FedEx’s Canada Expansion Will Benefit From Growth in E-commerce

FedEx Express Canada Ltd, a subsidiary of FedEx Corp (NYSE:FDX), recently announced an agreement with Home Hardware Stores Limited wherein individual dealer-owners of Home Hardware Stores may house FedEx Authorized ShipCenters. ^[1] These ShipCenters offer FedEx the opportunity to expand its retail footprint across Canada and benefit from the country’s growing e-commerce industry. The agreement is the largest retail expansion FedEx has ever attempted in Canada.

Home Hardware Stores Limited is the largest dealer-owned hardware, lumber, building materials and furniture cooperative in Canada. The agreement allows FedEx to open mini hubs in the 1,100 Home Hardware stores in Canada offering a full variety of FedEx’s domestic and international shipping solutions. However, the decision to house these shipping centers solely lies upon the discretion of individual dealers–owners. Considering that a pilot program run in a Home Hardware store in Kitchener, Ontario, has been well received by customers, FedEx expects to roll out around 100 shipping centers in its initial launch.

Many customers are unable to receive packages at their homes during the day due to work obligations. FedEx’s Authorized ShipCenters in Canada will offer such customers the flexibility to be able to collect or drop packages at these outlets situated at convenient locations. If the deal works out as expected, FedEx will be in a better position to compete with Canada Post, which has similar arrangements with convenience stores such as Shoppers Drug Mart and Jean Coutu across Canada. Presently, FedEx has around 1,200 outlets in Canada, ^[2] compared to Canada Post’s 2,500 locations in the country. ^[3]

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Growth In Retail E-Commerce In Canada Will Help Boost Package Volume At Fedex

In 2013, online retail sales in Canada generated C$20.6 billion in revenue, growing around 35% since 2010. Forrester Research forecasts that online retail sales in Canada will grow to C$33.8 billion by 2018 driven by the increase in the number of retailers, national and international, setting up Canadian websites and offering shipping facilities to the country. ^[4] E-retail giant Amazon recently entered the Canadian market with its new website with a Canadian domain (website ending with .ca). Stores like Macy’s, Bloomingdale and J.C. Penney have started offering shipping to Canada. Online retail sales will also be driven by the growing internet usage in Canada. According to the World Bank, 87 out of 100 people in Canada have access to the Internet, compared to 81 out of 100 in the U.S. ^[5] With an increased presence in Canada, FedEx will be in a better position to cater to the increase in online retail sales and benefit from the increase in volumes.

Online retail sales in Canada are tempered by the cost of shipping, the breadth of products and deals. According to a report by United Parcel Services (NYSE:UPS), high shipping costs is the primary reason why Canadians avoid shopping online. ^[6] Shipping a package by Canada Post costs roughly four times in Canada compared to shipping a package of same weight across a similar distance via the U.S. Postal Service in the US. ^[7] Shipping costs in Canada are so high because of the lack of volume of sales and vast geographic distribution of relatively lesser population. Such conditions do not allow retailers to take advantage of scale and reduce shipping costs. However, FedEx may leverage its broader network in Canada and vast international presence to offer lower shipping costs to retailers, who may then be able to pass on the cost benefits to their customers. Offering lower costs will attract more retailers to use FedEx services, leading to an increase in FedEx’s market share and package volume in Canada. The increase in volume should be able to offset lower revenue per package, resulting in higher revenues for the company from the region.

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1. FedEx to Expand Retail Presence Through Home Hardware, April 23 2014, www.fedex.com [↩]
2. FedEx Express Facts – Canada, www.fedex.com [↩]
3. FedEx takes page from Canada Post playbook with new locations at Home Hardware, April 23 2014, www.therecord.com [↩]
4. Canadian Online Retail Shifts up a Gear, eh?, July 24 2013, www.forrester.com [↩]
5. Internet users per 100 people, www.worldbank.org [↩]
6. UPS: Pulse of the Online Shopper, September 2013, www.ups.com [↩]
7. Online retail sales to hit $34-billion in Canada by 2018, July 23 2013, www.financialpost.com [↩]