the impact of online shopping · those whose online purchases make up less than 50% of their...

THEIMPACTOFONLINESHOPPING

ONLOCALBUSINESS

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LOCOBC-TheImpactofOnlineShoppingonLocalBusiness 2

Highlights

● OnlineshoppingisagrowingtrendinCanada.Salesareexpectedtodoublebyinthenext

fouryears,from$22Billionin2014to$40Billionby2019.

● B.C.retailerscite"competitionfrominternetretailers"asoneoftwotopchallengesthey

face(tiedfortopissueat64%alongwith"bigcompetitorsreceivebetterpricing&

terms").

● Veryfewbusinessesfeeltheyaremarketingthemselveseffectively.Themajorityofthem

arespendinglessthan$200/yearonadvertising.

● 2outofevery3dollarsspentonlinebyCanadiansgoestoaU.S.retailwebsite.

● Crossborderonlineshoppingreducestheamountofmoneycirculatinginthelocal

economybyupto32%.

● Thehigherthevolumeofonlinepurchasingaconsumerdoes,themorelikelyitisthat

theypurchasewithchainsversuslocalbusinesses.Thosewhoseonlinepurchasesmakeup

lessthan50%oftheiroverallconsumerspendingarespendingapproximatelyequal

amountswithchainsaslocalbusinesses.However,thosespendingbetween75-99%

onlineshopwithchainstwiceasoftenaswithlocalbusinesses.

● Consumersvaluelocal.OfCanadianconsumerssurveyed,69%valuedCanadianownership

as“MostImportant”or“Important”whenshopping.Over50%ofconsumersareseeking

locallymadeproductsandnearly50%prefertobuyfromcompaniesrightintheirProvince

orCity.

● Consumerswouldspendmoremoneyonlinewithlocalbusinessesiftheyoffered

convenientshipping,e-storesandabetterconsumerexperiencenavigatingtheironline

stores.


OnlineShoppingisGrowinginCanada

OnlineconsumerpurchasinghasbeensteadilygrowinginCanada.Onlinesalesin2014wereestimatedat$22billion,accountingfor4.4%ofallretailsales.Salesareexpectedtodoubleinthenextfouryears,increasingtoatleast$40billionby2019(10%ofallretailsales.1

AlthoughCanadahadbeentrailingothercountriesthatledthewayinonlinesales,itisfastapproachingthatofcountriesliketheU.S.andU.K.,whereonlinesalescurrentlyaccountfor5.8%and11.6%ofretailsales.2It’snotsurprisingthatwe’recatchingup.Canadiansaregenerallytechnicallysavvy,withhighsocialmediaadoptionratesandhighmobileusage-by2013,56%ofushadasmartphones.3Weareincreasinglyusingthosephonestoresearchandpurchaseproductsonline.Canadianadultssurveyedin2013reportedthat77%hadresearchedaproductorserviceontheirdeviceand27%hadmadeapurchase.Assmartphoneadoptioncontinuestoincrease,Canadianshopperswillcontinuetogetmoreinformationandmakemorepurchasesfromtheirphones.4

MostOnlineShoppingContributestoEconomicLeakage

ResearchshowsthattwooutofeverythreedollarsspentonlinebyCanadiansgoestoaU.S.retailwebsite.5A2014surveyofCanadianonlineshoppersfoundthat68%reportedshoppingatawebstoreoutsideofCanada,eitherduetobetterproductselection(72%)orcheaperprices(59%).6AlthoughpricedriversmaybemitigatedbychangesinthevalueoftheCanadiandollar,significantamountsspentonlinestillgototheU.S.ThisislargelyduetothedominanceofU.S.retailersintheNorthAmericanonlinespaceashistorically;manymorelargeretailersintheU.S.haveinvestedine-commercethaninCanada.

Onecanimaginethatsmalllocalbusinesseshaveahardtimecompetingonline,butevenlargeCanadianretailersdoapoorjobofcapturingonlinesales.AccordingtotheBusinessDevelopmentBankofCanada(BDC),largeCanadianretailerslikeFutureShopandCanadiantirecapturelessthan3%oftotalonlinesales,andhaverecentlybeenlosingmarketshare.

1ForresterResearch.PeterSheldon,etal.CanadianOnlineRetailForecast,2014To2019.October14,2014.2Tencer,Daniel.2014.TheHuffingtonPostCanada:AmazonCanadaHas35TimesTheOnlineMarketShareOfChaptersIndigo:BMO.Accessed13-October-2015fromhttp://www.huffingtonpost.ca/2014/10/15/amazon-chapters-indigo-canada-online-retail_n_5991718.html3Google.OurMobilePlanet:Canada.UnderstandingtheMobileConsumer.May20134Ibid.5CanadianInternetFactbook2014.6ForresterResearch.PeterSheldon,etal.CanadianOnlineRetailForecast,2014To2019.October14,2014.


