Canadian Market Fulfillment
Jul 30 2019 0

How to Tackle the Canadian Market

Shipping orders from the US to customers worldwide can be unbelievably expensive, complex for you to manage, and irritating for your end-users and channel partners who want to receive your products as quickly as possible.

Obviously, fulfilling customer demand within the US from domestic warehouses is cost effective, relatively simple to manage, and delivers a great customer experience.

So, why not offer the same great experience at an acceptable cost for more of your customers around the world?

Rush Order operates a global footprint with warehouses in California, New York, Canada, The Netherlands, China, Hong Kong, Australia, and Japan. When does it make sense to leverage this footprint across your supply chain?

In this installment, we will dive into when, why and how it makes sense to physically store inventory in a Canadian warehouse and ship domestically to Canadian customers in any sales channel. Topics include importing inventory, developing a channel strategy, important packaging requirements, returns management and taxation.

Subscribe to our newsletter to receive future articles where we will dive into similar questions for other markets around the world.

 

When does shipping domestically within Canada make sense?

The answer is similar when considering any warehouse location around the world. It all comes down to your target market(s).

Perhaps the Canadian population of just over 37 million people is worthy of your attention, especially considering that your US sales and marketing strategies will be fairly easy to adapt to the Canadian market.

Actually fulfilling orders within Canada is relatively straightforward as well, especially given that those 37 million people are very densely clustered in urban centers on the East and West coasts.  Did you know that just the few urban areas shaded in red below account for 50% of the entire Canadian population?

Canada order fulfillment map

Source: Visualization built by Reddit user DonOntario from Canada Census Data.

If you plan to focus a substantial amount of your sales and marketing efforts in Canada, or you are considering doing so, we hope this information helps you plan for launch, operate profitably, and optimize for a great customer experience.

Here are a few items to consider when looking to optimize your sales and distribution efforts for the Canadian market.

 

Inventory availability

This may sound obvious but it catches some of our clients off guard. Can you manufacture enough product to dedicate some of your inventory to Canada?

Splitting inventory across multiple warehouses in North America and around the world is not rocket science, but it requires production capacity to cost effectively split your inbound inventory shipments and simply meet the additional demand.

Regardless of your ambitions, you cannot ship inventory you do not have. Forecast production conservatively and be prepared for supply shocks in the event you encounter any unforeseen production problems or delays. Do not be the company that overlooks this critical detail.

 

Stick to your plans

Are you committed to the Canadian market? Once your inventory physically resides in Canada, it is possible to ship it back out to the US, China, or elsewhere. However, pulling inventory out of Canada is expensive. You will incur additional freight costs, duties, taxes and opportunity costs while inventory sits in Canada.

A “start small” strategy in Canada often makes the most sense. In other words, learn to crawl, then walk, then run in this new market. If you are wrong about the market potential, you can limit your risk.

 

Develop a channel strategy in advance

Selling in Canada from your own ecommerce website is certainly a good idea for most brands. It is feasible to sell domestically in Canadian dollars using most ecommerce platforms such as Shopify (a Canadian company), WooCommerce, Magento, BigCommerce and many others.

However, depending on your chosen ecommerce platform, be prepared to handle transactions with Canadian Dollars, different shipping & handling fees and a different tax structure. Read on further below for more information on taxes. These taxes can be charged to your Canadian consumers and then paid later, so they are net-neutral in terms of cash flow. Also, it should be relatively easy to add Canadian provinces as shipping options within your checkout process.

Because of the difference in currency and taxes, many of our clients simply setup a separate Canadian ecommerce storefront. Some platforms, like Magento, are more capable of handling multiple currencies and tax systems than others.

We find that most Rush Order clients on Shopify will simply setup a separate storefront for each country or currency. So, it is not uncommon to have three or four different Shopify storefronts (e.g. US, Canada, Europe, and “Rest of World”).

Canadian bricks & mortar retailers are also a viable option for many products. Here is a list of the most common Canadian channel partners Rush Order clients are selling to:

 

Best Buy – 132 stores & online

Unlike in the US where Amazon dominates, Best Buy and Amazon currently share an almost equal size piece of the pie when it comes to online consumer electronics in Canada. And, of course, Best Buy offers its 132 brick & mortar stores.

