section 2.0 overview of canadian retailing

CANADIAN INTERNET RETAILING REPORT
http://strategis.ic.gc.ca/shopping
TABLE OF CONTENTS
1.0 Introduction
2.0 Overview of Canadian Retailing
2.1 Canadian Economy
• Population Growth
• Changes in the Canadian Population's
Age Structure
• Output (GDP Growth)
• Employment
• Change in Real Disposable Income
• Personal Savings Rate
• Interest Rates
• Inflation
• Housing Statistics
• Consumer Expenditures
2.2 Canadian Retail Sales Trends
• National Retail Sales Trends
• Regional Retail Sales Trends
• Retail Category Sales Trends
• TSE Total Return Index
2.3 Canadian Consumer Attitudes
• Fashion-Conscious Shopping
• Impulsiveness and Overspending
• Brand Loyalty
• Convenience versus Price Shopping
• Vigilante Consumers
• Consumer Confidence
3.0 Consumers and Retailers on the Internet
3.1 Internet Usage Statistics and User
Characteristics
• Growth of the Internet Worldwide
• Percentage of Canadians with Internet
Access at Home
• Demographic Characteristics of Internet
Users
3.2 Benefits to Consumers
• Convenience
• Price Competition
• Selection
• Customization
• Information
• Entertainment
• Customer Service Level
3.3 Benefits to Retailers
• Increased Market Reach
• More Customers Driven to Existing Channels
• Improved Customer Service
• Enhanced Market Research
• Reduced Costs
• Mass Customization
• Development of 1:1 Marketing Relationships
• Value-Added Applications
3.4 Internet Retailing Developments
• Internet Retail Spending Trends
• Successful Retail Categories Sold on the
Internet
• Importance of Branding
• Retailers on the Internet
3.5 Lessons Learned from Canadian Internet
Retailers
• Why Establish an Internet Site?
• The Internet and Achieving Retailer Goals
• The Road to Internet Site Development
• Have Goals been Achieved?
• Lessons Learned
4.0 Internet Developments
• Adoption Rate of Personal Computers in the
Home
• Security Issues
• Bandwidth Issues
• Convergence
• Multimedia Advancements
• Potential Threat to the Role of Traditional
Stores
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1.0 INTRODUCTION
The Canadian Internet Retailing Report provides an overview of how consumers, technology enablers,
and retailers are using the Internet. As much as possible, the information is presented in the broader
context of Canadian retailing. The task of assessing the Canadian Internet retailing situation presented
both challenges and surprises.
Some of the challenges involved dealing with the following issues: (1) the borderless nature of the
Internet, making Canadian-specific measurement difficult; (2) determining who is really on the Internet,
a complicated task, due to the relatively low barriers to developing an Internet presence; and (3) keeping
pace with the rapidly changing technological capabilities and business applications of the Internet.
The surprises included: (1) the wide assortment of creative Internet applications used by Canadian
companies; (2) the wealth of online information available to research markets, competitors, and general
economic conditions; and (3) the competitive advantages afforded by Canadian companies given
Canada's advanced technological infrastructure and highly educated workforce.
Since changes in Internet developments are occurring at an extremely rapid rate, some of the statistics
provided here will likely be out of date by the end of 1998. We encourage you to use the links in the
Retailer Resource Centre to obtain more comprehensive and current information to help you develop
your Internet objectives, goals, and plans.
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SECTION 2.0 OVERVIEW OF CANADIAN RETAILING
2.1 CANADIAN ECONOMY
Population Growth
Retail spending levels are positively correlated with the size and growth of the country's population. In
Canada, population growth has been moderate in recent years with the total population growing about
1.0% annually from 1991 to 1996. This national growth rate is not expected to change significantly over
the next five years. It is important to realize, however, that growth rates vary significantly from
region-to-region and city-to-city.
As the two accompanying graphs show, recent population growth rates have been much higher in British
Columbia than in Atlantic Canada, for example. Cities such as Calgary and Vancouver are expected to
lead the nation in population growth rates over the next five years, and retailers in these locales should
expect to experience higher sales growth as a result.
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Population Growth, Continued
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Changes in the Canadian Population's Age Structure
Of all the demographic changes expected over the next decade, changes in the relative proportions of
people in different age groups are expected to have the greatest impact on retailing. This graph depicts
the net change in the Canadian population within each age group that is expected to occur over the next
decade. It demonstrates that the Canadian population is aging as a whole, with the 40+ age groups
experiencing the greatest net increases.