Table1:OnlineSalesinCanadabyLargeRetailer7

LargeU.S.BasedRetailers LargeCanadianBasedRetailers

- Amazon.com(23.6%)- AppleCanada(10.1%)- Amazon.ca(8.5%)- WalmartCanada(7.3%)- Dell(7.2%)- SearsCanada(4.0%)- Staples(4.0%)- Costco(1.9%)- BestBuy(1.7%)- Well.ca(0.7%)- Hudson’sBay(0.4%)- OldNavy(0.2%)- Gap(0.2%)- BananaRepublic(0.1%)

- FutureShop(2.5%)- IndigoBooksandMusic(1.5%)- GroceryGateway(1.0%)- CanadianTire(0%)

Thismagnitudeofcrossborderonlineshoppingcontributestomassiveeconomicleakage.DollarsthatarespentbyCanadiansonlinehavelittleornoopportunitytorecirculatewithinthelocaleconomy,impactinglocalemployment,inventorysuppliersandlocalserviceproviders,inadditiontoleakingtaxdollars.BasedonLOCO’spreviousresearch,weestimatethatonlineshoppingcurrentlyhasupto32%lesseconomicimpact,basedonthelackofemploymentonlineretailersprovidelocally.Anonlineretailerwithnolocalwarehouse,distributionorsalesstaffmightprovideonly1%recirculationofdollarsspentinthelocaleconomy,whereasawhollylocalbusinessprovidescloserto33%recirculation.Onlineretailerswithsomelocalpresence(distributioncentres)providesomewhereinbetween.

TrendsinOnlineShoppingAlthoughonlineshoppingisexpectedtoincrease,itisalsobecomingmoreintegratedwithin-store(offline)purchasing.Consumersexpectretailerstobefoundbothofflineandonline.U.S.consumersrecentlyindicatedthat:8

● 96%usebothchannels(storewebsiteandphysicallocation)forshoppingwithagivenretailer;

● 75%ofthosewhocompleteanonlinetransactionsaiditwas“Somewhat”to“ExtremelyImportant”theybeabletopickuptheirorderinastore;

● 39%reportedusingasmartphoneorwirelessdevicewhileshoppinginastoreatleasthalfthetime.Theyreportedthefollowingactivities:

○ 6%comparepricesagainstotherretailers;○ 51%comparepricesagainstthestore’sadvertisedonlineprice;○ 51%browsereviewsandrecommendations.

7BDC.MappingYourFutureGrowth.FiveGameChangingConsumerTrends.October2013.8CFIGroup.EBayEnterprises.TechnologyUpdate(May2015).


Giventheseconsumertrends,brickandmortarretailersaremovingonlinetosupporttheirofflinesales,andonlineretailersareopeningbrickandmortarstorestosupportonlinesales.Thisisusuallyreferredtoasamulti-channeloromni-channelapproach.Researchindicatesthatthosewhoadoptthisapproachearlywillberewarded.BDCreportsthatassertsthat“awebpresenceappearstohaveadirectpositiveimpactonsales”,andAccenturefoundthat“[f]oreverydollarofdigitalsalesgeneratedbydigitalspendforretailers,theywereseeing$10ofbrickandmortarsales9.”

Largeretailersarerecognizingthatomni-channelstrategiesthatsupportonlineandofflinepathstopurchasewillbekeytoengagingconsumers.Newerretailersandformerlyonline-onlyretailersaretakinganintegratedonlineandofflineapproach(e.g.,Frank&Oak,Bonobos,ClearlyContacts,WarbyParker)byopeningthatsmallerformatbrickandmortarretailstoresthatsupporttheire-commerce.

InB.C.,onlinesuccessClearlyContacts(nowClearly)operatedexclusivelyonlinefrom1999until2013whentheylaunchedretailstores,partlytosupporttheirnewlineofVancouver-madeeyeglasses.Theynowhavethreestores-twoinVancouverandoneinToronto.10Smallandlargeretailerscantakeadvantageofthisapproach.Kelowna’sPortia-Ellaisathreeyear-oldonlineretailerofethicalbeauty,makeupandskincareproductsmanufacturedinCanada.ThecompanyhasjustfinalizedabrickandmortarfranchisedealwithanownerinKelownaandhasplanstoexpandtoVancouver,CalgaryandEdmontoninthenearfuture.

“Onlineusedtorepresent95-100%ofsales,butnowthatwehavethestoreitrepresents70%versus30%online.Weexpectthatonlinewillincreasethough,andthatthestoreswilldriveinterestinourbrandandthatonlinepresencewillgrow.”

OnlinefoodretailerSustainableProduceUrbanDelivery(SPUD)hasalsoopenedtwobrickandmortarlocations.Thestoressupportgrocerysalesinstore,offermealdelivery,acafe,andpick-upofonlineorders.

Asconsumershoppinghabitschange,smartretailerswillnolongertrytoappealtoasingularonlineorofflineshopper,sinceeachmodesupportsandenhancestheother.Infact,asthenumberofchannelsshoppersuseincreases,sodoesretailbrandloyaltyandspendpershoppinginstance.AccordingtoVerde,“Theaveragespendof3-channelshoppersisovertwicethatofmono-channelshoppers.”11

Tounderstandtheimpactoftheseshoppingtrendswithintheirownbusiness,retailersneedtolookattheirdigitalandtraditionalmarketingmetricsastheyrelatetosalesmoreholistically,andthinkfromamulti-channelperspective.Toaddressthesenewshoppinghabitsstrategically,retailersshouldfocusonhowdigitalandofflinemarketingandsalessupporteachother.

