Target and other retailers have fought unsuccessfully for years to level the e-commerce playing field in the United States by requiring Amazon.com and other online-only merchants to collect sales tax. Doing so would eliminate the Internet-pure-play retailers’ most significant competitive advantage, and for a glimpse of just how significant look no further than Canada.
The source of insights about the Canadian online marketplace came last week courtesy of Walmart, which held an analysts’ meeting for its $126 billion international division in Toronto. Target opens its first stores in Canada next year and the implications of disclosures made at the Walmart meeting are intriguing because the Canadian e-commerce landscape is underdeveloped relative to the United States.
For example, online sales account for only 2% of total retail sales in Canada compared with 7% in the U.S., according to Walmart Canada’s SVP e-commerce, Gino DiGioacchino.
“Canada's e-commerce is somewhat of a paradox. Canada has the highest Internet usage in the world. However, when it comes to e-commerce, Canada is just getting started,” DiGioacchino said.
The reason why is two-fold, and it highlights just how sizable the tax avoidance advantage is for Amazon in the United States and the opportunity that exists for Target in Canada.
“The greatest difference between Canada and the U.S. e-commerce market is our vast geography, making shipping cost somewhat of a barrier,” DiGioacchino said. “As well, sales tax is applied to online retailers as it is to brick and mortar. So the tax advantage that you see in the United States with online does not exist in Canada.”
The marketplace is so underdeveloped that it wasn’t until last year that Walmart began experimenting with a transactional site that went live in October. Today, Walmart Canada has about 50,000 items on its site and expects that figure to double by year end. It receives 40,000 store finder visits daily and this year the company expects to have a total of 83 million visitors. Even so, the company acknowledged there is no real winner in the Canadian online marketplace, which makes it an ideal growth opportunity for conventional retailers, especially since they are not at a competitive disadvantage to operators who can offer shoppers’ the ability to evade sales tax as a key component of their value proposition.