Is the Canadian Puzzle Solvable?

TORONTO — For a good many years, I’ve periodically covered the Canadian catalog/direct/multichannel market — all, of course, from a U.S. perspective. Dating back to the early 1990s, I reported on catalogers’ experiences in expanding into Canada, usually focusing on brand-new efforts.

More often than not, the results looked encouraging, the outlook appeared great. Most surveys showed that Canada was the number 1 logical choice for international expansion among catalogers. Yet, here we are in 2007, and finding catalogers that do any sort of truly significant business in Canada is just about as challenging as getting a ticket to a Stanley Cup playoff hockey game this week in Ottawa, Calgary or Vancouver.

I was invited to give a presentation at the April 16-18 Direct Summit in Toronto, a catalog- (er, “catalogue”) focused conference staged by Canada Post Corp., a multiple services firm that, among others, is Canada’s sanctioned postal service. My presentation focused on the U.S. catalog market. But knowing that some U.S. biggies, as well as some larger Canadian catalogers and retailers, would be in attendance, I went for the duration of the conference.

Marketing execs from L.L. Bean, Crate & Barrel and Orvis were there. So too were some key Canadian multichannel retail execs from Sears Canada and Hudson’s Bay Co. I wanted to come back from Toronto knowing why the Canadian catalog/retail/multichannel market remains so hard to crack for most U.S. catalogers.

The Key Issues

The biggest issue for U.S. catalogers is the expense of cross-border shipping. Customs and duty charges and expensive shipping costs turn Canadian consumers off. Couple that with the fact that merchandise return rates are considerably higher in Canada than in the U.S., Martin Queen, Sears Canada’s national logistics manager, told me.

That’s probably why only a few mostly bigger names, such as L.L. Bean, have had any success. But it’s hardly been overwhelming. (At about $30 million, Bean’s Canadian business, which is entirely catalog/Web, still represents a pretty tiny portion of the company’s sales.)

Canadians are so put off by shipping charges that Hudson’s Bay Co., one of the country’s largest multichannel retailers, has found that 80 percent of its direct marketing customers would rather have orders shipped to local stores than to their homes in order to save on shipping charges.

Canadians Prefer ‘Low-risk’ Products

It can be as tricky to gauge Canadians’ shopping behavior as it is to find them in the first place (I’ll touch on Canadian lists in a moment). Jim Okamura, senior partner with the Chicago-based consulting and research firm J.C. Williams Group, said during the conference that Canadians prefer low-risk products, such as computer hardware. They lag in online shopping penetration with home furnishings, food and pet supplies, among others, and lack the consistent penetration of American consumers when it comes to shopping direct.

Another key pain point for American multichannel merchants marketing in Canada is the high cost of postage. You think you have it bad in the U.S.? Canadian postal rates for catalogs is approximately double.

Bad Prospect Lists

What’s more, another key hindrance is the historic lack of direct response lists in Canada. Plenty of prospecting lists have totally bombed for U.S. mailers due to a lack of direct response history on most names.

In addition, Canadian consumers don’t do a whole lot of their shopping in non-retail channels. An NPD Group-Canada Post survey released last month showed that among those Canadian shoppers surveyed, an overwhelming majority of them shop in stores, compared to catalog and online.

* Among those who purchased apparel, 91 percent bought at retail; 18 percent bought through catalogs and 11 percent bought online.

* Among those who bought shoes, 79 percent bought them in stores, 7 percent bought them through catalogs and 5 percent purchased then online.

* In health and beauty products, 73 percent said they bought at retail, 12 percent through catalogs and 8 percent online.

* And among those who made home furnishings purchases, 64 percent bought at retail, 7 percent through catalogs and 9 percent online.

What’s the Appeal Then?

A general lack of interest in shopping direct, heavy shipping duties, expensive postage, weak lists with poor data — those are the key deterrents to Canadian consumers and American catalogers. Nevertheless, I came away from this event with a whole other revelation of sorts: Some U.S. catalogers are taking a closer look into Canada than ever before. Eh?

At least two vendors have worked feverishly to overcome the key sticky points. Abacus established a co-op database in Canada a year and a half ago. The co-op now has 230 participants, mostly from the U.S. Still, “There’s not a whole lot of transactional data,” lamented Casey Carey, Abacus Alliance Solutions’ senior vice president, during his presentation at the conference.

