[Shop.ca employees at work in the company offices in Toronto May 3, 2012. (Deborah Baic/The Globe and Mail via The Canadian Press)]
When Shop.ca flung itself into the e-commerce sphere, it had plans to become “Canada’s #1 online shopping destination” but after a five-year uphill battle the company has conceded, filing for bankruptcy and seeking protection from creditors until July 16 in hopes of finding a buyer.
But according to experts, things aren’t looking good.
“Once they lose their glow and they’ve got a kind of odour of desperation (buyers) would clearly want to know why they are not succeeding,” says Kenneth Hardy, professor emeritus of marketing at Western University’s Ivey Business School. “A lot of times these businesses don’t recover because they’ve lost any momentum they have.”
According to documents obtained by BetaKit, Shop.ca, which has over 1.2 million members and clocks 1 million website visitors per month, has been hemorrhaging for the past three years losing $16.5 million in 2013, $21.6 million in 2014, and $19.8 million 2015. Comprehensive losses for this year up to April 30 totaled $2.2 million. The losses add up to $72 million, which is on par with what Shop.ca raised in equity financing over five years.
The company’s CEO James Haggarty was replaced by board member Tony Chvala in January.
What went wrong?
Hardy points out that while this digital marketplace has over 450 merchants hawking 250,000 products, it seems to be short on hooks for the consumer.
“The deal was they were to sell at no more than their current Canadian prices, so where’s the value add – there’s no discount for the buyer,” says Hardy.
Steve Tissenbaum, an expert in retail management and an instructor at Ryerson University’s Ted Rogers School of Management says it’s also hard to hook merchants, especially in Canada where just 13 per cent of Canadian retailers are selling online according to StatsCan.
“They had a number of merchants tied to it but those same merchants are tied to other places,” he adds. “There’s no exclusivity.”
Even the alignment with Aeroplan offering points on purchases wasn’t enough, admits Tissenbaum.
“I don’t know that Shop.ca was delivering anything unique that was attracting people to go there, it seemed like it was Amazon.ca but small,” he says. “Any consumer can go and surf the internet and find interesting competitive pricing and product selection.”
Part of the downfall could also come from challenges with customer service and bad reviews, a pillar of the e-commerce movement.
“There’s so many bad comments about the site in terms of customer service,” explains Tissenbaum. “It was terrible from a consumer perspective, they weren’t doing the right things and it’s viral – once a business gets slammed once, twice, three times it makes it very difficult to operate.”
While the bankruptcy and potential sell-off spells a painful end to a Canadian start-up success story hopeful, it’s likely more telling of the challenging e-commerce environment in Canada in particular.
“I think this was probably difficult from the get-go,” adds Hardy.