For example, the 40-59 age group will have 2.4 million more people in 2006 than it has in 1996, while
the 30-39 age group will have 400,000 fewer people. This has implications for retailers since products
or services that appeal to certain age groups will experience either increased or decreased demand as the
population's age structure changes. For apparel retailers in particular, the graph suggests that there will
be an overall shift away from career-driven spending demand towards replacement-driven spending
demand due to population changes in the 40-59 age group.
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Output (GDP Growth)
Growth in Canadian retail spending is, in part, related to the overall growth in the Canadian economy.
This graph shows that overall Canadian economic output (as measured by Gross Domestic Product
[GDP] figures) has experienced only moderate growth over the past ten years, with negative
quarter-to-quarter growth having occurred during the 1990-91 recession and for a brief period in the
second quarter of 1995. Most economists forecast that the Canadian economy will grow steadily at a
rate of 0.5%-1.0% per quarter over the next five years, which, all other things being equal, implies a
moderate level of growth in retail spending.
-8-
Employment
Total employment levels have an impact on retail spending, as higher employment levels imply higher
aggregate earning levels, which in turn imply higher retail spending levels. This graph shows that total
employment growth in Canada was at a virtual standstill from 1990 through 1993, when the
unemployment rate reached the 11.5% mark. Since then, the unemployment rate has crept downwards
to approximately 9.0% at the end of 1997. Most economists forecast the unemployment rate to continue
to fall over the next five years, albeit slowly, and total employment to grow to more than 15 million
Canadians by the year 2000.
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Change in Real Disposable Income
Changes in real disposable income have a direct impact on retail spending, particularly when viewed over
a long-term period. This graph demonstrates that Canadians have experienced virtually no net growth
in real disposable income from 1990 through 1997. This helps to explain the low level of retail sales
growth throughout much of the early 1990s. However, some economists are projecting that, due to
lower tax rates and moderate growth in the Canadian economy, Canadians' real disposable incomes will
experience moderate levels of growth over the next five years. Still, it must be emphasized that this
projected growth is approximately half the rate that was experienced during the economic boom of the
late 1980s.
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Personal Savings Rate
Since the early 1990s, Canadians' personal savings rates have plummeted, from approximately 10% of
disposable income to close to 1.5% at the end of 1997. While some look at this as a sign that Canadians
are more confident in their own economic prospects (and hence are more comfortable with lower savings
levels), some worry that Canadians have now reached a threshold in their debt levels. As a result, some
economists are predicting that future retail spending growth will be somewhat hampered by consumers'
inability to take on greater levels of debt.
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Interest Rates
Increases in interest rates have been shown to have a negative impact on retail spending, as the cost of
borrowing or servicing debt directly impacts a consumer's ability to purchase goods or services. This is
particularly true when interest rate increases are relatively large. While interest rates affect spending on
"big-ticket" and "luxury" items more than they do with some other items, they nonetheless have an
overall impact on total retail sales over the long-term.
The accompanying graph shows the Canadian quarterly prime lending rate from 1987 through 1997 and
projected through to 2002. It shows that the prime lending rate has fallen from over 14% in 1990 to
approximately 5% at the end of 1997. Many economists are predicting only moderate increases in
interest rates over the next five years, suggesting that they will remain in the 5%-7% range. These
forecasts imply that interest rate changes are not expected to hamper retail spending over the short term.
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Inflation
Inflationary changes, as measured by changes in the Consumer Price Index (CPI), can affect consumer
spending. In general, persistently low inflation can act as a chill on retail spending. This is due to the fact
that consumers who expect prices to remain largely unchanged in the future have no real incentive to
purchase in the present. However, persistently high inflation can also negatively affect consumer
spending when prices rise so high that certain goods and services become unaffordable. Changes in the
CPI have fallen dramatically in Canada over the past five years. Most economists expect the next five
years to remain a low inflationary time, with annual growth in the CPI in the 1.0%-2.0% range. This
suggests that changes in the CPI over the short-term will not have a significant impact on retail spending.
