How online shoe retailer Shoes.com took the Canadian market by storm
Last year, 76 per cent of Canadian households shopped online, according to Canada Post. And about one-quarter of them are buying from e-commerce sites between four and 10 times a year.
And it seems that where logistics problems forced U.S. giant Zappos to scrap its attempt at online shoe sales in Canada in 2011, Shoes.com has been growing at 300 per cent year over year. Annual sales are $300 million with a target of hitting $1 billion by 2020. Sales on Cyber Monday alone surpassed $5 million.
It’s been a long time coming, said Hardy, who started Coastal Contacts in his basement 15 years ago. “If something is a great experience, it moves forward. If not, it doesn’t go anywhere. E-commerce in Canada has been held back by the border slowing shipments from U.S. suppliers into Canada. Canadian retailers have been slow to adopt because they haven’t been pushed in that direction.”
Andrew Dooner, a director in KPMG Canada’s retail practice agrees. “In some ways, Canadian retailers have been shielded from competition, because it’s only recently that U.S. retailers have been selling digitally here.” He also said Canada’s market size creates logistics challenges — as experienced by Zappos, for example. “Outside of a few major urban centres in Canada, it’s difficult. You just don’t have the density of demand and the level of maturity of the distribution network isn’t there.” Difficult but not impossible.
An unsolicited bid for Coastal Contacts at 2.5 times revenue made sense to shareholders and left Hardy and his sister and family, who owned about 30 per cent of the business, considering what to do next. They were thinking about setting up an investment fund when Sean Clark, a former manager at Coastal Contacts, asked for Hardy’s help with ShoeMe.ca, a fast-growing business Hardy helped fund in 2012.
“I don’t think I knew how much opportunity there would be,” said Hardy, who, together with a group of Canadian investors, purchased Vancouver-based ShoeMe.ca and Seattle-based OnlineShoes.com in 2014. At the time, the companies had total revenues of $200 million ($30 million from ShoeMe.ca and $170 million from OnlineShoes.com). The plan is for the two to consolidate under one brand: Shoes.com.
“In the U.S. and other markets, about 10 to 15 per cent of footwear is being bought online. In Canada, we’re still at about two to three per cent,” Hardy said. “That tells us there is a $500 million to $600 million opportunity for the leader in this sector over the next five years.”
“[Canadians] could not get all the sizes and styles available in the U.S. and certainly not with an efficient delivery system,” he said.
Shoes.com sells leisure and fashion footwear brands that are often not available in Canada with short delivery times, typically three to five days versus seven to 14. The company boasts a 250,000 sq. ft. warehouse in Ohio with the styles and sizes of a thousand shoe stores and more than 10 times the selection of any major shoe retailer in Canada.
A lesson learned at Clearly Contacts is coming in handy at Shoes.com. “We mastered logistics, neutralizing the border. We ran dedicated line hauls. We used algorithms tied to Canadian border and customs so officials knew which products were coming in advance allowing our trucks to drive straight through, as if moving from state to state as opposed to country to country.” In major cities delivery can take place within two hours. For example, in the greater Toronto area the company has access to a 50,000 sq. ft. warehouse in nearby Mississauga, Ont., as well as a network of other suppliers.
To accelerate adoption and build greater visibility, just as Clearly Contacts did, Shoes.com is opening bricks-and-mortar locations. The first launched in Toronto in December and will be followed by locations in Vancouver, across Canada and in the United States in early 2016.
“They won’t be traditional retail stores. We’ll feature one brand a month in each store. So representatives from New Balance, Merrell, North Face or Columbia, for example, will be at stores to educate consumers about the type of activity the product is best suited for and what makes them great. We’ll also be introducing customers to up and coming brands from around the world. We’re going to elevate the experience for customers by letting them see and feel the brand in a way they can’t online but then let them know how easy it is to order online.”
KPMG’s Dooner sees this as a logical evolution as retailers rethink the role of their physical footprint. “Where bricks and mortar as a quasi warehouse may be dead, it does have a role as a marketing mechanism to help grow the business and create a more engaged experience with customers.”
Hardy has also been adding to the brand. Shoes.com recently acquired California-based sock and underwear brand Richer Poorer, which will be featured in bricks-and-mortar stores and Hardy is looking for other fast-growing accessory brands.
This month, the Toronto location features Hardy’s eponymous brand launched about a year ago, as well as Canadian brands such as Herschel and People. The Hardy Design Works collection is proving to be a hit. With 40 per cent sell through in three weeks this fall the line is on track to sell out by Christmas. http://business.financialpost.com/entrepreneur/how-online-shoe-retailer-shoes-com-took-the-canadian-market-by-storm?__lsa=758b-bc51