9D3Digest.December12,2013.CanadianWebroomingAndShowrooming:StatsforHolidayRetailers10BCBusiness.2015.RogerHardy:Canada’sE-CommerceKing.Accessed18-November-2015fromhttp://www.bcbusiness.ca/retail/roger-hardy-canadas-e-commerce-king11VerdeGroupandBakerRetailingCentre.2011.UnderstandingtheMulti-ChannelShopper.


B.C.BusinessesandtheOnlineMarket

In2014,62%ofB.C.retailersreportedthatcompetitionfrominternetretailerswastheirtopbusinesschallenge,tiedwiththefactthatbiggercompetitorsreceivebetterpricingandterms.12

12InstituteforLocalSelf-Reliance(ILSR)andAdvocatesforIndependentBusiness(AIB).2015.2015IndependentBusinessSurvey(andparsedBCdataset).


AndyetweneedB.C.businessestobecomemorecompetitiveonline,sincesalestolocalbusinessesrecirculatemanytimeslocally,producingarippleeffectinourcommunities.Forevery$1ofpurchasing,localeconomiesreceive$2.60ineconomicimpactfromlocalemploymentandpurchasingtolocalsuppliersandserviceproviders.

Anynegativeimpactonlocalbusinesswillalsoripplethroughlocalcommunities,negativelyaffectingemployment,business-to-businesssuppliers,localgrowers,localmanufacturers,andgovernmenttaxrevenues.

ShrinkingMarketShareofLocalBusinessAlthoughmanyfactorsmayberesponsibleforthedeclineofindependentbusiness,thefateofindependentretailersiscurrentlyatoughone.TheCanadianFederationofIndependentBusiness(CFIB)reportsthe‘exitrate’forsmallandmediumenterprises(SMEs)assecondhighestintheretailsector,at9.4%,secondonlytoaccommodationandfoodservicesat10.4%.Thefive-yearsurvivalrateforretailtradeSMEsisalsosecondlowest,at55.6%.13

A2013studybyCivicEconomicsshowsthatmarketshareforCanadianindependentretailersisslowlyeroding.Figure1showstheperiodfrom2008-2010wherethelosswasmodestinmostsectors,withtheexceptionofthesportinggoods,hobbies,booksandmusiccategory,whichexperiencedmoresignificantdecline.14

13Wong,Queenie(researchanalyst).2009.CFIBSmallBusinessProfile:AnOverviewofCanada’sSmallandMid-SizedEnterprises.Accessed12-October-2015fromhttp://www.cfib-fcei.ca/cfib-documents/rr3093.pdf14CivicEconomics.2013.IndependentBC:SmallBusinessandtheBritishColumbiaEconomy.Accessed15-October-15fromhttp://locobc.com/2013/02/19/civic-economics-release-bc-study/


Figure1:RetailMarketShareofCanadianIndependents2008-2010

Onlinesaleshaveerodedthemarketshareofindependentbookstoresandchainbookstoresalike.Chapters-Indigoclosed30smallformatstoresandseveralsuperstores(includingflagshipstoresinTorontoandVancouver)between2009and2013,atleastpartlyduetoincreasingcompetitionfromAmazon’s2002launchofAmazon.ca.MaureenAtkinson,aretailanalystatJ.C.WilliamsGroup,says“Ifyouareinthebookbusinessyouhavetobeonlinebecausethat’swherethecustomersare.”15

Otherretailsectorswillbesuretofollow.Groceryseemsthenextsectorpoisedforchangeasbigboxretailerslaunchomni-channelstrategies.In2014Loblawsbeganits“clickandcollect”serviceinOntario,allowingshopperstologontoawebsite,placeanorder,andpickupfromadrive-throughstation.SaveOnFoodsinB.C.hasrecentlylaunchedanonlineshoppingoptionforcustomers,withfreepick-upbeingpilotedat9locationsintheLowerMainlandandVictoria(asofOctober2015),andlowcostdeliveryavailable($4.95/order).16

AmazonrecentlylaunchedonlinegrocerydeliveryinCanada,andaretailconsultantispredictingitwillhaveabigimpactonbrickandmortarstores.DougStephensofRetailProphetsays,“Ithinktheyaregoingtobeextremelyaggressive,Ithinktheywillprobablydotogrocerieswhattheydidtobooksanddigitalmedia."17

ThisseemstobeconfirmedbyasurveyLOCOBCconductedwithconsumersacrossCanadathisfall.Consumers’toponlinepurchaseswereentertainmentandgifts,buttheyareincreasinglypurchasingshoes,clothing,andfoodonline(seeFigure2).

15Dunne,Melissa.TorontoMetroNews.2014.AreCanadianbookstoresheadedtowardsextinction?Accessed13-Octoberfromhttp://www.metronews.ca/news/canada/2014/05/09/are-we-witnessing-the-death-of-the-canadian-bookstore.html16HuffingtonPostCanada.2014.Loblaws''ClickAndCollect'BringsDrive-ThroughGroceriesToCanada.Accessed15-October-2015fromhttp://www.huffingtonpost.ca/2014/09/24/loblaws-click-and-collect_n_5875978.html17CBCNews:Business.2013.AmazonlaunchesonlinegroceryinCanada.Accessed15-October-15fromhttp://www.cbc.ca/news/business/amazon-launches-online-grocery-store-in-canada-1.2303320


Figure2:MostFrequentOnlinePurchases

IntheU.K.between2007and2011,about25,000high-streetstoresclosedacrossBritain,leadingtoboarded-upfacadesandtowncentresdominatedbybettingandcharityshops.A2014reportbyVerdictResearchfoundthatwhileonlinesaleshadincreasedby75%inthepreviousfouryears,high-streetsaleswereflatlining.