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Housing Statistics
Increases in new housing starts are viewed as a precursor to increased demand for certain
housing-related retail category sales, such as major appliances, furniture and home furnishings. Typically,
there is a lag of approximately six months until changes in new housing starts begin to impact spending
in these retail categories. Total new housing starts declined in Canada from the late 1980s until early
1996 when a residential construction rebound occurred. This has had a positive impact on durable good
expenditures such as major appliances and furniture. Some economists expect new housing growth to
increase steadily over the next five years, although not quite to the level of the mid-1980s.
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Consumer Expenditures
This graph compares the relative growth in consumer expenditures on broad classifications of goods:
durables (e.g., major appliances, furniture) excluding automobiles, semi-durables (e.g., apparel, books),
non-durables (e.g., cosmetics, flowers) excluding food and energy, and services (e.g., dry cleaning,
professional services) excluding rent.
Equating 1987 consumer expenditures at an index level of 100 shows that consumer expenditures on
durable goods have grown the most over the last decade and are predicted to grow even further by the
end of 1998. On the other hand, expenditure growth on non-durables and services has been more
moderate, while expenditures on semi-durables have lagged considerably.
The relatively poor growth performance of semi-durable goods has not been unnoticed by many
Canadian shopping centres, as their tenants typically are weighted heavily towards semi-durable goods
(i.e., "soft goods" categories). As a result, some shopping centres in Canada have begun to struggle
financially and have been forced to alter their tenant mixes to include higher growth product categories.
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2.2 CANADIAN RETAIL SALES TRENDS
National Retail Sales Trends
In 1997 total retail sales in Canada at all stores amounted to over $232 billion, the largest level in history.
This represented a 7.2% increase from 1996, which is the largest year-over-year increase since 1988.
As the graph shows, the early-to-mid 1990s were not especially high growth years for retail spending
in Canada, and many retailers struggled, and were forced to restructure or even close stores. Therefore,
1998 is being watched as a critical year in Canadian retailing, with many looking to see whether the
healthy year-over-year gain posted in 1997 can be sustained over a few more years.
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Regional Retail Sales Trends
These graphs show the relative proportions of total retail sales represented by each major Canadian
region and historical sales growth percentages for each of these regions. While overall Canadian retail
sales growth has slowed down over the past ten years, growth rates have varied across the different
regions. As these graphs show, retail sales growth has been significantly higher in British Columbia and
the Prairie Provinces over the past ten years. Similarly, retail sales growth over the past five years has
been higher in cities such as Vancouver and Winnipeg compared to major eastern Canadian cities such
as Montreal and Toronto.
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Regional Retail Sales Trends, Continued
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Retail Category Sales Trends
These graphs show the proportion of Canadian retail spending represented by each major retail category
and the relative growth in retail sales for selected major retail categories and subcategories. Equating
1985 retail sales levels for all categories at an index level of 100, the graphs demonstrate that some
categories have experienced much higher growth than others have. The major retail categories with
higher relative growth rates include the automotive, food and drug, and "other" retail categories; apparel
and general merchandise retail spending have grown at a slower rate.
When these broader categories are examined in greater detail, it is evident that certain subcategories
perform quite differently than others within their broader category. For example, the "other clothing"
category (which includes unisex and children's clothing) has outperformed both women's clothing and
men's clothing by a considerable margin. This is related to the aging of the population, the "Baby Boom
Echo", and the shift to casual wear within the work place. Another example shows that, by the end of
1996, sales at junior (or "discount") department stores had grown at a healthy rate while major
department stores actually experienced negative sales growth over the same period. This is largely
explained by consumer trends towards price-conscious shopping and reflects the influence of Wal-Mart's
expansion into the Canadian market.
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Retail Category Sales Trends, Continued
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Toronto Stock Exchange Total Return Index
This graph compares the rate of returns for the Toronto Stock Exchange 300 Index and key retail-related
sub-indices (Merchandising, Department Stores, and Specialty Stores) from January 1993 through
December 1997. It shows that the overall TSE 300 Index has outperformed the Merchandising sub-index
by a ratio of almost two-to-one over this period. These sub-par returns are indicative of the challenges
that Canadian retailers have faced throughout the 1990s. The graph also shows that the Specialty Store
sub-index has fared much worse than the Merchandising sub-index as a whole, providing virtually zero
returns over this period. On the other hand, the Department Store sub-index rebounded dramatically
during 1997 to the point where its total return at the end of this period was equal to the overall
Merchandising sub-index return.