Rush Order maintains a close relationship with the “Emerging Technology” buyers at Best Buy Canada and we are constantly impressed with their level of savvy when it comes to working with hardware startups across wearables, smart home, connected toys, “rideables”, and all the other coolest tech categories.

The Best Buy Canada buyers are patient when it comes to production timing, and they generally take a cautious approach to online versus in-store sales, which drastically reduces risk for startups. Contact Rush Order to learn more about our special fast track solutions to get your products online and/or in store at Best Buy.

Here are a couple pictures, taken in the Spring of 2019, of a new Best Buy concept store near Vancouver, BC where Best Buy is testing new merchandising techniques for emerging tech. As you can see, these stores are very different than their US counterparts.

Best Buy Canada Fulfillment

Best Buy Canada Fulfillment

 

 

Amazon – online only

The jury is out on Amazon’s future plans for its vendor versus marketplace business models, but the company is in a fierce battle with Best Buy and other Canadian retailers for online market share in a variety of categories.

Rush Order also offers a fast track solution for getting products into Canada for sales on Amazon. Please contact us to learn more.

 

Indigo Books & Music – 89 large format stores, 115 smaller specialty stores, & online

Beyond books and music, Indigo offers a wide variety of product categories online and offline.

 

Apple – 30 stores and online

In addition to potential sell-through, we tend to see Apple Stores as a great avenue for building exposure and credibility. There’s nothing sexier than seeing your product on Apple Store shelves.

 

Costco – 90 stores and online

Similar to the US market, Costco is a great channel if the fit and pricing is “right”.

 

Bell Canada & The Source – 650 stores & online

If your product pairs well with mobile or smart home offerings, Bell could be a potential fit. The Source (formerly RadioShack), a subsidiary of Bell, offers a wide range of consumer electronics.

 

Canadian Tire – 498 stores

Despite the most confusing name ever to non-Canadians, this large brick & mortar chain offers an impressive variety of products in its midsize to large retail stores. The most common comparison to a US retailer would be Walmart or Target. Canadian Tire’s product assortment is about to become a lot more interesting in light of its recent acquisition of Party City Canada.

 

London Drugs – 78 stores

From the pharmacy, to travel essentials, to food, to the electronics department, London Drugs is worth a look. We’ve had some success with certain products that are a good fit.

 

Toys R Us – 70 stores

Yes, despite their demise in the US, Toys R Us still operates profitably in Canada with about 70 stores and annual revenues of over $1 Billion.

 

Calculate your shipping costs & lead times

Retain a freight forwarder and customs broker with experience importing inventory into Canada. A good customs broker can be priceless when you are up against deadlines or potential stock out situations.

An experienced Canadian customs broker can help avoid surprises, navigate those surprises when they do occur, and generally keep your inventory moving as quickly as possible to the Canadian warehouse so you can continue fulfilling to revenue-generating customers.

Customs brokers can also help you identify the best Harmonized Tariffs Schedule Code that will limit the assessed duties on your product upon import.  Again, please reach out to Rush Order if you are in need of finding a good freight forwarder / customs broker.

Once inventory is in the Canada warehouse, you will of course need to figure out how to ship via small parcel for your ecommerce orders and via larger freight shipments for B2B orders. For small parcel shipments, Rush Order commonly leverages Purolator Canada Post, FedEx and UPS. We use the former two much more often than the latter two. In fact, Purolator is currently the largest carrier in Canada.

Costs and time in transit for domestic small parcel shipping in Canada are generally similar to the US (1 – 5 business days for most ground shipments). However, double check the specific costs for your typical order weights and dimensions.

Again, it helps that the Canadian population is so densely clustered around 3-4 urban centers.  However, similar to the challenge in the US of shipping to Alaska, Hawaii, and Puerto Rico, you will infrequently encounter far flung shipping destinations in Canada that may be substantially more expensive to service. Examples include shipments to Nunavut and other areas surrounding the Northwest Territories (NWT). After all, by landmass, Canada is the second largest country in the world behind Russia.

 

Be ready for returns

Overall, you can expect return rates in Canada to be the same or lower when compared to the US, but higher when compared to Europe and Asia. We generally recommend using your US return rate as a good conservative benchmark.

What reverse logistics processes do you follow in the US and other regions? For example, Rush Order offers prepaid return labels and advanced warranty replacement management from our Canada warehouse. However, we often use different shipping carriers for these solutions than we do in the US or Europe. These slight differences can impact standard operating procedures.