Theimplicationsoflosingindependentretailstoresmaywellhaveeconomicimpactsfurtherdownthesupplychain.Whenspecialtylocalmanufacturersselltheirproductsinstoresandonline,onlinepricingmakestheproductlessattractiveinstores,undercuttingbrickandmortarstoreswhohavehighertaxandlabourcosts.However,specialtyproductsaremorelikelytobepurchasedinabrickandmortarstore,wherecustomerscantouch,tryortastetheproduct.Oncetheyareinterested,though,customersmaylookonlineandfindlowerpricing.However,ifretailersstoppurchasingfromthosemanufacturers,theyarelesslikelytobepurchasedonline,withoutcustomersfirsthavingachancetocomeclosetointeractwiththeproduct.Itmakessensethatonlineconsumerssticktobrandstheyalreadyknow.Tocompoundtheproblem,onlinealgorithmssteercustomerstowardsproductsviewedbyothers,wheremostpathsleadtobigger,well-knownbrands.Thisspellspotentialdisasterformakersandmanufacturersalloverthecountrywhosesalesdependonbrickandmortarlocations,andwhoselessknownproductsmightnotcompeteaswellinpriceorfamiliarityasLegoandHasbro.ThishasbeenamainconcernofthespecialtytoyindustryintheU.S.18

LOCO’sconsumersurveyalsofoundthatthehigherthevolumeofonlinepurchasingaconsumerdoes,themorelikelyitisthattheypurchasewithchainsversuslocalbusinesses.Thosewhoseonlinepurchasesmakeuplessthan50%oftheiroverallconsumerspendingarespending

18Mitchell,Stacy.2011.InstituteforLocalSelfReliance.TheGrowthofInternetRetailing:ImplicationsandStrategiesfortheSpecialtyToyIndustry.Accessedfromhttp://ilsr.org/wp-content/uploads/2012/08/ASTRA-white-paper-final.pdf


approximatelyequalamountswithchainsaslocalbusinesses.However,thosespendingbetween75-99%onlineshopwithchainstwiceasoftenaswithlocalbusinesses(seeFigure3).

Figure3:FrequencyofPurchaseswithChainsvs.LocalBusinesses

TaxandEmploymentLossesBrickandmortarretailerscontributetoCanada’staxbaseinmanyways.Independentbusinessespayincometaxes,contributingtoessentialserviceslikehealthcareandtransportationnetworks.Theyalsopaypropertytaxesandmunicipallevies,providingmuch-neededrevenueforCanada’sgrowingcities.Independentbusinessesalsocreatebigeconomicimpactstotheirlocaleconomiesasaresultofemploymentandbypurchasingfromlocalsuppliersandusinglocalserviceprovidersforbanking,accounting,marketing,officesupplies,etc.

TaxLosses

Highcommercialtoresidentialtaxratiosmeanthatbusinessespaymoreofthetaxesthanresidentsdo.Sincemunicipalitieshavefewmeanstoraiserevenue,commercialpropertytaxesprovidethemostbenefittoresidents,payingforcommunitycentres,waterandsewers,roadrepairsandothernecessaryservices.Thefewservicesthatbusinessesactuallyreceivefrommunicipalities,likewaterandsewerservices,aretypicallychargedasuserfeesontopoftheirtaxes.19

Canadianincometaxfromretailersisalsoasourceofmuch-neededprovincialandfederalgovernmentrevenue,contributingtaxestopayforessentialservices.Andyetonlineretailersoftendon’tpayincometaxinCanada.

19Ladurantaye,Steve.2010.GlobeandMail.CommercialpropertytaxisCanada’s‘cashcow’.Accessed14-October-15fromhttp://www.theglobeandmail.com/report-on-business/economy/commercial-property-tax-is-canadas-cash-cow/article1320298/


Dutiesandsalestaxareanothersourceofgovernmentrevenuethatwilldeclineifonlineshoppingcontinuestobedominatedbylarge,U.S.corporations.DutyandsalestaxisonlysometimeschargedongoodsshippedfromoutsideofCanada.Giftsunder$60areentirelyexemptfromdutiesandtaxes,asareitemsmadeintheU.S.andMexico.20IntheU.S.,Amazonhasdominatedbookandtoysales,manyofwhicharesentasgiftsandthereforeincludenotaxorduty.21

EmploymentLosses

CivicEconomicsstudiedtheemploymentimplicationsofindependentbusinessesinB.C.andtheyfoundthatindependentbusinessescreatemorethanjobsandspendmoreonwagesthanchains(seeFigure4).22Whenshoppingmovesfromindependentstochainstores,spendinglosesmorethanhalfitseconomicpotential.Whenshoppingmovesonline,itlosesevenmoreofitspotential,asthedirecteconomicimpactofretailemploymentislost,andsometimesthewarehousinganddistributionemploymentalso.

