Industry Committee on May 7th, 2013

[Harley Finkelstein]

Foot in mouth, foot in mouth.

There's an app, for example, it's a real app. It's called RedLaser, which allows you to take a picture of any bar code you want and tells you where you can buy that product more cheaply within a certain geographic radius. So you can go into Best Buy, play with the camera, take a picture of the UPC bar code, and you may actually be sent to a different store to purchase it. But Best Buy is the one that's actually showing it to you.

The other thing I would say is that in terms of keeping inventory in these stores, most of these big box stores like Best Buy have a ton of inventory in them. The truth is that I want to go in there. I want to ask questions. I may want to feel the weight of the camera. But I personally don't need to walk out of the store with a camera. I may want to go on a bike ride after that. I prefer to have it show up at my door.

A company was just purchased by Google a couple months ago named BufferBox out of Waterloo, a Canadian company. What they do is that they create these boxes all over Toronto where you can basically send things to your box and pick it up using a little code. It tells you which box to go to grab it from. I think that's the future.

Now some people will still want to pick it up in store. Certainly people who are used to doing that traditionally will still want to do that. But that's why I don't think the separation between online and offline are going to stay the same. I think the “e” from e-commerce will be dropped and no matter how make transactions, that's going to be commerce—the farmer's market, trade shows, online and offline.

But because of showrooming, I think we're going to see these big box retailers looking a lot more like Rogers stores in the future, where you just go and play with one thing and then you leave.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I think it makes sense in that it gives much more flexibility to a retailer to set up a kiosk in an airport or something like that, where you might not have the big inventory that you would have in a Best Buy-type store, or something like that.

[Harley Finkelstein]

Right. Even for people who are savvy with technology, like me, still want to talk to a salesperson and ask questions about the different shutter speeds on a camera, for example. I can't always get that experience online. I may want to ask questions of a real person. I think I can do that using the showrooming techniques and I think we'll see that a lot of these big stores will actually get smaller very soon.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Right.

Go ahead, yes.

[François Bouchard]

I think what we're seeing in our industry, interestingly enough, is the manufacturers wanting to go directly to the consumers, to the end users. So if we are not part of that online business, we're going to see the manufacturers leaping over us to actually sell products.

If you look at South Korea, for example, 92% of the diapers are actually sold from the manufacturer to the end user, the family. It's a big, bulky product—something that is shipped directly from the manufacturer to the customer's house. They know exactly what size they want. They know exactly what it is. It's not fancy. It's going directly; it's not going through the retail channels. So that will have an impact.

We're seeing a lot of our manufacturers in Canada doing the same. They want to reach out to the consumer. You're seeing those smart boards where you can go on the phone and go click, click, click, click, and all these wonderful soaps and products are going to show up now at your doorstep.

So if we're not part of this online, we will be skipped completely.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I have so many questions and so little time.

François, I am going to go to a really basic question for you. Your store had been around for 50 years. You're probably in the same vintage as I am. Roughly.

[Voices]

Oh, oh!

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

What was it that initiated that transition for you guys, whereas your competitors just weren't doing it? No one in the country was doing it at the time you did. What initiated that?

[François Bouchard]

For us it was basically trying to look at the future. We were actually in a conference where they were talking about trends. They were saying that grocery shopping online would have 10% of the market share within five years. This was back in 1995. As I said before, margins are 2%. If I lose 10% of my volume, I'm done, I'm out of business. My model does not work.

So we basically did it as a necessity, and did everything we could to get there. We took students from McGill who were trying to do an end-of-year project to build a website. We basically scaled it from nothing. We ended up featuring, or sending press releases to get the media to come in. Ottawa, at the time, was the hub of JDS and Nortel and everything else. And we launched. We basically launched deliveries one day a week. We got absolutely over and done; the requests were unbelievable. But we developed something and believed in it; we never gave up.

A lot of people were saying that it was not going to work. Even our competitors, our big boys, were saying that it does not work, that it does not make sense. For us, it does. And it continues to do so. It gives us credibility. It gives us access to customers. It builds loyalty. It allows us to serve a need in the community without increasing our overhead. And that's the key. For us, it's to reach more customers, increase our revenue stream, while keeping our overhead in check. That's the motivation.

Thank you.

[The Chair, Conservative, David Sweet]

Thanks, Mr. Bouchard.

Now we'll move on to someone who probably jogs at the same vintage-specific speed that I do.

[Some hon. members]

Oh, oh!

[Geoff Regan, Liberal, Halifax West, NS]

You're probably right, Mr. Chair. I was going to say—and Mr. Hersche isn't here to see—that Mr. Bouchard looks much younger than Mr. Lake, but Mr. Lake looked a lot younger when he first got here, so he's aged a bit.

[Voices]

Oh, oh!

[Geoff Regan, Liberal, Halifax West, NS]

It comes with the job, I guess.

I'm just kidding, Mike.

