How e-commerce is stepping up its reach outside urban areas

Article by JLL Staff Reporter
lorry on road in countryside
Image credit: Shutterstock

Online shopping may be the norm for growing numbers of city dwellers but for those who prefer the open spaces of rural living, the occasional trip to a nearby town often remains their preferred method of buying goods.

In highly developed, but sparsely populated countries like Canada and Australia, consumers have traditionally been slower adopters of online shopping. Now that’s changing, with the two countries claiming spots 10 and 11 in a recent ranking of the world’s most active e-commerce markets.

And it’s set to grow further: In Canada, for example, online shopping is projected to reach 10 percent of the country’s retail spending by 2019—up from only 6 percent in 2014. And as interest grows, the underlying distribution and logistics networks are playing catch-up.

In Australia, where the vast majority of the population lives along the coasts, separated by enormous deserts in the central part of the country, there are supply chain challenges to overcome. Most of its existing warehouses were simply not designed for the single-item picking required for fulfilling online orders, even for consumers living in and around cities. Head further afield into rural areas and the logistics challenges grow.

Close-up on Canada

It’s a familiar story for Canadian retailers. Spanning 3,600 miles from Vancouver in the west to Halifax in the east, Canada is the world’s second-largest country by acreage – and a significant part of its population is clustered in smaller cities separated by miles of sparsely populated land.

“Canada doesn’t have the highly-concentrated population that the United States does,” says Adam Sherriff-Scott, Co-leader of JLL’s Industrial practice in Canada. “Most companies have distribution networks set up around Calgary and Vancouver to the West and the Greater Toronto area and Montreal to the East to service the entire country. The challenge some retailers can face are consumers who fall in between these distribution areas going untapped because of the high cost to serve them.”

The challenges don’t stop there. It’s not unusual for an online order from Vancouver to be fulfilled from a distribution center in Toronto because the retailer lacks a distribution center in Vancouver. It’s one reason why major U.S.-based retailers capture the largest share of online sales in Canada.

Another complication is that shipping costs tend to be higher in Canada than the United States, putting further strain on a retailer’s profit margins.

Balancing costs vs. consumers

“E-commerce companies in the United States are intensely focused on solving last-mile challenges for demanding consumers,” says Bill Bates, Co-leader of JLL’s Industrial practice in Canada. “In contrast, Canadian consumers are more patient to wait, and less willing to spend more for faster delivery.”

Bates cites the example of a Canadian retailer that sells automotive, sports and leisure, and home products, including toys and food. “If shipping a backyard barbecue grill to Toronto costs $18, and shipping it to Saskatchewan costs $100, how do you price that into your business model?” he ponders. “Rural areas are a challenge for e-commerce, especially if you are selling big bulky items.

And price is a key factors for consumers. “Canadians will not overpay for shipping—they will pay the lower cost shipping option, every time,” says Bates. “Canadian consumers recognize that goods may come from afar and we’re just happy to have access to an ever-expanding pool of products online. E-commerce has really opened up choice for Canadians.”

Unlike U.S. companies that often have facilities used exclusively for e-commerce fulfillment, few retailers have taken this approach in Canada. When they do, their facilities are much smaller than traditional warehouses.

“In New York City, people want their packages the next day, or sooner,” says Bates. “Canadian consumers don’t have that mentality. We’re seeing new delivery options in the largest metro areas, but last-mile delivery is still in its infancy here.”

Getting creative with delivery

As Canadian shoppers come to expect more from their online retailers, the speed in which they get their order, and how they get their order, is motivating some retailers to pursue more extensive delivery options. In September 2016, for instance, same day delivery arrived in Toronto and Vancouver with Amazon Prime while Canadian retailer Sport Check began testing same-day home deliveries for residents in six Toronto suburbs.

Some new distribution facilities have features which facilitate online shopping. In 2015, Canada Post opened a center offering drive-through pickups and even fitting rooms where consumers can try on their clothing purchases. Similar facilities are planned for Vancouver and Edmonton. Meanwhile, IKEA has several retail-style pick-up centers on the periphery of Toronto to support local customers.

As e-commerce continues to grow in large countries with few urban cores like Canada and Australia, supply chain strategy is evolving, too.

In both nations, retailers and logistics providers are rethinking the traditional role and design of warehouses and investing in building new fulfillment infrastructure. With the focus on delivery times and costs, old methods need to be replaced with new ideas.

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