Online spending will account for 8% of overall retail in this country in five years, but Canadians are still deterred by longstanding hurdles such as expensive shipping costs and a paucity of shopping choices, according to a new report from Forrester Research.

The agency predicts online retail spending in Canada will climb to $33.8-billion in 2018 from a level of $20.6-billion this year.

The news comes as many more bricks and mortar retailers, including those based in the U.S., set up a dedicated Canadian website or extend shipping to this country.

High-profile U.S. department store chains such as Macy's, Bloomingdale's and J.C. Penney have started shipping to Canada this year, with easy-to-understand shipping policies and prices in Canadian dollars.

Traditional bricks and mortar retailers have also been bulking up their online channels, eyeing rival Amazon Canada's entry into a slew of categories such as toys, electronics, health and cosmetics, entertainment and tools.

"Although today's online assortment still falls woefully short of that available on, things are slowly improving in Canada," the Forrester report said, based in part on an April survey of 61,000 U.S. residents and 5,800 Canadians.

Amazon ranked as the most popular online website in Canada, with 40% of those surveyed having purchased a product or a service from the company in the prior three months, followed by eBay, iTunes, Best Buy/Future Shop, Chapters/Indigo and Sears Canada.

Nevertheless, the business of online commerce in Canada still lags the U.S., with sales accounting for 5.7% of overall retail spending in Canada and 8.4% in the U.S. Canadians spend an average of $1,130 online per year compared with US$1,483 in the U.S.

A key reason for the slower growth in this market is prohibitive shipping, the report said, adding 68% of Canadians are still concerned about shipping costs when shopping online despite the efforts of retailers to lower costs or offer in-store pickup of goods free of charge.

Forrester compared the cost of shipping a six-pound box from Toronto to Vancouver, a distance of 4,370 km, using Canada Post's Xpresspost service against shipping the same parcel from New York to Los Angeles, a distance of 4,443 km, using the U.S. Postal Service's priority mail service. The U.S. shipment cost US$11.30; the Canadian shipment cost a whopping $40.63.

Our relatively lower population spread out over vast distances is partly to blame. Few Canadian retailers generate enough volume online to justify operating separate fulfillment centres on the east and west coast of the country, and are therefore "powerless to lower free shipping thresholds or offer attractively priced expedited shipping," the report noted.

That has driven 68% of Canadians to shop at international websites, said the report, which criticized homegrown retailers such as Shoppers Drug Mart, Hudson's Bay, Canadian Tire and Holt Renfrew for either failing to offer online sales or by flip-flopping on the issue by introducing a web sales channel and then closing it, confusing customers in the process.

"Frustrated at the inability to find what they are looking for online in Canada and driven by the lure of cheaper prices south of the border, these Canadians are diverting online dollars into foreign markets, which fills the coffers of foreign online retailers rather than helping domiciled ones earn the much-needed revenues to expand their businesses."

Read the original article here: Online retail sales to hit $40-billion in Canada by 2018