Once returns arrive, also be ready to replicate any returns handling processes such as product triage (e.g. cosmetic inspection and functional test), product refurbishment, and inventory liquidation.

 

Do your Homework

There are a few other loose ends to tie up before you are ready to launch in Canada.

First, do not forget that currency exchange rates will fluctuate. These fluctuations between the Canadian Dollar and your local currency can impact financial performance. Early on, this may not be a huge concern but, as your Canadian sales become material to your business, be ready to account for this and hedge your risks when and where appropriate.

Product compliance requirements in the US and Canada are distinctly different and separate. While Industry Canada (IC) requirements may be similar to the FCC in the US or CE in Europe, your products may require separate certification(s) in Canada.

Do I need French language on my packaging? Yes. Plan to alter or minimally update your product packaging to accommodate French language and instructions. One easy solution deployed by Rush Order clients is to add a sleeve on each unit, and possibly an updated quick start guide or an extra French language insert that supplements the quick start guide.

To land inventory in a Canadian warehouse with no offices or employees of your own in Canada, you will need to be setup as a non-resident importer (NRI). Setting up as an NRI includes two important steps:

  1. Register for a Canadian Business Number (CBN). The CBN is similar to a Federal Tax ID or EIN in the United States. This CBN registration is surprisingly easy and can be completed online in a matter of just a few days.
  2. Register with the Canadian Revenue Agency (CRA). The CRA registration will allow you to collect and remit taxes, including GST, HST, PST and QST. The lead time for this registration typically takes about one month. This is the longest lead item of the entire setup process.

Beyond the registrations above, be sure you have a decent high level understanding of Canadian taxes. This primarily includes GST, HST, PST and QST.

Not to worry, these acronyms are not as confusing as they may appear. GST, always 5%, is paid upon import of your inventory. Talk to your freight forwarder / customs broker about the appropriate value of the inventory to declare.

Any additional taxes (HST, PST or QST) need to be collected at the time of sale based on customer location.

A handy guide to GST / HST / PST and QST is provided below, including the full rate table below for taxes that need to be collected on sales to customers in each province. The rate charged is generally based on where your customer or recipient resides.

 

Your Canada Tax Guide

Glossary

  • GST = Goods and Services Tax. This is the 5% national tax of Canada that applies to practically all goods and services sold in the country.
  • HST = Harmonized Sales Tax. Some Canadian provinces charge HST, which essentially marries the 5% GST with an additional PST to achieve a single rate of 13% or 15%.
  • PST = Provincial Sales Tax. This amount is charged by some provinces and is added to GST.
  • QST = Quebec Sales Tax. This is calculated and paid just like PST.

Below are national and provincial rates for Canada, as of this writing in July 2019:

 

Province Type GST / HST Rate PST / QST Rate Total Effective Tax Postal Code Prefix
Alberta GST 5% 0% 5% T
British Columbia GST 5% 7.00% 12% V
Manitoba GST 5% 8.00% 13% R
New Brunswick HST 15% 0% 15% E
Newfoundland & Labrador HST 15% 0% 15% A
Nova Scotia HST 15% 0% 15% B
Northwest Territories GST 5% 0% 5% X
Nunavut Territory GST 5% 0% 5% X
Ontario HST 13% 0% 13% K, L, M, N, O, P
Prince Edward Island HST 15% 0% 15% C
Québec GST 5% 9.975% 15% G, H, J
Saskatchewan GST 5% 6.00% 11% S
Yukon Territory GST 5% 0% 5% Y

 

 

Extra Credit Homework

The Canadian government offers a surprisingly helpful array of information about how to conduct business in Canada. Learn more at https://www.canada.ca/en/services/business.html

 

Parting thoughts

Every situation is unique, so please do not be shy. For more information on any of the above topics or to learn more about Rush Order’s services in Canada, please contact us. We will gladly share our expertise or point you in the direction of someone in our network.

 

About Rush Order

Headquartered in California and operating from facilities worldwide, Rush Order is a provider of global logistics and customer support solutions to the world’s fastest growing physical product brands. Rush Order’s solutions span ecommerce fulfillment, retail channel logistics, end-user customer support, and accounts receivable management.