Mr. Hersche, I want to talk about spectrum some more. Last week the Minister of Industry was before the committee. I suggested to him that the spectrum licensing system that he set up discriminates against rural Canadians. I asked him if he would review the policy of bundling rural and urban together. He won't.

Why should he reconsider?

[Robert Hersche]

I do believe he should reconsider for a number of reasons. So much of the very scarce resource is going to be left unused for the next 10 years if we do not use it. That's going to be the case not just in rural Saskatchewan but in rural areas across Canada.

This is a finite resource. It doesn't get used up, but it's finite in terms of how much there is. It should be reviewed in terms of making sure it's used.

Secondly, it should be reviewed, because in many rural areas, smaller companies are the ones delivering that kind of service for the rural people themselves. There needs to be a mechanism so that people who service those areas can use that spectrum and get access to that spectrum in an affordable way.

I can't bid against the prices in Toronto. My market in rural areas should not even be put into the same kinds of categories. Even Regina and Saskatoon prices should be different, because the number of people there is different from the number in northern Saskatchewan and rural Saskatchewan.

[Geoff Regan, Liberal, Halifax West, NS]

The Federation of Canadian Municipalities appeared before our committee a while ago and testified that in the absence of broadband in rural communities, economic development is significantly impeded, therefore denying those communities competitive advantages, as you would understand.

They were also critical of the upcoming 700 megahertz auction. They expressed concern about the effectiveness of the rural deployment process suggested in the requirement, they said, “as it only applies to carriers with two paired blocks of spectrum, and includes targets that are based on HSPA network footprints that were in effect March of 2012”.

So they believe the decision to use these HSPA footprints—in other words, that you don't have to expand beyond the area you're already serving—won't guarantee rural deployment, obviously.

I believe your CEO said it's a myth to suggest that this fall auction will benefit rural Canadians.

What comments do you have on this?

[Robert Hersche]

SaskTel is the only company in Saskatchewan that actually has an HSPA network in rural Saskatchewan. We are the only ones who would be obligated to provide any kind of rural service when we begin to do this. That would only be if we're able to buy the two blocks. Again, we'd like to get the two pairs, but we'd be the only service provider. All those other blocks will stay vacant for at least 10 years under the licensing concept.

There's no reason for the other service providers, once they buy that spectrum, to use it in rural Saskatchewan.

[Geoff Regan, Liberal, Halifax West, NS]

I'm asking a question now to Mr. Finkelstein.

You talked about Ireland, which I think you said has a fund for e-commerce supports. Do you think that should be adopted here in Canada? How would you change it? How much should be in it?

[Harley Finkelstein]

Again, I think it's a great idea, but I don't think it's a great idea for the reasons you may think. I don't think it's a great idea to allocate a chunk of money to encourage Canadian small businesses to move online. What I do like about it is that there's a program in place that inspires these people and shows them these case studies.

The only reason I sent these four shops out to members of this committee was to explain that these are four very different shops, all with the same course of action: they have used technology to advance their business. The problem is that 95% of retail in Canada is still happening offline—which is only decreasing—and our adoption of online retail in Canada is actually pretty slow. What I like about the program is not that they've allocated funding in order to support this program, but that they're going ahead and proactively going to small businesses and saying, “The future of retail looks very different. We, as a government, are going to give you the tools and resources to help you make that transition”. The Government of Ireland is partnering with Shopify, an Ottawa-based Canadian company. We'd love to do that here at home.

I mentioned earlier, sir, that one of the big reasons Canadians consumers don't like shopping online is shipping prices. I think we can be doing a much better job here. It's fairly ridiculous that it's cheaper for me to purchase an item from California and have it shipped to Ottawa than it is to have it shipped from Vancouver. Zappos, a very iconic retailer now owned by Amazon, pulled out Canada solely because shipping prices made it almost prohibitive for them to do free shipping—which is now a standard industry practice.

What they've done in Ireland is pretty good, but I think we can probably do better here in Canada. We're smarter than they are. But I think that inspiring and educating is something we have to do.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much

Mr. Hamilton, you talk about the back-end work that you contract out for. You joined the company just as it was starting to grow, but perhaps you can tell me how, when it was small, it managed to afford the kind of back-end setup it needed to have. I suspect it was more than $29 a month at that point.

[Jason Hamilton]

Yes, certainly.

A lot of it was outsourced to India. In the beginning, we had a team of developers in India working for us and that was where we got most of our back-end support from.

[Geoff Regan, Liberal, Halifax West, NS]

Do you want to describe what you mean by “back-end support”, the back end of your website versus the front end?

[Jason Hamilton]

Sure.

The back end of the website is the code on which the website is built, whereas the front end is the graphics you see, the experience you see, and the navigation when you click somewhere you're directed to. The back end is the foundation that all of that lives upon.

[The Chair, Conservative, David Sweet]

Thank you very much.

Thank you, Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chair.