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Click-and-Mortar: The Digital Transformation of Canadian Small Businesses

The digital transformation has revolutionized the way businesses operate and how consumers shop. Operating in this new reality means Canadian small businesses are expected to adopt and use new technology to connect with customers while also navigating the challenges of a complex economic situation that includes such stressors as inflation, high interest rates and increased debt loads.

Given their prevalence in the economy, it’s important to understand the unique situation small businesses are in and how they are adapting to the rapidly evolving digital and technological landscape. In  A Portrait of Small Business in Canada: Adaption, Agility , All at Once, a new report from the Business Data Lab (BDL), we took a deep dive into tech adoption and going digital and how small businesses can respond to changes in consumer shopping habits.

An Overview of Small Business

Despite representing 98% of Canadian businesses and employing two-thirds of the Canadian economy, the portrait of small business remains largely murky. In the report, BDL created three more detailed subcategories of small businesses (micro, scale and mature), revealing that the experiences of small businesses vary significantly.

  • Micro: ¬†businesses with 1-4 employees.
  • Scale: ¬†businesses with 5-19 employees.
  • Mature: ¬†businesses with 20-99 employees.

If all businesses in Canada were sorted by employment size, the median firm would have fewer than five employees, underscoring the importance of improving our understanding of the business realities of all small firms, but especially micro.

Consumer Shopping Habits

While many people believed the importance of physical stores might diminish because of the pandemic and the surge in online shopping, Canadian shoppers headed back to stores almost immediately after restrictions were lifted. A majority (75%) reported that they visit physical stores for items such as groceries, clothing, automotive, electronics, home and garden, and health products.

Even so, many products remained popular for online purchasing. Electronics, entertainment and children/baby toys and games had the highest shares of online spending and Canadians reported a strong preference to purchase vacation and travel-related products and services, event tickets, and government services via either mobile or computer. Notably, these online preferences apply in several industries where small businesses are highly concentrated/

Further driving home the importance of small businesses having an enticing online commercial presence, 83% of Canadian retail shoppers reported that they conduct online research before they visit a store and 8% shopped online from a retailer with a physical location nearby.

The traditional, physical, in-person marketing strategies that once filled the pipeline firms use to build their customer bases and promote their products now require supplemental advertising channels. For example, a third of consumers prefer to receive a retailer’s promotional information by direct mail but 66% prefer email.

Click-and-Mortar: The Digital Transformation of Canadian Small Businesses
Image courtesy ‚Äď canva

To effectively capture the attention of potential customers during the research phase of purchasing ‚ÄĒ and ultimately drive more foot traffic to their stores ‚ÄĒ small retail businesses need to invest in their online presence and visibility, maintain accurate and engaging digital information, and actively manage and grow their online reputations.

Digital Adoption

Despite the extreme disruptions caused by the pandemic, small businesses still managed to increase their adoption and incorporation of technology. In fact, small businesses of all ages and industries invested in technology that allowed them to better access data and applications from their computers, tablets, or mobile phones to increase their connectivity with their customers and employees, whether in the office or on the road.

Click-and-Mortar: The Digital Transformation of Canadian Small Businesses
Image courtesy ‚Äď canva

When examining the digital adoption data for small businesses by age and industry some interesting trends became visible. At the peak of the pandemic in 2021, a higher proportion of small businesses that have been operating for more than 20 years adopted collaboration tools such as Zoom, Microsoft Teams and Slack. Small businesses that have been operating for more than 11 years reported investments in cloud and on-demand computing services as well as security software tools including anti-virus, anti-spyware, anti-malware, and firewalls. Statistics Canada data also shows that small businesses increased their expenditure on cybersecurity prevention and detection by, on average, $9,000 more in 2021 than 2019.

These findings are encouraging since they show that small businesses are adaptable and agile and are taking measures to counteract their increased vulnerability and susceptibility to cyberattacks, a risk of the accelerated shift online.

Small businesses in finance and insurance, information and culture, professional services and wholesale trade industries were consistently among those reporting the highest adoption rates. Between 40% and 80% of scale and mature firms invested in cloud computing, collaboration, or security software tools. This was significantly less than their integration of technologies such as task automation, artificial intelligence and machine learning, and digital technologies to move their business operations or sales online, where adoption averaged 5% to 10%.

Interestingly, data by ownership show a clear trend: 40% or more scale and mature firms owned by members of LGBTQ2+ communities and persons with a disability invested highly in cloud computing, collaboration or security software tools and technologies. Approximately half or more of mature businesses owned by women, immigrants and visible minorities reported adoption of collaboration tools.

Not only is adopting AI and digital technologies important for the everyday operations and cybersecurity of small businesses in Canada, but it is also linked to productivity, and the more productive small businesses are the more productive our economy will be overall and the better the standard of living of all Canadians.

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