Industry Committee on May 7th, 2013

[Dan Harris, NDP, Scarborough Southwest, ON]

Also with people being on location in different places in the world, when you're talking about cellphones and connectivity, I would imagine there are fairly high roaming charges as well. Does S-Trip get cellphones locally or do they take Canadian cellphones and bring them there? Where do you find the costs are prohibitive?

[Jason Hamilton]

We do both. For the most part, if we have somebody on site who needs to be on the phone calling, they will get a local phone. If all they're doing is texting, then they will stick with their other Canadian phone.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you.

Of course when the issue came up about the costs of products and shipping and things like that, one of the barriers I know we have in Canada is that a lot of the products that are shipped here go through a U.S. distribution network so that right away gives the U.S. marketplace an advantage in terms of that shipping. I know there are many products I buy here that are $50 or $100 more just because they still go through that U.S. network before coming here.

Mr. Finkelstein, when Shopify was first getting set up, obviously you had an original business model and then it shifted. Was that because there was actually somebody there who had the technical skills and the idea and vision to push that forward?

[Harley Finkelstein]

The original business model was just to be a snowboard retailer. We basically blogged our way through building that snowboard retailer. When we got to the point of selecting an e-commerce platform, we were especially verbose in terms of our disappointment with what was on the market. So the idea to actually become a software company only happened after we built our own software to sell these snowboards, and we had all these different people from all walks of life from a small retailer in the ByWard market to people who were looking to set up a pure click online store asking us to license the code. That's when we discovered there was an opportunity.

In terms of the technical know-how, I think there is no better place to build a technology company than Ottawa. We have three amazing universities. We have more Ph.D.s here than anywhere else. So the technical know-how was easy to acquire and easy to retain despite the winters, and otherwise we haven't had any trouble on that side.

[The Chair, Conservative, David Sweet]

Mr. Harris, you're out of time.

[Dan Harris, NDP, Scarborough Southwest, ON]

Oh. Never fails, never fails....

[The Chair, Conservative, David Sweet]

I know, it goes by at blistering speed.

Mr. McColeman, for five minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Mr. Chair.

Thank you, witnesses.

An issue that was mentioned in one of the questions earlier but not delved into was the issue of counterfeiting, and suppliers who would go on the Internet.... We had the manufacturer here for Canada Goose, with a counterfeit jacket, and you could barely tell the difference.

Mr. Finkelstein, from all of the clients you have at your company, is this an issue that's discussed? How are you handling this?

[Harley Finkelstein]

Very seriously. Shopify is not a payment gateway, but we do work with 65 of the largest payment gateways in the world. We are PCI level 1 compliant, which is the highest level of PCI compliance, meaning that we do have to spend quite a bit of time monitoring it.

The way we do it is we self-assess. We have a fraud team of about six people who work at Shopify, and their entire job is just to go out and make sure that the things being sold on Shopify are proper—they're licensed properly and they're not counterfeit.

What's interesting about the Internet, though, is that a lot of self-monitoring goes on in general. If someone purchases off of us a fake Canada Goose jacket, and they figure out that it's fake, that store they bought it from will probably die a death of a hundred sorts, simply because of Twitter.

The opportunity there is that you can use social media, and you can use that technology to promote your brand to drive people to your store. But if you screw up, that same social network can also ruin your entire store.

So we do rely on the fact that, when they set up for Shopify and they sign our terms of service, they do acknowledge and they do commit to the fact that the goods and the products they are selling are not counterfeit. We also do our own checks, because we can never be too sure. It is becoming something that we are investing in as much as possible, because it's important.

[Phil McColeman, Conservative, Brant, ON]

As you describe the future, which will mean a lot of vacant real estate will be available out there—developers will want to at least start thinking about that—would you foresee the numbers of start-ups and companies...who actually would direct their strategy at just selling counterfeit? If this huge opportunity, this democratization, happens, you're going to get all players. People are going to see the opportunity to make fast money if they can sell it for $10 less.

Is this something that requires more attention in the larger picture?

[Harley Finkelstein]

It's a good question.

I have a Canada Goose jacket, and I bought it off Canadian Icons. Now, Canadian Icons is not Canada-goose.com, it's a retailer. But what I did was I went to Canada-goose.com, and there's a section that says “Find a Retailer”. I put in the URL, the domain name, of the actual retailer, and within a matter of seconds I knew that they were an officially licensed retailer.