Abacus does have 2.6 million multibuyers in its database. “I think, we have a lot of what there is,” Carey said about available direct response data. “But there’s not a lot there. We’ll continue to build our Canadian data over time, but it’s not going to double next year.”

Even Sears Canada, which is among the largest catalog mailers in Canada, only sends 20 percent to 25 percent of its books to prospects; the rest go to its housefile.

It was brought to my attention by one American cataloger in attendance, however, that the Canadian list market has come a long way. Even though Canadian lists will never approach the size or scope of American lists, there are more direct response names and some more data available than there were in the past.

As for the fulfillment side, since the late 1990s when Border Free was founded to help catalogers ship goods into Canada in a turnkey solution, the company — which is now owned by Canada Post — has aggressively gone after the U.S. catalog market. Border Free president Patrick Bartlett told me that the number of U.S. catalog clients has doubled over the past couple of years to 90.

There’s some momentum here, despite Canada’s drawbacks.

Enter Orvis, Crate & Barrel

Orvis recently entered the Canadian market. And Crate & Barrel, which test-mailed two catalogs last year in Canada, plans to open its first store in Toronto next year.

Another cataloger present at this event was Jason Root, vice president of merchandising and print marketing for Smarthome, a cataloger we profiled in last July’s issue of our print magazine. He gave a presentation on Smarthome’s program in Canada; the cataloger has upped its circulation north of the border this year to 300,000 from 70,000 just a few years ago.

Root pointed out that in comparison to the 19 highest ranking U.S. states in terms of sales for Smarthome, as a 20th “state,” Canada ranked 18th in 2004, 13th in 2005, eight last year and to date this year is now up to sixth.

The Allure

Canada’s population grew by 5.4 percent from 2001 to 2006, pointed out Diane Brisbois, president of the Retail Council of Canada, during her presentation at the Direct Summit. That’s greater than the U.S. population’s growth or any other Western civilization’s growth during that time.

But like all good things Canada, there are challenges that can offset them. Nearly all of Canada’s recent population growth, Brisbois said, has been through immigration. And most immigrants retain their cultural identity here. Unlike the U.S., “Canada’s not a melting pot,” she said. “It’s multi-cultural.”

Nearly half (48 percent) of retail in Canada is focused in six major urban centers. In fact, 80 percent of the Canadian population lives in these urban centers. Although Canadians only have about 65 percent of real personal disposable income per capita that Americans have, measured at an 80 percent rate of exchange, Canadians have unwavering consumer confidence.

Strong Economy, Low Unemployment

“We have a strong economy that’s expected to grow well into next year,” Brisbois pointed out. Driven primarily by Alberta, British Columbia and other parts of Western Canada, the growth is such and unemployment is so low that Canada’s biggest problem next year will be serious labor shortages. As a result, there’s a record amount of money being spent now on developing training programs and incentives for employees.

Canada has added about 270,000 jobs since November, while the unemployment rate has fallen to a 31-year low of 6.1 percent, the Conference Board of Canada said on April 16.

Some more facts Brisbois shared about Canadian consumers that are worth noting if you consider exploring this country. In brief, Canadians are,

* not loyal to brands, although they’re brand-conscious,

* value- and price-conscious,

* aging,

* quality-conscious,

* demand complete information, and

* they don’t find shopping fun.

“If your strength is your brand,” Brisbois said, “consumers will want you to prove that. Customers move from one brand to another, not just for price, but also for customer experience.”

Back Off Quebec

One last thought I brought back with me from Toronto: Steer clear of Quebec. To sell to this French-speaking province requires more than merely translating your catalog or Web site to French. How about the need for a French-speaking call center, just for starters? A French-language Web site that ensures that every single link is also entirely in French?

So unless you have the capital to establish an entirely new business to operate out of Quebec, I’d turn back if I were you. And even if you were to launch a new company there, French-speaking Quebecois primarily support locally-based retailers. For instance, they won’t even let Starbucks open any shops in Quebec City. What’s more, Quebecois generally aren’t direct marketing responsive.

In sum, my apologies for presenting what a past editor mine used to refer to as a “ping-pong match”-sort of story, bouncing back and forth between the pros and cons of marketing to Canada. But it illustrates the potential of this country of nearly 33 million — and its limitations.