‘How can we compete?’: Small businesses are being forced online, only to find barriers they didn’t expect - Toronto Star

The run-up to Christmas is a crucial period for retailers at the best of times, but this year it will determine the fate of many more Canadian small businesses than usual.

And with so many Canadians avoiding in-person shopping altogether and some retailers offering online shopping only, the only way many will meet their targets is by shipping their goods to customers.

On the upside, e-commerce has exploded since the start of COVID-19. Overall online sales in Canada were 200 per cent higher in March this year over 2019, according to Google, and have been growing at three times the normal average throughout 2020.

On the downside — larger competitors such as Walmart and Amazon already have major advantages, including big marketing budgets and well-established e-commerce operations.

Additionally, they also get more favourable rates from Canada Post because of their larger shipping volumes.

“It’s literally cheaper to ship from Vancouver to New York than it is for me to ship (from Surrey) to Burnaby,” says Shahraz Kassam, who runs Shamin Diamonds and BeaDazzle Beads & Beading Outlet, both in Surrey, a part of metro Vancouver. Burnaby is less than 20 kilometres away.

“How can we compete? It’s hard to do business online.”

Shipping has become a problem this year for Canadian retailers like Kassam because of COVID-19, which has forced many to hastily start up or rely on online stores to keep their businesses afloat.

The search company says 61 per cent of Canadians plan to shop more online throughout the rest of this year. A third of consumers who normally make purchases in store during Black Friday events in November don’t plan to do so this year, opting instead to buy online.

“The small ones are going to have trouble because there’s a lot of stickiness with the big online retailers,” says David Soberman, the Canadian National Chair of Strategic Marketing at the Rotman School of Business at the University of Toronto. “There are changes taking place, but perhaps slower than we’d like.”

The pandemic has been a mixed bag for Kassam, who also sits on the B.C. government’s Small Business Round Table. Shipping costs don’t generally affect his main jewelry business — customers are typically buying higher-end goods, which are then shipped via courier companies such as FedEx.

But costs are a major factor in his secondary bead business, which has taken off as a result of the pandemic. Online bead sales were only about $2,000 in 2019, but this year they have already surpassed $100,000. As with baking and other home-oriented hobbies, bedazzling garments has exploded in popularity as people spend more time indoors, Kassam says.

Beads aren’t a high-margin product, which means Canada Post fees make it a difficult business to succeed in, he says. A small .22-kilogram package costs $11.19 to ship from Vancouver to Kelowna, about 400 kilometres away. The same package costs $8.92 to send to New York state.

In comparison, shipping a similarly sized package across the U.S. can cost as little as $5 (U.S.) through the United States Postal Service.

The fees in Canada add about 18 per cent to Kassam’s cost. He’s forced to offer free shipping, which he does for purchases over $75 (Cnd.), because Amazon has created that expectation with consumers.

“That’s a huge amount out of my pocket on beads, because it’s not like we’re making a huge amount on it,” he says.

The Canadian Federation of Independent Businesses, which has more than 110,000 members, is urging the federal government to force the postal service to give small retailers a break in light of the advantages big players have.

Canada Post has a national duty to help Canadian businesses because it is a Crown corporation, according to CFIB president and chief executive Dan Kelly.

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“There’s no question there is a really unlevel playing field when it comes to what small firms can get,” he says. “At least with Canada Post, they should be able to get the same rates as Amazon.”

Canada Post spokesman Jon Hamilton was unable to comment on specific instances of shipping prices, but said fees are better than those from other shipping providers in Canada, including FedEx and UPS.

He also said independent retailers can secure discounts through Canada Post’s Solutions for Small Business Program, although it’s not clear if those savings can equal the volume discounts enjoyed by bigger players.

Outside of costs, Canada Post is warning consumers of expected delays this holiday season. With shipping volumes having exploded this year, the postal service is expecting an unprecedented number of parcels to pass through its system over the next two months.

“We’re asking you to break with tradition and shop early this holiday season to avoid disappointment,” says chief customer and marketing office Rod Hart in a video on Canada Post’s website. “If not, the traditional late surge of holiday parcels on top of the expected demand could overwhelm our ability to process and deliver and cause delays.”

The Retail Council of Canada says Canadian retailers, both big and small, are also facing another problem in light of the widespread shift to online shopping — that of high credit card fees.

Credit card providers including Visa and MasterCard are charging retailers in Canada and the United States considerably higher fees to accept online transactions than they are in Europe, where such charges are regulated.

The fees vary depending on the type of card being used by the consumer and the volume of business being done by the retailer, but they generally range between 1.4 per cent to 2.24 per cent per online transaction, according to e-commerce credit card processing provider MerchantAccounts.ca. In Europe, online credit card fees are capped at 1.5 per cent.

Spokespeople for Visa and Mastercard did not specifically address questions about e-commerce fees in Canada.

Visa Canada says it has lowered its average transaction fees — which include those levied in stores as well as e-commerce — to 1.4 per cent, which is the lowest they have been in 15 years. Mastercard Canada says retailers get a number of benefits from paying the charges, including guaranteed payments on a higher volume of sales, fraud protection and the safety of not handling cash.

The Retail Council, which is pushing the federal government to enact regulations similar to those found in Europe, says these charges are a bigger issue for all Canadian retailers than shipping fees.

“It is offensive to our retailers when they see how much more they have to pay to accept those transactions,” says president and chief executive Diane Brisebois. “A cap is likely the only way you ever resolve this.”

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2020-11-02 11:01:02Z
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