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December 16, 2021 – The proliferation of online shopping choices for Canadian consumers is driving the evolution of the retail sector and spurring new forms of competition, according to a new report from the C.D. Howe Institute. In “Shoppers’ Choice: The Evolution of Retailing in the Digital Age,” author Daniel Schwanen examines the rise of e-commerce, which was growing rapidly before the imposition of COVID-19-related public health measures and has since provided a lifeline to Canadian retailers during the pandemic.

“Given the increasing availability of digital tools and the growth of omnichannel retail, including an increasing panoply of tools and partnerships for manufacturers and brands who wish to sell directly to customers, Canadians sellers arguably face fewer and fewer obstacles in reaching consumers,” says Schwanen. “It will be interesting to see whether the federal Competition Bureau takes this sea change into account in its analysis of the sector,” he adds.

The author explains that e-commerce, which refers to the buying and selling of retail products via the internet, has illuminated the demand for “omnichannel” retail as consumers become accustomed to the convenience of using different modes of buying. As well, the popularity of pickup services has challenged the notion of what consumers want – with consumers picking up a product in store and physical stores experiencing stronger growth in click-and-collect formats relative to delivery during the pandemic.

While e-commerce pioneers may have “disrupted” established brick-and-mortar players, Schwanen notes that they themselves are facing growing competition from: i) traditional retailers that have upped their digital game and can leverage their established brands or physical location and ii) new applications of digital technologies that empower direct-to-consumer capabilities. Additionally, they are facing growing competition from regional platforms, such as in Asia.

“These competitive forces diversify the outlets available to sellers who wish to reach potential customers, and therefore limit the conditions that large marketplaces can impose on third-party sellers for accessing their marketplaces,” says Schwanen. “Ultimately, the question is whether the interest of the owners of the marketplace themselves are opposed to those of marketplace participants, and in turn, whether the latter have other choices in connecting with their potential customers or suppliers.”

With recent admissions of price fixing by some Canadian retailers, mergers and the top 10 retailers in Canada accounting for 50 percent of sales in 2019, there is concern about business concentration and competition, notes Schwanen. Additionally, with competition authorities in Canada and elsewhere investigating whether giant Amazon has the ability and incentive to engage in anticompetitive behaviour, Schwanen says it will be of interest to see whether the investigation considers the growing options available to sellers beyond the company and whether it properly considers e-retail as part of the broader retail market.

With the growing adoption of digital technologies and strategies by a myriad of existing Canadian retailers with well-established physical presences that draw on information from the same customers, Schwanen says it makes no sense to consider e-retail and physical retail as distinct and separate channels, using the example of the Canadian food-retailing sector.

“How Canadian competition authorities view the retail sector will give Canadians a good indication of whether they view traditional and digital markets as distinct from each other, with few players dominating the ‘digital’ space and others wilting, or whether they see digital capabilities as empowering multiple players across the sector, each with their unique strength and viable value proposition.”

Read the Full Report

For more information contact: Daniel Schwanen, Vice President, Research, C.D. Howe Institute; Lauren Malyk, Communications Officer, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.