Business

The outlook for e-tailing

The Chapters battle highlights online perils

Chris Wood December 11 2000
Business

The outlook for e-tailing

The Chapters battle highlights online perils

Chris Wood December 11 2000

The outlook for e-tailing

Business

Chris Wood

The Chapters battle highlights online perils

From her office in Vancouver’s Yaletown, Hilary Horlock has a ground-zero view of the new economy. The renovated warehouse district is a hotbed of high-tech companies. Several are clients of Cogeny Communications Inc., the firm she founded with two partners last year. But like the entrepreneurs she serves, Horlock finds the struggle to get a new business off the ground cuts deeply into personal time. “We work unconventional hours,” she says. “It’s not like I can easily run down to the Bay or the new Eatons.” Instead, Horlock brings the stores to her office, spending hundreds of dollars at Web sites, including those run by Chapters Online and Indigo. Over the last two years, Horlock has bought everything from books to lingerie on the Net. And, she says, “50 per cent of my Christmas shopping this year was done online.”

So far, Indigo has been Horlock’s only disappointment, failing to fill an order in time for last Christmas and proving hard to contact. Those may have been rare mistakes for Canada’s fourth-ranked books-and-music site. But they strike at the trouble many etailers have had persuading shoppers they can be trusted—and not only in Canada.

Last year, so many U.S. Web sites failed to deliver goods on time that the Federal Trade Commission fined seven vendors a total of $2.3 million. And even when the goods do get through, profit has not followed for high-profile e-tailers like America’s Amazon.com or Canada’s Chapters. Eighty per cent of Canadian businesses, meanwhile, are not on the Web at all, prompting criticism that they risk losing out on an e-commerce boom.

But that picture is changing. Web pioneers like Chapters and Indigo face increasing competition from more familiar names. Canadian Tire Corp., Hudson Bay Co. and the new Eatons have all launched new online shopping ventures in recent weeks. Other companies have revamped their sites to make them more attractive or easier to use. Consumers are also catching on. Studies by the Retail Council of Canada and others suggest Canadians’ online spending this season will be twice last year’s $282 million.

And while profit eludes Chapters and Amazon, others have found the Web more welcoming. From a tentative start packing gift baskets in their basements, Carla Karkheck and Ann Kerrigan have built a flourishing business that now includes

two Toronto stores and a glossy annual catalogue. Four years ago, they extended their presence online. This month, orders from their baskits.com Web site will account for about 10 per cent of the 40,000 gifts they expect to ship. “Our sales on the Web in November doubled from the previous year,” says Karkheck. “Our other sales aren’t doubling.” The site has been especially good at attracting U.S. shoppers who benefit from the cheap Canadian dollar.

Across the country, VancouverCigar.com is also attracting a growing stream of foreign visitors—for less licit reasons. The site belongs to a fragrant, humidor-lined tobacco shop in Yaletown, and advertises after-dinner smokes at up to $70 each. Many are Cuban, and many of the well-heeled aficionados who buy them are American. It is illegal to import Cuban cigars into the United States—but not to ship them there. “We tell them we can sell to them,” says Mark May, who manages the cigar site and three others for a group of stores in Vancouver and Calgary. “But the risk they take is whether their country will let the cigars in. They still order.” May says Web sales now account for nearly a fifth of the group’s total revenues. After investments to improve the Web site, he adds, “it is now profitable.”

Just in time for Christmas, some of the country’s biggest retail brands have jumped in as well. On Oct. 30, Sears Canada

(whose Sears, ca is the country’s top-ranked e-tail department store) unveiled an elegant site under the Eatons name just ahead of its bricks-and-mortar relaunch of the historic brand. The site sells upscale apparel, accessories and housewares.

