Before planning international expansion, DTC brands use Canada as a testing ground

DTC company SmileDirectClub is taking its first steps to sell internationally, and it’s starting close to home, with Canada.

The company, which sells invisible tooth braces online and in 206 stores in the United States, began opening SmileShops — places where people can come get custom fittings — late in 2018 across Canada.

By May, the company plans on having 20 locations throughout the country, with the majority in Ontario. By the end of 2019, it hopes to push into two other countries, declining to say which ones.

It’s a common trajectory for brands looking to grow internationally, opting to start in the friendlier business climate of neighboring Canada and learn from that before expanding elsewhere. They’re doing this selling online, opening physical stores or pop-ups and launching wholesale partnerships.

In February, DTC underwear company Thinx will launch its second international wholesale partnership with Canadian retailer Drake General Store, said Siobhan Lonergan, chief business officer of Thinx. Other brands planning to venture into Canada this year include home décor company Horne. It will begin selling online to areas in Canada for the first time, and is in the beginning stages of working through the logistics, said Ryan Walker, CEO of Horne.

Shoe brand Allbirds began experimenting with a pop-up store in Toronto last year, and is planning on putting up a permanent location in the future as it plots its international expansion, said Travis Boyce, head of global retail operations for Allbirds. 

For many, Canada provides a safe, easier first step in charting international growth.

“[Canada] is a natural first country to expand into after you’ve created some presence in the U.S. It lends itself in a viable way,” said Alex Fenkell, co-founder of SmileDirectClub, who said Canada’s proximity to the U.S., the same use of the English language and consumer demand in the country as the main reasons for choosing the country as the first step in the company’s international expansion.

Companies are quick to say that consumer demand is what brought them to the country and while that might certainly be true (Thinx said Canada is one of its top-five markets), experts say it’s also just as much about testing diverse audiences before expanding overseas into Europe or Asia. In the city of Toronto alone, 51 percent of residents were born outside of Canada, and the population speaks over 180 languages and dialects, according to Toronto census data.

Toronto also has a tax rate 13 percent lower than most U.S. cities, the Canadian government offers funding and grants to startup founders to cover development costs and Google, Facebook, LinkedIn and Wattpad all have headquarters there. Over the years too, Toronto, home to over 2.9 million people, has emerged as a tech hotspot, with plenty of ad tech, media companies and ad agencies moving in. There’s also close proximity to Shopify’s headquarters, the service popular with DTC companies to power their e-commerce businesses. 

“It’s a test city,” said Bruce Winder, Canada-based retail expert and co-founder of freelance retail talent marketplace Retail Advisors Network. “It’s so diverse. Before building out to other countries in Asia or in Europe, brands can see how audiences from those nations react. It’s like learning how to ride a bike — you have to start with training wheels.”

Walker said Horne is planning on opening up fulfillment centers in Canada when it begins selling there in 2019. He said that since Canada is such a concentrated country, it’s much easier to reach more of the population with one fulfillment center than it is in the U.S.

“Ontario is over 33 percent of the population of Canada, so if you wanted to have a fulfillment point in Canada, setting one up in Ontario would make great sense,” said Walker. “Closest comparable example in the U.S. would be California, which has 12 percent of the country’s population.”

DTC companies now expanding into Canada are also taking notes from early successes in the DTC space. Bedding DTC company Casper was early to the Canadian DCT scene and began selling in the country in 2014, and glasses DTC company Warby Parker launched its first Toronto store in 2016. Shampoo DTC company Function of Beauty began selling in November 2017, before growing to the U.K., Australia and New Zealand, and sees 10 percent of sales coming from Canada, according to Zahir Dossa, CEO and co-founder of Function of Beauty.

“Canada was a great testing ground,” said Dossa. “We were still a pretty small company and hadn’t yet worked out how to go international. We were able to work out drop shipping to a new market, and marketing and selling to a different group of consumers.”

Nicole Tapscott, gm and vp of Canada for Casper, said the company took lessons from its Canadian presence and applied them to selling abroad in Germany, Austria, Switzerland, and the United Kingdom in 2016. Casper now operates two stores out of Toronto and sells in Indigo, EQ3 and Hudson’s Bay. Last month, it launched its first headquarters in the city.

“The Canadian market holds tremendous opportunities for brand expansion. It’s big, diverse and has high density,” said Tapscott. “It has mirrors to the rest of the world.”

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