So I think the manufacturers have a responsibility to use technology to make it better. If I put in another retailer, such as Winterjackets.com, and it came back that it wasn't an authorized retailer, I never would have made the purchase.

To use the legal maxim, there is a little bit of caveat emptor, “buyer beware”. I think that is important. Again, because you have so many more people who are online, you have more retailers and you have more consumers, the onus does need to be borne by the consumer. But I do believe that big brands like Canada Goose, in going ahead and creating a directory of who are authorized retailers to buy from—that's using technology in the right way, and that will prevent fraud.

[Phil McColeman, Conservative, Brant, ON]

Do you foresee as well, as was mentioned in a couple of answers here, that manufacturers like Canada Goose will start to focus on direct-to-the-consumer? That would imply a whole remake of the distribution system of products worldwide.

[Harley Finkelstein]

Totally.

[Phil McColeman, Conservative, Brant, ON]

You foresee that.

[Harley Finkelstein]

Yes, I do.

This past week I was with Canadian Icons—they do sell Canada Goose jackets—and my first question to them was what happens when Canada Goose opens up their own online store and goes direct-to-consumer? Their answer was that they were going to have a lot more brands. They understand that Canada Goose can go direct-to-the-consumer.

That being said, the experience on Canadianicons.ca is actually a really great experience. They don't have an online store, they actually have a curated museum. It's as if you're walking through museum halls, with the Manitobah Mukluks you can buy, and the Canada Goose jackets, and the canoes you can purchase. I like that experience, so I may always go through them.

These retailers who are opening up, they need to be very smart. Again, because this disintermediation, as you explain it, is happening, retailers need to be a little bit more savvy. Some retailers may have to create their own private labels.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. McColeman and Mr. Finkelstein.

It's 5:10. We know that we're going to have bells in five minutes. So I just thought I'd give everybody about 60 seconds if there's some message that you want to sum up this afternoon, something that you think you wanted to mention that you weren't questioned on. I know 60 seconds goes by fast, but we'll have bells and we'll have to go to the House.

[Dan Harris, NDP, Scarborough Southwest, ON]

They can always share with the clerk.

[The Chair, Conservative, David Sweet]

That's right, and thank you.

Mr. Harris mentioned a good point, that if you leave here and you think there's something that you want to inform us about, you can send that in writing to the clerk of the committee, and it will be considered along with other evidence in our study that will be at the end of this.

I'll go in reverse order, then.

Mr. Hersche, I'll give you the first opportunity. Take 60 seconds and just sum up or cover a point that's been missed.

[Robert Hersche]

Thanks very much.

Essentially, as you know from my theme, if you're going to have small business and all of these businesses joining into this kind of commerce and into the new kind of digital economy, we're going to have to find a way to make sure that there's rural infrastructure. I've given a couple of suggestions; I won't give them again. But there are ways that we can do this without going back to the tax base, by looking at the kinds of policies that are needed for rural areas, because rural policies in telecommunications must be different from what's really in the golden triangle.

Thank you.

[The Chair, Conservative, David Sweet]

Now we'll move on to Monsieur Bouchard.

[François Bouchard]

Thank you very much for the opportunity to appear.

I think there's certainly an opportunity, and I think there are a lot of SMEs like mine that can certainly take that leap. I like the fact that you mentioned inspiration. I think that is what we need. There are so many things going on, but I think there's an inspiration there that makes us better people, and certainly it allows us to compete at any level and to level the playing field with manufacturers, big retailers, big box. We certainly can compete in that space, because SMEs are creative, and that just encourages creativity. So I thank you for your work.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Bouchard.

I have Mr. Finkelstein now.

[Harley Finkelstein]

The only thing I want to say is this.

In 1866, a guy named John Wanamaker, a famous U.S. politician and businessman, created the advent of the modern-day shopping mall—1867. Basically between that time and today, retail has been pretty boring: it's been the exact same thing.

In the next five years I believe everything is going to change in retail, and that's going to be very exciting. After that it may get boring again, but the next five years are going to be a critical time for retail around the world. I think that as Canadians, we're very well set up to go with this wave. As politicians and as Canadian entrepreneurs, we should be the catalyst of this change. This is an exciting time. Despite some of my concerns, I think the next five years are going to be super-exciting for Canadian retail, but I think we have to give our Canadian small businesses a bit of a nudge.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Finkelstein.

What was that phrase? Vintage—

[Harley Finkelstein]

I don't know what you're talking about.