20Fedex.InternationalShippingServices-DeterminingDutiesandTaxes.Accessed14-October-15fromhttp://www.fedex.com/ca_english/services/international/customsforms/deterdutiestax.html21Mitchell,Stacy.2011.InstituteforLocalSelf-Reliance.Thegrowthofinternetretailing:Implicationsandstrategiesforthespecialtytoyindustry.Accessed14-October-15fromhttp://ilsr.org/wp-content/uploads/2012/08/ASTRA-white-paper-final.pdf22CivicEconomics.2013.IndependentBC:SmallBusinessandtheBritishColumbiaEconomy.Accessed15-October-15fromhttp://locobc.com/2013/02/19/civic-economics-release-bc-study/


Figure4:EconomicImpactsPer$1MinRevenue

By2011,retailjobsoutstrippedmanufacturingasthecountry’stopemployer,up11.5%from2006,andaccountingforalmost2millionCanadianworkers.23However,onlineretailerslikeAmazondon’tprovidenearlythejobsthatbrickandmortarstoresdo.Forevery$1millioninsales,intheU.S.,Amazonprovides1job,bigboxstoresprovide5jobs,andindependentretailersprovide8jobs.24Thisissignificant,giventhatAmazondominatesonlineretailshoppinginCanada,representing32.1%ofonlineretailsalesinCanadafromAmazon.comandAmazon.ca.

ConsumersWantLocal

Despitethetrendofonlinepurchasingfrombigforeignchains,consumerswantlocal.Studyafterstudyprovesit.

AmajorityofCanadiansnowmakeanefforttobuylocalorCanadian-madeproductsandsomearewillingtopayapremium,making“MadeinCanada”akeytrendinconsumerbehaviour.Canadianconsumersaresaidtobeincreasinglyawareofthepowertheirspendingexertsontheeconomy.Theywanttosupportlocalbusinesssincethosecompaniessupporttheircommunitiesbyrecirculatingwealth,creatingjobsandimprovinginfrastructure.Increasingconcernsaboutthesafetyofimportedproductsarealsohelpingstimulateconsumerdemandforlocalproducts.

23Isfeld,Gordon.Canada.com-PostmediaNews.2013.MoreCanadiansworkinginretail;educationstillaboosttoemploymentchance.Accessed14-October-2015fromhttp://www.canada.com/business/More+Canadians+working+retail+education+still+boost+employment+chances/8580701/story.html24InstituteforLocalSelf-Reliance.2012.AmazonInfographic:HowaSingleCompanyGainedaStrangleholdoverOnlineShoppingandtheFutureofRetail.Accessed14-October-15fromhttps://ilsr.org/amazon-infographic/


Inperhapsthemostwelldevelopedcategoryoflocal,consumersshowapreferenceforlocalgrownfood,andlocalmadefoodproducts.GroceryconsumersinAlbertawererecentlyshowntopurchase9.6%morelocalfoodwhenclearandeffectivelabelingonitslocalimpactwaspresentinstoretoguidethem.25

Thebuylocaltrendhasbeenbuildingthroughoutthedecade.AcrossNorthAmerica:

● 45%ofconsumerssaythattheysupportlocalbusinessonceaweekormore;● 62%ofconsumerssaythatmadelocallyorsoldbyalocallybasedbusinessisa

characteristictheylookatwhendeterminingifaproductorservicetheybuyissociallyresponsible;

● Consumersupportforlocalsurpassestheimportancebuyingorganic(doubleformostconsumers);26

● Theimportanceofbuyinglocalandsupportinglocallybasedbusinessesincreaseswithage(from46%for18-24yearold,increasingto76%forthose65andolder),butisconsistentat60+%supportacrossincomelevels.27

B.C.foodretailershaveidentifiedlocalproductsasakeygoalforpurchasinginordertosatisfyakeycustomertarget–womenshoppers.Purchasinglocalfoods,preferablyfromB.C.companies,istheleadingpurchasingpriorityoffoodretailers–includingOverwaiteaFoodGroup,Safeway/Sobeys,Costco,Wal-Mart,T&TSupermarket,GordonFoodService,CountryGrocer,HYLouieandFruiticana.TheystatethatpurchasingB.C.-madeproductsisthe“clearleadingpriorityforgroceryretailersinB.C.28

Onlineconsumerswantconvenience.Althoughpriceisatopconsideration,consumershighlyvalueproductavailabilityandfreeshipping.Consumersalsoshowthatpurchasingfromlocalbusinessesmatterstothem-69%valuedCanadianownershipas“MostImportant”or“Important”whenshopping.Over50%ofconsumersareseekinglocallymadeproductsandnearly50%prefertobuyfromcompaniesrightintheirProvinceorCity(seeFigure5).

25Localize.2015.Localize-GivingFoodaStory.Accessed13-November-2015fromhttp://www.localizeyourfood.com/blog/2015/02/03/localize-giving-food-story/26ConscientiousInnovationLtd.2012.TheSHIFTReport.FeaturedInsights:Consumers’ConnectionwithLocal.Accessed15-November-2015fromhttp://www.ci-shift.com/shift-report-featured-insights/.27Ibid.28Hayes,Dr.Fred.2014.BCFoodProcessor’sAssociationGroceryRetailersSurvey.UnderstandingtheLatestNeedsFacingGroceryRetailers.


