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Economic conditions, lack of competition make Canada a land of opportunity

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Direct marketers bracing for a gloomy holiday season might be surprised to learn that their neighbors to the north could offer some refuge from the cold shoulders of American consumers.

According to Laurene Cihosky, senior VP of Canada Post’s direct marketing, advertising and publishing business, Canada is becoming an increasingly attractive option for catalogers and e-tailers seeking to offset decreased consumer spending in the U.S.

To date, the country has been less severely affected by the credit crunch. As a result, Cihosky believed Canadian consumer confidence and 2008 holiday spending will remain strong—or, at least, strong compared to that in the United States. “There’s still optimism here,” she said.

In addition, appreciation of the Canadian dollar relative to the U.S. dollar has all but eliminated financial barriers to cross-border shopping in recent years. As of this writing, $1 U.S. equaled approximately $1.08 Canadian, enabling Canadian consumers to purchase American goods virtually at par.

“The floodgates have opened up,” Cihosky said. “Canadian consumers are dying to have a place to spend their dollars.”

Perhaps the most significant reason U.S.-based catalogers and e-tailers should explore Canada, however, is that the country’s retail landscape has not been able to satisfy demand for a wider selection of goods and, specifically, for American brand names. This leaves plenty of opportunity for foreign competitors.

Cihosky described Canada’s 33 million consumers as “underserved,” especially when it comes to women’s clothing, home décor, small home electronics and small countertop appliances.

“People say they love getting U.S. catalogs because there is stuff in them that they never see in Canada,” she added.

The lack of competition isn’t just true of Canada’s main streets and shopping malls. It extends to consumers’ mailboxes, too.

“Canadians get about one-twentieth the amount of advertising mail U.S. residents do,” Cihosky said. “Getting a catalog is a unique experience. They don’t just open it up and throw it away in the same day.”

For this reason especially, companies that pioneered the way north have reported better metrics in Canada than what they typically achieve domestically.

“Our response rate and average order size are higher … and we get a good, strong response in terms of sales per book,” said Steve August, operational VP-marketing at Brookstone. The multichannel seller of home goods has actively targeted Canadian consumers since 2002.

But direct marketing into Canada is not without disadvantages.

August said Brookstone’s costs and break-even point are higher than in the U.S. He estimated postal costs to be 25% to 50% more, depending on the exchange rate. And smaller Canadian postal volumes prevent the company from achieving the same economies of scale it enjoys at home.

Canada’s official bilingualism also creates financial hurdles. “There are laws about mailing into Quebec in the English language,” said Cihosky. “It’s optimal to translate the whole catalog or mail piece, but often it’s not economically viable for marketers until they can prove that they have a market there.”

Charles Prescott, the Direct Marketing Association’s VP-Global Knowledge Network Services, cautioned that companies planning to market into Canada for the long term also need to make substantial investments in systems and operational infrastructure to do the job right.

“I have been told by more than one company that … to market into Canada from abroad effectively, a company will have to make some potentially expensive changes to accounting, tax, postal, packaging and database systems in order to comply with another set of regulations or meet customer expectations and market standards,” he said.

Cutting corners on the customer experience isn’t an option. Cihosky said it is vitally important that prices in local currencies, including all relevant customs and taxes, are transparent at the time of checkout—something Canada Post assists marketers with through its Borderfree program.

After all, Canadians are experienced at-distance shoppers—both via catalog and online—and they have high expectations. “If it is not a positive experience, Canadians won’t shop with you again,” Cihosky concluded.

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