Canadian tourists add $27B annually to US economy

The majority of Canada’s population lives within 100 miles of the United States border and with lower sales tax and more retailers, Canadians are increasingly crossing the border for shopping excursions.

The U.S. and Canada have similar language, social media, Internet and mobile penetration, creating an easy transition for brands familiar with the American marketplace to transfer efforts to Canadian consumers. The top 30 percent of Canada’s household have more than $100,000 in disposable annual income and with brands such as Christian Louboutin, Prada and Gucci topping the charts as consumer’s favorite brands, Canada will likely see immense retail growth in upcoming years.

"Canada is the largest cross-border online market for U.S. retailers today in large part because Canadian shoppers are already very familiar with and inclined to buy American brands," Jennifer Raezer, director of marketing & communications at Borderfree. "The ecommerce environment is particularly attractive for luxury brands due to the affluence and high connectivity of Canadian shoppers."

Borderfree’s report includes its Index, based on a composite score for five criteria: consumer appetite for buying outside of the country, household income and purchasing power, relative currency strength, ease of import and expected market growth.

Crossing the border
Canada is the largest cross-border online market for U.S. retailers and nearly 23 million of the 34.8 million citizens visit the U.S. every year. Also, ecommerce retail sales were $21.6 billion in 2013 and are predicted to rise to $42.7 billion by 2018.

Mobile penetration is slightly less than the U.S., but Internet penetration is better. However, Canadians are spending less time online and 60 percent of the country’s online shoppers buy from U.S.-based merchants.

The deterring factor is that the duty-free allowance is about $16.11 with imported goods seeing assessments anywhere from 0 percent to 35 percent. Also, Canadian online shoppers are required to pay local sales taxes on imports.

However, products such as electronics, antiques and toys and U.S. manufactured goods are duty-free. Regardless, 70 percent of online purchases made in Canada are acquired from international merchants.

Canada's most popular brands

Canadian consumers have caught on to American sales days, with Black Friday and Cyber Monday being the top online shopping days at U.S. retailers.

"While Canadian and U.S. consumers share a number of similarities, there are a few key differences in the ways they like to shop," Ms. Raezer.

"Internet penetration is slightly lower than in the US, with Canadians spending less time online than their U.S. counterparts, and while many Canadians use the Internet to research products, they make purchases at a lower rate," she said. "In addition, PayPal is very popular above the border, with nearly a third of Canadian online shoppers preferring the simplicity and security of the payment method."

The typical shopper is female and about 41 years old and resides in Toronto, Calgary or Edmonton.

With the highest per capita immigration rates and 40 percent of recent immigrants coming from mainland China, the Philippines, India and Pakistan, Canadians, regardless of origin, are coming from countries that are familiar with many luxury brands.

Canadian social media usage

Also, the top social media channels in Canada are Facebook, YouTube and Twitter, allowing consumers to engage in a way that is familiar with most luxury brands.

Although Canadians typically earn lower salaries than Americans, their spending on healthcare is about $15,000 less, leaving more room for spending on other things.

Michael by Michael Kors, Gucci, Prada, Marc by Marc Jacobs, Christian Louboutin, Vince and Tory Burch are the most popular brands among consumers.

The strong familiarity with U.S. retailers from traveling and Internet research opens Canada as a place for growth among luxury brands.

Expanding north
Recently, Canada has seen action among luxury department stores.

For example, in 2013, the Neiman Marcus Group Inc. was purchased for $6 billion by investment firm Ares Management and the Canada Pension Plan Investment Board Sept. 9, which made it the second United States-based department store after Saks Fifth Avenue to get new Canadian owners.

Neiman Marcus’ new owners now have the opportunity to further expand the brand and revamp it into a retailer that is ready to take on the next generation of consumers. With the recent purchases of both Neiman Marcus and Saks, both retailers are looking to expand their global presence while creating a loyal customer base (see story).

Also, U.S. retailers have expanded their physical presence up north.

Department store chain Nordstrom opened a 140,000 square-foot store in Chinook Centre, which houses a new beauty concept and full restaurant, as well as five shoe departments, carrying labels such as Jimmy Choo, Ferragamo and Valentino. This is the first of six Nordstrom stores to open in Canada over the next few years, an important step in expanding the retailer’s global presence (see story).

Physical locations are not always the only option for brands looking to extend their brand.

"Expanding to Canada through ecommerce is a first step for many U.S. retailers, but to find real success, luxury brands need to create an online shopping experience that is tailored to the Canadian consumer," Ms. Raezer said. "Prices should be shown online in Canadian dollars, and only products that can be shipped to Canada should be listed. Lastly, establishing a process for calculating and reliable and guaranteed duties/taxes and shipping charges is paramount. Brands who want to raise the bar can also offer duty-free promotions, which work very well in Canada.

"For brands that have brick-and-mortar locations, it’s important to create a seamless omni-channel experience for shoppers," she said. "Prices should be the same across channels, and purchases made online should be returnable in-store."

Final Take
Nancy Buckley, editorial assistant on Luxury Daily, New York