollars for writing reviews or referring products on social media that result in purchases by others. With shoppers able to earn up to 2.5 per cent in virtual cash back, “it’s potentially one of the richest loyalty programs ever launched in Canada,” CEO Drew Green said. Shop.ca is also offering additional incentives to shoppers who sign up before launch and refer others to its website.

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