Now more than ever, there is a strong push among U.S. retailers to extend their reach across the border – especially those that see international expansion as an opportunity for potential growth.
Overall, entering the Canadian market can be an easier transition for U.S. retailers due to a common language and Canadian consumers’ familiarity with U.S. brands from cross-border shopping, TV and advertising.
Confirming retailers’ desire to migrate north, a recent study by CBRE ranked Canada 6th among top destinations for retailers wanting to expand internationally by CBRE – with Toronto ranked as the 17th most targeted market for retail expansion in the world.
Furthermore, marketing execs in a Duke University CMO study ranked Canada as having the greatest potential for revenue growth among U.S. marketers.
Why are retailers looking north of the border?
There is a tremendous amount of untapped potential in emerging Canadian markets.
Canada is one of the most rapidly growing countries in the world. The majority of its population, 81%, lives in urban areas, compared to only 79% of the U.S. population. Furthermore, 90% of Canadians live within 100 miles of the U.S. border.
With population concentrations in urban areas and fewer retail chains, there is less competition and a higher productivity rate. Canadian malls are generally 50% more productive than malls in the U.S. with sales per square foot at 605 USD for non-anchor tenants as opposed to 455 USD in the U.S.
U.S. retailers are also drawn toward Canadian expansion due to Canadians’ relative lack of interest in online shopping and higher rates of consumer spending.
Online shopping hasn’t had the meteoric rise it has had in the U.S. due to many factors such as consumer preferences, the low number of transactional websites and an inability to gain capital to fund the new technology investments needed to support e-commerce.
In Canada, e-commerce represents only 1% of retail expenditures, whereas it represents 8% in the U.S. So not only will U.S. retailers face less competition from Canadian-based brick-and-mortar chains, but they also will have a lower threat from online shopping.
The expansion of U.S. brands has served as a catalyst for new retail development. On average, 11.5 million square feet of new retail space have been created over the past few years and tens of millions of square feet are currently being built.
Opening doors in Canada might be harder than it seems
Regardless of the fact that the U.S. and Canada are close in proximity and share a common language, there are some major obstacles that require strategic planning and foresight, such as cultural differences, distribution limitations and trade regulations.
U.S. retailers need to take into account that Canadians think and shop differently than Americans. For example, Canadian consumers don’t actively seek out discounts as often as their American counterparts.
Although retailers have higher sales per square foot, Canadian consumers have lower levels of interest when it comes to shopping – only 15% said they would go shopping if they had extra cash.
U.S. retailers also need to have realistic expectations about real estate locations. Despite the substantial growth in retail space, U.S. retailers are finding a shortage of suitable real estate.
The best real estate properties are largely controlled by a few select property companies, which are subsequently owned by large pension or government investment funds – which are cautious when it comes to new retailers.
Consequently, many U.S. retailers end up having to find existing locations and expand through acquisitions. This can be challenging because vacancy has been almost non-existent in prime locations and there aren’t as many malls as in the U.S.
Furthermore, Canada has a more cautious financing and development industry, which means new properties take a lot longer to develop. Retailers migrating north can’t have the same expectations that they do with the U.S. model. Opening 20 locations in a year is almost impossible and even four or five is lucky.
Due to cultural and demographic differences, retailers need to optimize and customize product mix on a store-by-store basis to meet consumer demands. For instance, Costco begins selling children’s snowsuits in July.
Also, retailers need to package their products in both French and English, and in Quebec bigger retail chains must conduct business in French.
So the question is…. are you prepared for Canadian expansion?
Expanding your Canadian retail operation? Learn how customer analytics can help.