Figure5:AttributesSoughtbyOnlineShoppers

Weaskedconsumerswhatwouldencouragethemspendmoremoneywithlocalbusinessestohelpthosebusinessesunderstandhowtocompeteonline.Convenientshippingtoppedthelist,followedbywebsitesthatsupportonlineshopping,andsupportingabetterconsumerexperiencenavigatingthoseonlinestores(seeFigure6).

Figure6:ConsumerNeedstoIncreaseLocalPurchasing


DigitalAdoptionbyLocalBusiness-Challenges&Opportunities

ChallengestoDigitalAdoptionbyLocalBusiness

EventhoughCanadiansarehighinternetandmobileusers,Canadaisgenerallyconsideredtobealaggardine-commerce,aslargerCanadianretailershavebeenslowertocreatestronge-commercechannelsthatrequirerobustinventorymanagementanddistributioninvestment.

Overall,only45.5%ofCanadianbusinesseshaveawebsiteatall,withthatnumberdroppingto41.1%forCanadiansmallbusiness(2014).Inaddition,arecentstudybyConstantContact29showsthatCanadiansmallbusinessesareoftensimplynotusingdigitaltools,suchassocialmediaandemail,toconnectwiththeircustomerseventhoughcustomersthemselveshaveawillingnesstoengagewithbusinessesonline(seeFigure7).

Figure7:ConstantContactSurveyofCanadianSmallBusinessandConsumers

ReasonsforthislowonlinepresenceforsmallbusinessesinCanadaarenotentirelyclear.AsurveybyMastercardidentifiedthetwobiggestbarrierstotechnologyadoptionforsmallbusinessesare“cost(46%)andlackofknow-how(31%)”30.Thisislikelytobethecaseforonlineshoppingtechnologyadoptionaswell.

LOCO’ssurveyoflocalbusinessesfoundthat97%ofbusinesseshadwebsitesand92%hadafacebookpage,sowewerespeakingtoacomparativelydigitallysavvyaudience(seeFigure8).

29ConstantContact.2015.SurveySays:CanadianConsumersPrefertoStayConnectedwithBusinessesviaEmail,ButSMBsNotFullyMaximizingChannel.ConstantContactSurveyofCanadianSMBsandConsumers.30MastercardGlobalInsightsMerchantScope.2014.SmalltoMid-sizedmerchantsseekcompetitivetechnologyinomni-channelworld.


Figure8:LocalBusinessOnlinePresence

Althoughitcanberelativelyeasytogetupandrunningwithasimplewebsite,creatingaprofessionalrepresentationofabusinessandbrandonlinerequiresthought,planning,assets,andtechnicalknowhow.Whencombinedwithdigitalmarketingande-commercefunctions,thelevelofcomplexitycanincreasequickly,makingitadauntingprospectformanysmallbusinessownersandentrepreneursandparticularlyforthosewhodonotseetheonlinechannelascentraltotheirbusiness.

Inoursurveyoflocalbusinesses,thenumberofbusinesseswithe-storesdropsto64%.Mostbusinessesreportedusingtheirowncustome-commercesites,companywebsiteswithintegratede-commercetools,Facebookcart,Amazon,Garmentory,Kijiji,e-BayandEtsytosellgoods.

Hiringserviceproviderstoassistwithdigitaladoptioncanalsobecomplicated.Manyhavedifferentandoverlappingareasofexpertise.Therearenoclear-cutratesandbudgetsforthedevelopmentofonlinetools,especiallyinthesmallbusinesssector.Serviceproviderscreatetheirownratestructuresbasedontheirskillsandexperience,andbusinessownersmaynotbeawarethatmultipleproviderswithdifferentareasofexpertiseareneeded.Searchengineoptimization(SEO)expertshaveverydifferentskillsthansocialmediamarketerswhoaredifferentfromdesignerswhoaregenerallydifferentfromdevelopers-butallmayberequiredtodevelopaneffectivedigitalpresence.Thepricefore-commercetoolsforasmallbusinesscanvaryquitewidelybasedontheserviceprovider(s),technologyselectionandbusinessneedsandobjectives.

OllaUrbanFlowerProjectownerMeganBransonrecentlyclosedabrickandmortarstoreinVancouvershortlyafterlaunchinganonlinestore.Shesays:

“Ifyou'retransitioningtoonlineoraddingittobrickandmortar,thereisalearningcurve.It'shardtoknowhowtodoqualitycontrolandtrusttheservicesthatareavailableonline.Youcan’tdoityourself,andyetyou'reusedtodoingeverythingyourself.Acquiringtheskillsandfindingsomeone

youcanaffordandwhoyoutrustishard.”


Inadditiontothecostsofserviceproviders,manydigitaltoolsandapplicationscomewiththeirownfees.Socialmediaapplicationsmaychargemonthlyand/oruserbasedsubscriptionfeesforanythingbeyondbasicfunctionality.Intheecommercespace,smallbusinessesneedtopurchaseapplicationspurchaseorpaysubscriptionfeesthatarecoupledwithusageand/ortransactionfees.Whenthesefeesareaddedtomerchantservicefeesandcreditcardtransactionfees,thecoststoretailersaddup,impactingprofitmargins.Withoutbeingabletorelyonacommensurateincreaseinsalesvolume,thebusinesscaseforsmallerretailerstoadoptmanyofthesetoolsissimplynotthere.