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2.3 CANADIAN CONSUMER ATTITUDES
The J.C. Williams Group National Retail Report findings for the period 1990-1996 were reviewed to
identify major shifts in Canadian consumer attitudes. The following highlight some major changes in
Canadian consumer attitudes between the 1990 and 1996 data sets.
Fashion-Conscious Shopping
Fewer Canadians appear to be interested in being stylish today. Compared to 1990, 16% fewer people
in 1996 feel that dressing smartly is important. People's perception that they are sophisticated continues
to increase, but it appears to have less to do with how a person dresses.
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Fashion-Conscious Shopping, Continued
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Impulsiveness and Overspending
Although extravagance seemed to be declining in 1995, it returned in 1996 to a level last seen in 1990.
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Brand Loyalty
Brand loyalty continues to increase as more people agree that they will stick with a brand they like and
purchase extra of a preferred brand that is on sale. On the other hand, there has also been an increase
in the number of Canadians who are willing to pass up their favourite brand when another brand is on
sale. Significantly fewer people feel that premium-priced brands are worth the extra money.
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Brand Loyalty, Continued
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Brand Loyalty, Continued
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Convenience Versus Price Shopping
Since 1990 there has been more than a 10% increase in the number of consumers who are willing to pay
extra to save time shopping.
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Vigilante Consumers
The percentage of Canadians that will not tolerate products and services that do not meet their
expectations remained at 25% in 1996, the same level as in 1990.
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Consumer Confidence
The Conference Board of Canada surveys Canadian consumers and businesses on a quarterly basis in
order to create indices of consumer and business confidence. One of the survey questions that they ask
Canadians is: "Do you think that right now is a good time or a bad time for the average person to make
a major outlay for things such as a home or a car or some other major item?"
This graph shows both the percentages that indicated that it was a good time (shown as a green bar
above 0%) and that indicated that it was a bad time (shown as a negative percentage red bar below 0%)
for all quarters during 1987-1997. The graph indicates that consumer confidence had fallen during the
late 1980s and that it really only began to recover during 1996-1997. This helps to explain why retail
spending growth was so moderate during the early-to-mid 1990s.
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SECTION 3.0 CONSUMERS AND RETAILERS ON THE INTERNET
3.1 INTERNET USAGE STATISTICS AND USER CHARACTERISTICS
Growth of the Internet Worldwide
While estimates vary, by the end of 1997 there were approximately 35-50 million Internet users
worldwide, including both consumers and business users. The rate at which the number of Internet users
is growing, on a global level, is currently estimated to be over 50% per annum. Some analysts predict
that by the year 2000 more than 150 million people will be using the Internet worldwide. This
assumption may be quite conservative given that there were over 230 million personal computer users
worldwide at the end of 1997.
Percentage of Canadians with Internet Access at Home
Estimates on the number of Canadians who have Internet access vary depending on the survey
methodology used. Most surveys suggest that by the end of 1997 there were between 7-8 million
Canadians who had Internet access in their own homes. This translates into about one-in-four Canadians
and compares to just one-in-ten Canadians at the end of 1995. It is important to note that significant
regional differences in Internet access penetration currently exist. British Columbia and Ontario had the
highest proportions of their populations with Internet access at home in 1997, while Atlantic Canada and
the province of Quebec had the lowest proportions.
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Percentage of Canadians with Internet Access at Home, Continued
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Demographic Characteristics of Internet Users
One of the reasons that retailers are so interested in using the Internet as a marketing channel is the
compelling demographic characteristics of Internet users. Internet users are, in general, above average
spenders. Personal computer ownership and usage are directly correlated with many of the determinants
of higher incomes, and higher expenditure levels. The following graphs show that Internet users tend to
be: highly educated people; 18-44 years of age; high-income earners; and white collar workers. The
12-24 year old segment is also very attractive given its large size, technological sophistication, and
willingness to make Internet purchases.
Historically, male Internet users have outnumbered female Internet users. Recent surveys, however, have
shown that the gap in the relative proportions of these users has narrowed. One Canadian survey, for
example, has shown that the male/female ratio has gone from 70%/30% in 1995 to 60%/40% in 1997.
As consumer acceptance of the Internet continues to grow, it is expected that the demographic
characteristics of Internet users will more closely resemble those of the general public.