Three weeks later, Hudson’s Bay Co. began selling fashion and accessories from a site it shares with subsidiary Zellers. Alert to consumer concern over delivery, the company dedicated part of a cavernous Zellers distribution centre in Toronto to fill online orders. So far, those resources have hardly been taxed: one day last week only six packages awaited pickup at the end of a maze of shelving and conveyor belts. The slow start doesn’t trouble general manager Dave Alves, who describes the operation as “a national beta test.” Says Alves: “We didn’t build hbc.com for today. We built it for tomorrow.”

Also in November, Canadian Tire added shopping to its Web site for the first time. Spokesman Scott Bonikowsky rejects criticism that Canadian businesses have been slow to move online. “I think we’re pretty ideally timed,” Bonikowsky asserts, saying Canadian Tire learned from the

mistakes of others. Its strategy now, he says, leans heavily on its well-known name, a shortlist of best-selling products, and the fact that 91 per cent of the country lives within 15 minutes of one of its stores (which accept returns from Web sales). Bonikowsky says he expects online operations to become profitable eventually, but, “it’s going to take us a little while to get there.”

The same may be true for consumers. Canadians have never embraced mail-order (e-shopping’s closest cousin) as warmly as Americans have, and few among the first wave of U.S-based e-tailers shipped

to Canada. Buying online, moreover, can be confusing at first, and requires shoppers to send credit-card information over the Net. New services have emerged to make shopping at U.S. sites easier: CanadaPlus and BorderFree.com translate U.S. prices into Canadian dollars and then expedite parcels through customs and Canadian delivery. Meanwhile security software has reduced fears for credit information. But even among the Internet-sawy, e-shoppers remain a minority. According to market-research firm Ipsos-Reid, fewer than one in five Canadians online are “likely” to shop the Web this Christmas—fewer than 10 per cent of Canadians as a whole.

After last year’s cyber-shopping season left many U.S. consumers fuming, several research groups published reports identifying what went wrong and how to fix it. What went wrong, mostly, was late delivery from untested and overtaxed

A SHOPPING LIST

^ Useful Web portals to a range of shopping links:

www.shopwebpages.com

www.quixtar.com

www.borderfree.com

www.canada.com/shopping

shopping.excite.ca

Major retailers:

www.sears.ca

www.hbc.com

www.eatons.ca

www.canadiantire.ca

www.futureshop.ca

www.chapters.ca

warehouses, and lousy customer relations. Needed were better fulfilment, better communication with customers, easierto-use sites with clear privacy policies and what the experts call “stickiness”—anything that works to keep visitors from wandering off to a competing site.

Chapters Online has tried to follow the rules. The company added book and music reviews and a companion site selling housewares to give visitors more to browse. The moves succeeded—up to a point. The Canadian Retail Council feted Chapters as the country’s best retail site. In October, Deloitte & Touche ranked it at the top of its category among Canadian e-tailers, with 36 per cent of all book and music purchases, ahead of Columbia House (20 per cent) and Amazon (16 per cent). But profit has not followed. Last month, Chapters Online laid off nearly a fifdi of its workforce.

Others believe they’re close to getting it right. Burnaby, B.C.-based Future Shop Ltd., the country’s biggest consumer electronics chain, recently overhauled its site, and executive vice-president of merchandising Behzad Khosrowshahi vows, “We’ll make money next year.” Lowered expectations may help. At the height of the dot.com frenzy a year ago, some prophets of the new economy forecast that online shopping would put conventional storefronts out of business. That never seemed likely. “Now,” says Retail Council of Canada spokesman Randy Scodand, “people recognize that the Internet represents another retail channel, like bricksand-mortar stores, catalogues or sales over the telephone.”

For links That is still welcome news to the y.macleans.ca Fowlie family of Delta, B.C. Economist Gary Fowlie made his first online purchase three years ago, buying contact lenses. Now he, his wife and their three teenage sons all shop on the Web. “Whatever we can do online,” says Fowlie, “we do.” Last year, that included buying family Christmas presents. This year, the family is forgoing gifts in favour of a three-week trip to Europe, partly planned over the Internet. Some experiences may never be available online. Arranging to get there is another matter.

Danylo Hawaleshka