Thebusinessesthathavemadeaninvestmentintheironlinepresenceande-commercefunctionalitymaybefacinghigh‘switchingcosts’.Evene-commercesitesbuiltwithinthelastfewyearsmayhaverequiredcustomizationorintegrationwithbackofficesystemslikeinventorymanagementandPointofSale.Thesesunkcosts,includingthetimeinvestmentinvolved,alsomakethebusinesscasetoswitchtonewerandmorenimbletoolsverydifficultforbusinessowners.

Thetimeandcostrequiredtomaintaincontactandengagementwithcustomersviaonlinechannelscouldalsobearealandperceivedbarrier.Manybusinessownersmaysimplyfeeltheydon’thavethecapacitytocreatefreshcontentandmessagingonanongoingbasisand/ormaynotbeawareoftoolsandserviceprovidersthatcouldsupportthem.Thoughmanylocalbusinesseshaveadoptedfreesocialmediatools,theyareoftenslowertotakeuppaidfeaturesthatprovidemoredirecttargeting.

Inadditiontotheresourcesrequiredtosetupandmaintainadigitalpresence,thehighcostofonlineadvertisinghasbeenidentifiedasabarrier.Thebusinesseswesurveyedreportedusingvarioustechniquesformarketingincludingtraditionalandonlineadvertising.Morebusinesses(58%)wereusingonlineadvertising,butsome(28%)reportedadvertisingintraditionalmedia.Themajorityhadtinybudgetsforadvertising,however,withmostspendinglessthan$99eachononlineandtraditionalmediainthelastyear(seeFigure9).


Figure9:AnnualAdvertisingBudgetsforBusinessesinTraditionalandOnlineMedia

Severalbusinesseshadputbigbudgetstowardsonlinemarketingandfelttheyreceivedverylittlepayback.Onesmallbusinessweinterviewedhadspent$5000inoneyearonFacebookadsandSEOserviceswithlittleornoresults.Anotherbusinessowner-WendyWeir,ownerofLibreTea-hadasimilarexperience:

“AcoupleyearsagowehiredaconsultantandranaGoogleadcampaignandwelostourshirtsinsixweeks.ThenwedidFacebookadsandlostourshirtsinthreedays.NowIknowbetter.IwishIhadgottenreallyclearonunderstandingthemarketingandmyanalyticsandconversionratesfour

yearsago.”

Havingadigitalpresenceisjustthebeginning.It’sclearthatlocalbusinessesneedsupporttonavigatethemanyfacetsofonlinemarketingoncetheyhavee-commerceupandrunningandcanputmoresignificantbudgetstowardsadvertising.

Manylocalbusinesseshavealwaysreliedonwordofmouthmarketing;nowtheyarechallengedtotakewordofmouthonline.Canadianconsumersstillreportthatrecommendationsfrompeopletheyknowisthenumberonetrustedsourceofopinion(92%),followedbyconsumeropinionspostedonline(70%),editorialcontent(58%),brandedwebsites(58%)anddirectemailsfromthecompanyforwhichtheconsumersignedup(50%).31Reviewsareaneffectivewaytoinstillconsumerconfidenceandincreasesales,andtheyrequiretechnologytosupportthem,inadditiontothetimetosolicitthem,tomoderatethemandrespondtoreviewsandcomments.Retailersincreasingonlinesaleswillneedtobedevelopingeditorialcontent,buildingemaillists,andprovidefreshandrelevantcontentmarketingonanongoingbasis.Theeffectivenessofthisisbasedonathoroughunderstandingofthebusiness’consumersalongwithwhereandhowtheyareengagedonline.Businesseswesurveyedreportedengaginginavarietyofofflineandonline

31BusinessDevelopmentBankofCanada.2013.MappingYourFutureGrowth:FiveGame-ChangingConsumerTrends.Accessed22-Nov-2015fromhttp://www.bdc.ca/Resources%20Manager/study_2013/consumer_trends_BDC_report.pdf


marketingtechniques.Offlinetechniquesincludewordofmouth,publicspeaking,monthlyflyers(communitynewspapers),in-storeeventsandpop-upshops.Onlinetechniquesincludemonthlyflyers(ontheirwebsites)buildingnewsletterlists,solicitingbloggerreviews,contentmarketing,socialmedia(withFacebookandInstagramcitedmostfrequently),consistentsocialmediacampaigns,searchengineoptimization,payperclickandGoogleadwords.

Theinfrastructurerequiredtosupportthedevelopmentofonlinesalesisachallengeforsomeretailers.Donald’sMarketinNewWestminster,whoalreadyofferssomelocaldelivery,managinginventoryofperishableproductsisthebiggestbarriertomovingonline.Movingtoanomni-channelapproachfeelslikestartingupawholenewbusinessbecauseoftheinfrastructureandwarehousingrequired:

“It'sanotherbusinessifit'sonline.Wehavenowheretostagethedeliveryinthestoresrightnow.Wewillprobablyneedawarehouseatsomepoint.”

Forothers,managinginventoryandshippingarrangementsarealsobarriers.Sinceavailabilitywascitedinourconsumersurveyasthetoppriorityforonlineshoppers,it’snotsurprisingthatretailersarekeentomanageinventorywell,butthatmeanspotentiallyhigherproduction,retailingand/orwarehousingcostsforthem.Sinceretailingonlinecanmeansellingtoforeigncustomers,manybusinesseshavetomanageshoppingcartsinmultiplecurrencies.OneB.C.basedretailerwespoketohasanapproximately50/50splitofCanada/U.S.salesandisalreadymanagingshoppingcartsinfourcurrencies.