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Demographic Characteristics of Internet Users, Continued
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Demographic Characteristics of Internet Users, Continued
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3.2 BENEFITS TO CONSUMERS
Convenience
The ability to purchase products and services over the Internet provides an attractive alternative to
conventional shopping practices. Internet shoppers can research and buy products and services online
according to their individual schedules. The Internet offers consumers the convenience of being able to
shop 24 hours a day, seven days a week, and in the privacy of their own homes, for products and
services from around the world.
Price Competition
The Internet puts comparison shopping at a consumer's fingertips. Studies have demonstrated that
products in certain retail categories, especially mid-to-high-priced commodity-oriented items, sell for
lower prices online than in traditional stores. For example, an Internet pricing survey conducted in
January 1998 showed that out of 32 items, 28 were selling at a lower price, and two were selling at the
same price online, compared to selling prices at physical stores in a major US city.
Selection
Purchasing products and services over the Internet offers consumers the opportunity to find a much
broader and deeper selection of items. For example, a well-known Internet retailer, Amazon.com, is able
to offer consumers millions of book titles by shipping directly from various publishers. By comparison,
a typical retail bookstore usually stocks less than 25,000 titles at any given point in time.
Customization
Purchasing on the Internet provides consumers with the opportunity to customize products to their
individual needs or desires. A good example is the Dell Computer Internet site that allows shoppers to
custom build their own computer hardware and software configurations. In addition to consumers being
able to select exactly what they want, retailers also benefit by custom building or ordering products, thus
optimizing their inventory management practices.
Information
Many consumers use the Internet as a source of product information before they buy, even if they don't
actually make a purchase on the Internet. The Internet provides retailers with a low-cost distribution
channel for disseminating all types of business information. As a result, Internet consumers are often able
to access information that would not otherwise be available to them.
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Entertainment
In a recent survey of consumers who have made a purchase using the Internet, 25% stated that they
purchase on the Internet because it is more fun than traditional shopping. This ranked as the fourth most
popular reason, behind convenience, selection, and price. In addition, the use of multimedia technology,
and the novelty of discovering a new way of doing things are unique qualities that make shopping on the
Internet a unique experience.
Customer Service Level
The Internet serves as a communication tool between consumers and retailers, through the use of e-mail,
or other online feedback mechanisms. With Internet retailing this dialogue does not need to stop at the
end of the transaction or even at the time of product delivery. These feedback mechanisms allow a
retailer to maintain an ongoing dialogue with consumers in order, among other things, to ensure that they
are fully satisfied with their purchase.
3.3 BENEFITS TO RETAILERS
Increased Market Reach
The Internet can offer retailers a global online marketplace that extends well beyond the traditional
geographic markets serviced by their physical stores.
More Customers Driven to Existing Channels
The Internet can be integrated into a retailer's overall marketing strategy in a way that helps to increase
customer traffic at existing stores.
Improved Customer Service
Use of the Internet can contribute to highly effective two-way communication between retailers and
customers, and can serve as an extension of existing customer service programs.
Enhanced Market Research
The Internet can serve as a market research and product development tool for retailers through the use
of online surveys, chat groups, and feedback forums which enable retailers to obtain data on their
customers' preferences, ideas and attitudes.
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Reduced Costs
Depending on the nature of a retailer's existing operations, the Internet can provide retailers with
potential cost savings through lower: inventory, transaction, customer service, administration, and/or
communication costs.
Mass Customization
The Internet can provide retailers with a more efficient and profitable means of processing orders and
configuring products so that each product suits the specific needs of each customer. This, in turn, allows
retailers to optimize their inventory management practices.
Development of One-to-One Marketing Relationships
The Internet can enhance a retailer's ability to target customers with specific marketing messages in order
to better interact with them on an individual basis.
Value-Added Applications
One of the most powerful features of the Internet is the ability to capture information in a relational
database that can be used to provide value-added services to customers. Suggestions can be made for
other related products or services based on a customer's particular preferences, for example, or links can
be provided to other Internet sites that may be of interest to a customer.
3.4 INTERNET RETAILING DEVELOPMENTS
Internet Retail Spending Trends
Retailing on the Internet is still in its infancy. It currently accounts for less than 3% of total North
American retail sales. Growth rates, however, have been very encouraging. It is estimated that by the
year 2000 business-to-consumer Internet transactions worldwide will amount to approximately $20-$50
billion, while business-to-business transactions will be in the $50-$150 billion range. Regardless of which
end of the range of estimates is met, the growth potential is compelling, especially when you consider
that the volume of business-to-consumer transactions was under $1 billion in 1996.
