Krista Gordon, a financial planner based in Alexandria, Va., shops for clothes at a number of online retailers. She is especially fond of beyondtherack.com and has used the site several times. But she was stunned to learn that the company is based in Montreal.
"I just assumed they were American," she said.
Ms. Gordon is hardly alone. Beyond the Rack, a private shopping club, reports that more than half of its revenue comes from non-Canadians, and the overwhelming majority of them are from the United States.
In 2009, its first year, Beyond the Rack pulled in about $6-million in revenue, according to the company. That grew to $50-million, then $100-million, and they are, according to chief executive officer Yona Shtern, expecting about $200-million next year. Beyondtherack.com offers discounted designer apparel to subscribers for a short period of time. Shoppers sign up to receive regular e-mails alerting them to each temporary sales event, usually lasting 48 hours.
It's no accident that a healthy proportion of beyondtherack.com sales come from the U.S. The company expressly went after a broad market. The appeal of the site, Mr. Shtern said, was the cost-to-value ratio, not where it was located. "The wide selection of categories of merchandise we offer – including 2012's explosive growth in the home goods category – combined with the outstanding daily prices we offer, allowed us to attract and retain a very broad and loyal consumer base," he said.
But that doesn't mean there weren't challenges for a Canadian company entering a retail space in which the Americans were the world leaders, and had a stranglehold on their home market. He is, after all, competing with an immense number of online retailers, including the best in the business. "The biggest challenge serving the American market is that U.S. consumers have so many choices in the online shopping world," Mr. Shtern said. "As a flash sale site we do not stock the majority of the merchandise we sell; we place demand orders with our vendors after taking customer orders on our site. This model allows us to offer exceptional pricing at some cost to delivery time. Our loyal customers are happy to pay less in exchange for slightly longer delivery times."
That model attracts many customers, like Ms. Gordon, who are more interested in getting the product they want at the price they can afford, rather than quick delivery times. "You have to wait a while on some orders," she said. "But the prices are always right."
While the fact the company is Canadian is not necessarily of great interest to shoppers outside Canada, for many Canucks it's a plus. Mr. Shtern has heard from Canadian customers who are pleased that there's a site in their country that offers the kinds of products they normally have to go to big American sites to buy. "We know that many Canadian customers are proud to shop with us because we're a Canadian company," he said.
While the conventional wisdom is that it's more costly to do business in Canada, Mr. Shtern has found the opposite to be true. "There are actually financial advantages to operating in Canada," he said, "including the fact that the lower cost of living means that the cost of attracting talent is more advantageous for us."
Domestically, Beyond the Rack takes advantage of something its big American competitors often miss. "We're a North American operation, and our U.S. competition does not ship to Canada," Mr. Shtern said, pointing out that many big American online retailers overlook the potential consumers among the nearly 35 million people who live north of the border or have decided that the potential extra revenue isn't worth the added cost and complications of sending products over the border. Beyondtherack.com faces the same challenges when dealing with American customers, but has decided that the extra revenue is well worth the effort. "One challenge is that many of the goods we sell are sourced in the U.S.; these come into Canada, then go back out to U.S. customers and we need to claim a duty drawback." When more than half of your revenue comes from the U.S., the extra time and paperwork are worth it.
But while Beyond the Rack has largely succeeded by being a flash retailer and avoiding the warehouse-full-of-stock model established by the big online retailers, that doesn't mean Mr. Shtern is satisfied with its current status. "Our objective is to be the No. 1 e-commerce company in North America," he said.
The fact that the company was named the fastest growing e-tailer in North America for 2011 by Internet Retailer Magazine, may mean Mr. Shtern is on his way to reach his objective.
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