Amidst Nordstrom’s exit from Canada’s market, a flurry of articles has emerged, lamenting the widespread failure and departure of U.S. retailers from the country. Besides Nordstrom, other American retailers that faltered in the Canadian market include Bed Bath and Beyond and Target.
Yet, the list of Canadian retail failures does match that of the U.S., with well-known names such as Zellers, Eaton’s, and all of the Dylex brands falling by the wayside. Meanwhile, some of the most successful retailers in Canada — including Home Depot, Walmart, and Costco — hail from America’s shores. Thus, the perspective that U.S. retailers are somehow more prone to failure than Canadian retail chains does ring unconvincing. However, something does make retailing in Canada more challenging than ever before, a quest fraught with obstacles to overcome.
The Online Shift Does Not Explain One of the key explanations given by pundits for why retail in Canada is so challenging is the switch to online buying. For many, the advantages of online shopping are multifaceted, including convenience, 24/7 availability, and a wider selection of products compared to traditional retailers. According to Statistics Canada, the proportion of retail e-commerce sales rose to 6.2 per cent in 2022 from 3.9 per cent in 2019. In the U.S., 14.8 per cent of all retails sales were online in 2022.
This was a slight decrease from the height of the pandemic, when close to 16 per cent of sales were online. In other words, online retailing has more than doubled in less than six years. Amazon is reported to have a staggering 45 per cent share of online retail sales. But this does not explain why the Canadian marketplace is more affected by retail failures than other countries. The shift to online buying has affected all Organisation for Economic Co-operation and Development countries, but the level of retail failures and closures in Canada seems disproportionately high, betraying deeper challenges that must be understood.
Canada has a population of 39 million spread across a vast geographic expanse. Compared to other G-7 nations, retailers does not benefit from economies of scale in Canada unless they operate across the entire country.
A regional operator in the northeast U.S., for example, has a potential market of more than 125 million, while a regional operator in Canada is fortunate to have a potential market of 15 million. When it comes to ordering sufficient quantities from overseas manufacturers, Canadian retailers face massive disadvantage. With online retailers like Amazon operating across borders, this disadvantage amplifies. Smaller sales volumes mean higher fixed costs per product for Canadian firms.
We shared a post in our YouTube channel community section and asked the people of Canada what they think of this situation.
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Because Canada is not densely populated, distances products travel to reach consumers are high compared to other nations. Regional distribution centres can overcome this logistical challenge, but increase cost and complexity of supply chains. Compared to the U.S., Canada has a more regulated environment, whether employment laws, building permits, environmental rules or health and safety regulations. This creates added retailer costs for startup, operations and compliance, though Canadian laws are rigorous to uphold living standards that corporations influence.
While Canadians consume imported products, a segment cares about Canadian identity, seeing the country overshadowed by the U.S. This reduces the potential market for foreign retailers having against established brands with strong Canadian ties. As the smallest G-7 nation, this issue seems larger.
Strategies for Conquering Success. So how can new retailers maximize chances of success on this frontier? Three careful strategies can boost newcomers’ likelihood of triumph: Go big with a nationwide physical and online presence to realize vital economies of scale, rather than starting small. Remain true to the brand identity that succeeded elsewhere, as Canadians’ cross-border familiarity shapes expectations. And understand Canada’s regional differences in climate, culture and activities, avoiding one-size-fits-all approaches.
Last Updated on by Alshaar Ansari
