February 4, 2023

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Daniel Schwanen: Winner-take-all hasn’t hit retail yet

Despite the emergence of high-profile online suppliers, fierce competition remains the order of the day in retail

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The retail trade data for February, released Friday, show a continuing rebound in in-person shopping relative to the online variety, as people-to-people interactions emerged from restrictions imposed during the pandemic.

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Retail e-commerce — which includes when goods purchased online are subsequently picked up in a store — was a lifeline for Canadian businesses in 2020. But in-store shopping has come back with a vengeance. Despite the emergence of high-profile online suppliers, fierce competition remains the order of the day in retail.

Since peaking at 10 per cent of total sales by Canadian retailers in the first days of the pandemic, e-commerce’s share of retail sales has fallen sharply — to just over five per cent last month.

Most readers will be surprised to learn that these numbers do not include the Canadian sales of foreign-based online retailers, such as, most importantly, Amazon. Only foreign-owned stores with a physical retail presence in Canada are included in Canadian retail sales. If these U.S.-based non-store retailers had the same share of the e-retail market in Canada as they do in the United States, the share of retail e-commerce in total Canadian retail sales would double but would still be only around 10 per cent.

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As you might expect, online sales see-sawed in 2021, rising and falling as restrictions on physical shopping were imposed or lifted. As you might also expect, the long-term trend is one of steady but slow rise in online sales, as every year more and more traditional retailers use this avenue to reach customers.

Even when retail premises remained open during the pandemic, as they did in the case of essential goods, such as food and pharmaceutical products, consumers who preferred to limit their in-store shopping turned to online options. Some of these new ways of shopping have now become habits. As I describe in a recent C.D. Howe Institute e-brief, Canadians who first came to electronic shopping out of safety or necessity during the pandemic have stuck with it because of the choice and flexibility it provides, including lower prices and a variety of delivery options. As a result, sellers now have little choice but to learn how to reach consumers online — whether directly via their own websites, indirectly via emerging platforms such as Shopify’s, or using established electronic marketplaces such as Amazon’s.

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But even so, “brick-and-mortar” stores are alive and well and still valued by consumers. Shopify’s announcement earlier this year that it expects slower revenue growth as pandemic restrictions ease is convincing evidence of that. Traditional operators are also catching up with their online competitors in using data and digital technologies. Data — i.e., information — has always been central to commerce in general and retailing in particular. Digital technologies allow traditional retailers to collect and analyze data from their customers in ever more sophisticated ways that help them improve the experience of both their online and physical customers. The data-driven strategies of Loblaws with its PC Optimum loyalty card are but one example among many.

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“Digital” and “physical” retail and all the options in between, such as online shopping with curbside pickup, are now part of one highly contested retail space. If anything, the competition among these many ways of shopping will get more heated as retail sales slow in the face of supply chain constraints, inflation, and a consumer swing back toward services like travel, entertainment, or dining out that were essentially shut down during the pandemic.

Despite what you may read about internet giants, we are still far from “winner-take-all” retail. As it has been doing for three decades, e-commerce will continue to help keep retail prices in check, spur innovation among competitors, and shore up purchasing power and Canadians’ consumption spending overall. But — competition regulators, take note — the retail sales data suggest the pandemic has only accelerated the transition to a new age of fierce retail competition for consumers’ dollars.

Daniel Schwanen is vice-president, research, at the C.D. Howe Institute.

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