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Successful Retail Categories Sold on the Internet
Some products are better suited for selling on the Internet than others, including products that:
1. Are sold in fragmented markets and involve substantial comparison shopping;
2. Have relatively low shipping costs; and,
3. Do not require a physical inspection before a purchase is made.
According to Forrester Research, the retail categories that had the highest consumer Internet sales
revenues in the US during 1997 were, in order: (1) computer products; (2) travel services; (3)
entertainment; (4) gifts and flowers; (5) apparel; and (6) food and drink.
The following table provides an indication of the relative potential of certain retail categories to be
successfully sold on the Internet.
Relative Potential
Selected Retail Categories
High
Insurance/Financial Services
Computer Hardware/Software
Travel Services
Books, Magazines, Music/Videos
Flowers/Gifts/Greeting Cards
Office Supplies
Moderate
Automobiles
Sporting Goods
Consumer Electronics/Appliances
Food and Beverages
Collectibles
Apparel/Shoes/Accessories
Health and Beauty Products
Low
Toys and Games
Tools/Home Improvement Products
Home Furnishings
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Importance of Branding
As it is in traditional retailing, strong brand-name recognition will be a critical success factor for
retailing on the Internet. This means that well-branded merchandise will be easier to sell through the
Internet, as consumers have greater comfort levels in ordering merchandise with qualities that they
are familiar with. In addition, "store branding" is just as important for retailing on the Internet as it
is with physical stores.
Retailers on the Internet
Many retailers in Canada are rapidly embracing the Internet as a new marketing channel. Although
similar survey figures are not available for Canadian retailers, one US study conducted late in 1997
showed that 34% of retailers surveyed currently sell or plan to sell on the Internet by the year 1999.
Most major Canadian retailers have some Internet presence already, including all of the major
Canadian department stores and most national chains. For some examples of Canadian retailers on
the Internet, refer to the Internet Retailer Showcase section.
3.5 LESSONS LEARNED FROM CANADIAN INTERNET RETAILERS
Why Establish an Internet Site?
A qualitative review of the current status of Canadian retailing on the Internet yielded the following
general observations.
There are basically two main reasons or objectives why Canadian retailers have decided to develop
an Internet site. These were to either: (1) Build a brand (brand development); or (2) Create customer
intimacy (one-to-one relationship).
Based on these general objectives, each retailer developed their own set of specific goals, including:
1.
Trying to attract a younger customer;
2.
Adding stores to metropolitan areas;
3.
Becoming a leader in their field of expertise (or maintaining leadership); and/or
4.
Providing the right product at the right price (in-store).
The Internet and Achieving Retailer Goals
Most Canadian retailers interviewed had a definite objective for their Internet site. Some retailers had
creative ideas to develop and foster one-to-one relationships with customers. For example, one mass
- 40 merchandiser distributes coupons over the Internet. These Internet coupons are uniquely customized
to each customer's shopping habits. Therefore, the customer who has an interest in office supplies will
receive office supply coupons. Another retailer is using their Internet site as a new way of sustaining
customer intimacy (i.e., to answer customer questions).
Other retailers were more concerned with building their brand. These retailers have opted to entertain
and educate Internet users while building their brand. In fact, most retailers' initial Internet presence
did not include a product/service selling feature. In most cases, the introduction of an online
purchasing option was due to strong customer demand.
There were also some retailers who simply wanted to use the establishment of their Internet site as
a learning experience.
The Road to Internet Site Development
Most Canadian retailers outsourced the development of their Internet site. However, the level of
external involvement varied. Some retailers (those with limited technological experience) decided to
outsource the entire site development and to work closely with the developer on the content. Other
retailers took a more hands-on approach and developed the strategy, concept, design, layout, etc.
in-house and outsourced the programming. One retailer developed their entire site internally as all of
the required skills were available in-house.
Have Goals Been Achieved?
Generally speaking, the majority of Canadian retailers reported that, based on feedback from site
visitors, they have enjoyed success with their Internet ventures. A few retailers, on the other hand,
said that it was too early to determine if their goals have been achieved.
Very few Canadian retailers have changed their initial Internet objectives, although a number have
slightly modified and further defined their initial objectives. Therefore, as their experience with the
Internet increases, Canadian retailers' understanding and appreciation of the Internet's commercial
potential will also increase. As one retailer said, "the medium is constantly being tested".
