US retailers expand into Canada

The battle for a piece of the Canadian retail market is underway as US retailers expand north. KPMG estimates that the 2012 Canadian retail market was valued at $468bn. Not bad but considerably smaller than the US market. What’s the attraction to this country?

A good economy and familiarity of US retailers are perhaps the major attractions. However, many retailers note that costs tend to be higher in Canada because it has a population of about one-tenth that of the United States’, spread over a larger area. Plus foreign retailers have learned that customization is important along with packaging in both English and French.

Still, the Canadian retail market was active in 2013 with Target expanding the number of stores across the country; Nordstrom’s announcing stores for 2014 as well as Canada’s Hudson’s Bay acquiring US retailer Saks.

In fact, prior to its first Canadian store opening in 2013, Target built two large distribution centers in Cornwall, Ontario and the other in Calgary. Each is 1.3m sq ft and is managed by Eleven Points Logistics. A third facility was built in Vancouver.

It looks like 2014 will be another active year for the Canadian retail market. In early February, Walmart Canada announced plans to invest C$500m (USD $452.4m) by adding 35 new Supercenters, improving its supply chain distribution system and expanding its e-commerce operations in Canada.

Of the total planned investment, C$91m (USD $86.6m) is earmarked for its distribution network improvements. Specifically the company is looking to grow its fresh food capacity. As part of this latest expansion, the company announced plans to build a second distribution center in Calgary – a 500,000 sq ft facility with 84 loading bay doors located near its 400,000 sq ft fresh food facility which opened in 2011.

In total, once the Calgary facility is completed, Walmart Canada will have at least 9 distribution facilities – 5 in Calgary, 1 in Cornwall, Ontario and 3 in Mississauga.

Walmart Canada also has announced plans to invest C$31m (USD $28m) in e-commerce. However, this may prove more of a challenge. While Walmart Canada’s website boast of 150,000 online products and offers free shipping throughout most of Canada as well as Canada Post pick up, Canadian e-commerce appears to be slowing.

According to MasterCard Advisors, after 15 months of year-over-year growth exceeding 20%, this trend was broken in early 2013.  The company notes that there is a lack of options in which consumers have at their disposal, especially in comparison to what’s available in the US, UK, and European countries.

Consumers note that there are also better deals and more selection available if they do some cross-border online shopping, even after factoring in the exchange rate, duties and shipping. According to a Forrester survey, about 25% of online spending by Canadians already goes through international websites. 68% of the online shoppers said they have shopped at a web store based outside Canada. Of those, 72% said it was because they couldn’t find what they were looking for from a Canadian e-tailer.

As more US retailers enter the Canadian market, product selection will increase as will opportunities for omni-channel retailing and dare we suggest a possible blurring of cross-border logistical challenges as well?