Watch out Canada, e business is passing you by

An e-store of purely Canadian products seemed like the perfect business move. It was to be the first of its kind, and would be a unique opportunity…

An e-store of purely Canadian products seemed like the perfect business move.

It was to be the first of its kind, and would be a unique opportunity for Canadian manufacturers to finally get a toehold in the US-dominated world of online retail.

But Canadian companies disagreed.

“I’ve had the door slammed in my face in over 1,000 phone calls from every company you could ever imagine,” said Tony Malcolm, co-founder of Clubstore.ca.

If you call a supplier in the United States, the automated switchboard will immediately prompt the caller “to press ‘2’ if you’re an internet company,” said Malcolm.

“In Canada, if you’re an internet company, they tell you to go away,” he said.

“My strategy was ‘you either control it and own it, or you lose your business to the United States,’” said Malcolm.

Canadians are increasingly choosing to shop online, but the online market is dominated by American companies. Only 15 per cent of Canadian companies sell online, and 85 per cent believe it is unnecessary.

“Canadians have already lost 50 per cent of e-commerce because they are waiting for the competition to make the shift; nobody’s moving and Americans are taking the business,” said Malcolm.

Clubstore.ca was meant to bridge the divide.

For Clubstore.ca, the pitch was simple: put the product on Clubstore, Malcolm disseminates it to locations all over Canada, and then splits the profits with the distributor.

Malcolm doesn’t own a warehouse, he ships directly from the distributor to the customer.

“You bypass all retail markups,” said Malcolm.

Distributors resisted Malcolm’s offers of partnership on the premise that Clubstore would be directly competing with their existing customer base.

Malcolm had no interest in competing with companies in their own backyard, especially when he had a whole country to work with. Clubstore.ca could instantly propel distributors into markets stretching from the Yukon to Newfoundland, yet these companies were concerned about threats to their comparatively tiny existing dealer framework.

As well, he was hitting the online shopper demographic — a group that normally wouldn’t search for their products at traditional locales.

Getting Canadian companies onto cyberspace, Malcolm soon found, was almost like teaching an aging relative how to program a VCR.

He compared it to when Prince Edward Island first built roads and residents complained that cars would scare the cows.

“Canada is about 10 years behind the United States,” said Malcolm.

“I went to meetings with transnational companies, some with 46 locations around the world and they all said the same thing: Canada business models are not prepared for e-commerce,” said Malcolm.

“Sears is the only one that ever was because they deal in catalogue sales,” he said.

Only a trickle of Canadian products finally found their way onto the site when it launched — and the results were tremendous.

“We finally got people on board, and one guy, our first guy, in our first week of opening we gave him $10,000 worth of business — in areas that he had never touched,” said Malcolm.

One of Malcolm’s first major business moves, along with partner Jerrold Creighton, was CD Doctor, a kit to repair scratches in compact discs.

The pair had first started a frozen food business that had gone under due to a decision to package the food in clear plastic (“People don’t like to buy frozen food that they can see,” said Malcolm).

Their business gone, Malcolm told Creighton that for years, he had fixed compact discs with a homemade chemical solution. They brought the idea to a chemist and a product was born.

A video on the company’s website, www.merlinstable.com, shows a CD’s being scratched with scalpels. Then, after application of the CD Doctor solution, the scratches magically disappear.

In the company’s early days, they broke away from traditional sales strategies such as fliers, phone calls and salesperson visits. Instead, with CD Doctor they experimented with a “pull strategy” throughout Oakville, Ontario.

CD Doctors were placed at guitar shops, music shops and high-end car dealerships throughout the town in the hopes of them being “discovered” by corporate buyers.

“To just schedule a meeting with the buyer you can’t get anywhere; you’ve got to have somebody saying ‘get this’ or they’ve got to find it for themselves,” said Malcolm.

The company now markets a line of de-scratching products specific to DVDs, cellphone LCD screens and iPods, available at 2,000 retailers across Canada.

The spectre of traditional brick-and-mortar stores has Canadian distributors pinned to archaic and vanishing methods of doing business.

Malcolm can offer Canadian companies high volume and higher profits, but fear of recourse from the dealers holds many of them back.

Traditionally, the base of a distributor has been it’s dealerships. Car manufacturers, heating companies and plumbing suppliers alike rely on local, brick-and-mortar dealers to distribute their products.

A shift into e-commerce may mean a cheaper product — but it also means that dealers can become alienated because of a perception of being undercut.

“If he loses his dealers, he loses his bread-and-butter; he’s too scared to make that shift to (e-commerce),” said Malcolm.

But while these companies stick to 1950s-era models of product distribution, the world of e-commerce is surging forward, leaving Canadian industry in the dust.

As for manufacturers, it isn’t even worth a try. If they sign up with Clubstore.ca, they risk losing “big-box accounts” with the likes of Home Depot and Canadian Tire.

“We’re manufacturers ourselves so I can empathize,” said Malcolm.

American products, sold online at cheaper prices, are bypassing their brick-and-mortar Canadian competitors. And with no Canadian equivalent for online buying, e-commerce market share is being snatched up by the United States.

Malcolm was quoted $19,000 by a company in Whitehorse to install a boiler, but he bought it online from US sources, had it shipped and installed for less than $4,500.

Traditional dealers will always have their place, but Malcolm cautions Canadian firms not to put all their eggs in one basket.

“We fit a different area, that’s it, there will always be people who will work with local suppliers,” said Malcolm.

“But there’s also going to be that handyman with the family who can’t afford to put in for that $19,000 furnace,” he said.

As far as he can tell, Clubstore remains the only online store focusing solely on Canadian products.

“But there’s probably 10,000 stores like ClubStore.ca in the United States,” said Malcolm.

“People have to be bold,” said David Leslie, the CEO of Toronto-based consulting firm Ernst & Young in a Maclean’s magazine article.

“You have to be prepared to risk your traditional businesses,” he said.

Localized distributors may well see a proliferation of Canadian-run e-stores as a threat to their business, but e-commerce has already snagged their business, said Malcolm.

“If someone needs it, they’re going to find it on the internet … there is a certain percentage of people who are going to shop online,” he said.

“Bottom line is: Canada is missing this,” said Malcolm.

Contact Tristin Hopper at tristinh@yukon-news.com

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