Lessons Learned
The Canadian retailers interviewed were eager to share their experiences. Among the major lessons
learned were the need to:
-
Integrate the Internet site into the overall business strategy; with its own budgets, plans,
resources, etc;
-
Thoroughly research Internet site developers. Know their business, their past work
experience and the commitment they will make to your business;
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Research other sites, including the competition, to gain ideas, a new perspective and a
benchmark(s) for your site;
-
Install a tracking program to see who is visiting the site. This initial investment becomes
free market research;
-
Install a security protocol for sites with credit card transaction capabilities;
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Constantly up-date, rework and change the Internet site. The old adage "build and they
will come" is not true of retailing on the Internet. A business must proactively attract
consumers to its site by offering something different every time consumers choose to visit;
-
Pick a good domain name;
-
Ensure that your business has a person who understands the basics of the Internet and
computer technology;
-
Be responsive to consumers by monitoring complaints and criticism (done through
e-mail); and
-
Understand that Internet site development is a learning process and mistakes will be made.
4.0 INTERNET DEVELOPMENTS
Adoption Rate of Personal Computers in the Home
While approximately half of Canadian households owned a personal computer at the end of 1997, this
compared to over 95% of Canadian households that owned a telephone or a television set. Part of
the reason for this lower household penetration rate is that many Canadians cannot afford a personal
computer. Recently, however, many computer manufacturers have begun to market computers that
have Internet capabilities at price points that are much lower than other personal computers. In time,
as Internet hardware becomes more affordable, Internet-capable personal computers will achieve
significantly higher household penetration rates.
Security Issues
The number one reason consumers cite for not purchasing products or services through the Internet
is that they fear that their transactions and/or personal information will not be secure (one 1997
- 42 survey showed that 70% of consumers who have not made a purchase over the Internet are
uncomfortable sending credit card numbers over the Internet). Recent Internet security enhancement
features have provided the potential for Internet transactions to be extremely secure, but many
consumers still have doubts. Improving the Internet's security features is an ongoing process. As more
security solutions emerge and consumers' firsthand experiences with Internet shopping increase,
consumer confidence in the security of the Internet is expected to rise.
Bandwidth Issues
Limited rates at which data can be transmitted to consumers through the Internet and their own
computer modems have both been factors that have limited the functionality and appeal of some
Internet applications. In addition, some believe that current telecommunication infrastructures will
be inadequate to handle the increased bandwidth demand that is predicted as a result of Internet usage
growth. However, recent technological developments such as new data compression techniques,
faster digital subscriber services (e.g., cable, ISDN, ADSL, T1) and further development of the
telecommunications backbone throughout the world suggest that the required bandwidth will be
provided as demand increases.
Convergence
Access to the Internet using new technology (e.g., television-based Internet access hardware), and
use of Internet technology to deliver information traditionally accessed through other technologies
(e.g., Internet radio broadcasts or electronic publications) have both increased in the past few years.
In time, the range of technology available to access content on the Internet will increase, encouraging
greater Internet usage within the general population. As a result of this convergence, consumers will
have greater interactive capabilities available to them when using all types of media.
Multimedia Advancements
As the video and audio capabilities of computers increase, and as higher speed Internet access
becomes more publicly accessible, a number of multimedia advancements will emerge that will
improve the Internet shopping experience. Development of innovations such as virtual reality gloves
that allow consumers to "feel" product textures, the provision of full-motion or 3D video, the
transmission of higher quality sound, and improved real-time communication capabilities will all add
to the Internet shopping experience.
Potential Threat to the Role of Traditional Stores
The fear among some retailers with traditional store operations is that the development of an Internet
sales channel will mean that consumers will no longer have the need to come to their stores. Early
- 43 indications, however, suggest that this may not be the case. The Hudson's Bay Company's Internet
site, for example, includes an area that allows Zellers "Club Z" loyalty card program members to
redeem their accumulated points for merchandise through an online catalogue. The experience to date
is that 95% of people who redeem their points online choose to pick up their merchandise at a Zellers
store, even though home delivery is an option. It is worth noting that 40% of shopping done through
a large online service provider is between the hours of 10:00 p.m. and 10:00 a.m. when traditional
stores are typically closed.
Source: Retailing on the Internet: A Guide, STRATEGIS, Industry Canada