OpportunitiesforDigitalAdoptionbyLocalBusiness

MobileReadiness

Havinganonlinepresencewithmobileresponsivenessandeffectivemobileaccesstokeyfeaturesisaclearopportunity.AccordingtoBDC,“nineoutof10consumersclaimtousetheirsmartphoneforpre-shoppingactivities,andthreeoutoffivesaytheyuseittofindthelocationandopeninghoursofabusinessthatoffersaparticularproduct.MorethantwoinfiveCanadianconsumersusetheirsmartphonetofindpromotionaloffers,one-thirdcheckproductreviewsandasimilarproportionverifyproductavailabilityinlocalstores”.Smartretailerswillcatertoconsumerneedsthroughtheironlinepresence,providinglocationinformationthatiseasilytransferredtomobilemapapplicationsfordrivingdirections;clickablephonenumbersforeasydialingfromasmartphone;andeasilyaccessiblebusinesshours.

Takingadvantageoflocalizationfeaturesavailablewithsmartphonesshouldalsobeapriorityforlocalretailers.Manyconsumersareselectingpurchaselocationsbasedonproximity.Forexample,manyareusingappslikeOpenTable,YelporevenGooglemapstofindrecommendedrestaurantsneartheircurrentphysicallocation.Someaspectsoflocalizationarerelativelystraightforward,likeensuringyourbusinessappearswithenhancedGooglelistings.ThesecanbeimportantasmanyappsrelyonGoogleAPIintegrationtopowertheirlocalizationfeatures.Moresophisticatedlocalizationstrategieswillberootedindigitalmarketingconsiderations,includingparticipationinappsusedbythebusiness’targetcustomers(i.e.,beingwhereyourcustomersare),searchengineoptimizationanddigitaladvertising,aswellasactivesocialmediaparticipationtogenerateandmaintainonlinereviewsandaddresscustomerservicecommentaryinatimelyandeffectiveway.

Multi-ChannelCoordination


Themultitudeofapplicationsforsmallbusinessestogetonlinecouldactuallymakeamulti-channelapproachaccessibletolocalbusinesses.Manynewe-commercetools(likeShopify,Squarespace)makeiteasyforretailerstocreateafairlyrobust,mobileresponsivee-commercesite.Shopifyalsoprovidesmobileandpointofsaleintegrationaswellasinventorymanagementanddigitalmarketingtools(suchasGoogleadwords).Retailerswhoarestartingfreshwiththeirecommercepresence(versusthosewhoaredealingwithlegacyapplicationsandcustomizedback-officeintegration)willlikelybeatanadvantageintheirabilitytonimblyaddmoremulti-channelfeatures.

Basicmarketingandpromotionsstrategiesmusttranslateonlinetocapturemulti-channelshoppers.Retailersshouldensuretheirsalesandmarketingeffortsmaketheonline/offlineconnection.Thisrequiresthatinformationbeconsistentacrosschannels;thatproductinfoandavailabilityexistacrossmultiplechannels;thatflexibilityisoffered(in-storepickup,delivery,seamlessreturnsin-storeoronline);andthatonlinepromotionsencouragefoottraffic(andviceversa).Thishelpsretailersfocussalesandmarketingstrategiesoncustomervaluegenerationratherthanchannelrevenue.Inthisenvironmentthecustomerserviceexperiencecanbecomeakeydifferentiator.

Forsomeretailers,theabilitytoadvertiseandsellproductonmarketplacesiteslikeAmazonmayrepresentanopportunity.Marketplacesitescanopenupchannelsforonlinesalesandcanincreasevisibilityofproductsinbroadermarkets.Howeverretailersshouldproceedwithcaution.Onmarketplacewebsites,retailerscompetealmostsolelyonpriceandshouldbeawareofhowshippingcostsaffecttheirpricecompetitiveness.Inaddition,long-termcustomerretentionthroughmarketplacechannelstendstobemoredifficult,andthereareadditionalfeesassociatedwithsalesmadeviathemarketplace.

OnlineSupportServicesforSmallBusiness

Giventheopportunitiesforretailersdescribedabove,thereisalsoanopportunityforserviceproviderswhoacanhelpsmallbusinessesnavigatethemyriadoptionsforgettingonlineatareasonablecost.Inthesamewaythatmanyofthedigitaltoolsandtechnologiesavailabletoretailersenablethemtohavemorerefinedandtargetedreach,thetoolsandappsthemselvesmaytargetnichebusinessownersandproductcategories.Preparingforonlinesellingrequireseverythingfromcontentcreationtobusinessprocessimplementationontopofthetechnologicalaspectsandcapabilitiesofthetoolsthemselves.

Therearealotofoptionsoutthereforlocalbusinessestogetonlinebutfindingandimplementingtherighttoolsatareasonablecostrequiresknow-howinandofitself.LocalB.C.businessesneedtoassesstheirchallengesandopportunitiesandmovequicklytocaptureagreatershareofonlineshopping.

the impact of online shopping · those whose online purchases make up less than 50% of their...

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