One area where Amazon.com doesn’t have an advantage

Walmart and other retailers have fought unsuccessfully for years to level the e-commerce playing field in the United States by requiring Amazon.com and other online-only merchants to collect sales tax. Doing so would eliminate the Internet pure play retailers’ most significant competitive advantage, and for a glimpse of just how significant that would be, look no further than Canada.

The source of insights about the Canadian online marketplace came last week when Walmart held an analysts’ meeting in Toronto for its $126 billion international division. Amid all the talk of growth and key strategic priorities, the potential of e-commerce arose because Canada’s online channel is very underdeveloped relative to the United States. For example, online sales account for only 2% of total retail sales in Canada compared with 7% in the United States, according to Walmart Canada’s SVP e-commerce, Gino DiGioacchino.

“Canada’s e-commerce is somewhat of a paradox. Canada has the highest internet usage in the world. However, when it comes to e-commerce, Canada is just getting started,” DiGioacchino said.

How can that be? Turns out the answer is two-fold, and it highlights just how sizable the tax avoidance advantage is for Amazon in the United States.

“The greatest difference between Canada and the U.S. e-commerce market is our vast geography, making shipping cost somewhat of a barrier,” DiGioacchino said referring to Canada’s expansion land mass. “As well, sales tax is applied to online retailers as it is to brick and mortar. So the tax advantage that you see in the U.S. with online does not exist in Canada.”

The Canadian marketplace is so underdeveloped that it wasn’t until last year that Walmart began experimenting with a transactional site that went live in October. Today, Walmart Canada has about 50,000 items on its site and expects that figure to double by year end. It receives 40,000 store finder visits daily, and this year the company expects to have a total of 83 million visitors. Despite its early success, DiGioacchino acknowledged there is no real winner in the Canadian online marketplace. That makes it an ideal growth opportunity for conventional retailers, especially since they are not at a competitive disadvantage to operators whose core value proposition includes allowing shoppers to avoid paying sales tax.