Digital Economy: significant changes for municipalities

The digital economy is an important source of potential growth for Québec companies, which nevertheless face many challenges.

Some companies are successful in taking advantage of the productivity gains and access to new markets offered by the new technologies. This evolving economy is nevertheless a source of concern for several Quebec businesses which must now compete with new businesses in their markets.

These structural changes have major impacts on the province’s municipalities, especially with regard to fluctuations in property tax income and regulations.

E-Commerce – Major developments for Quebec retailers

Data published in the past few months confirm that Quebecers are shopping more and more online and mainly on U.S. retailers’ sites. A recent study by the CEFRIO on e-commerce trends in Quebec revealed that 58% of Quebecers made online purchases during 2017 and 58% of these purchases were made on the Amazon website.

This increase in online sales is jeopardizing the traditional retail business model. Across Canada, e-commerce sales in the retail sector increased by more than 72% between 2012 and 2016. During this period, the most significant increases in online sales market shares were found in construction and gardening materials (+358%), home furniture and accessories (+282%), clothing items and accessories (+273%) and sports, leisure, music and library items (+206%).

Well established retail giants such as Sears or Jacob (women’s clothing) have already succumbed to these changes, which are also affecting chains traditionally seen as leaders in their field like Toys’R’Us. Other changes can be expected in the coming years, especially in sectors where e-commerce is less present now. For example, the growth of online car sales could force car dealers to review their business model, and grocery stores will be feeling increased competition from their online counterparts.

These disruptions are already having an impact on the province’s municipalities. Shopping centre stores are changing, reducing the leased surface area and turning to online sales platforms. In the near future, this will reduce the municipal tax base while their financial needs for delivering their services to the population will not be reduced. A reshaping of tax income sources can be expected to ensure municipalities’ financial longevity.

New digital players outside municipal regulations framework

The presence of new players from the digital economy is also upsetting the traditional regulatory framework of Quebec municipalities.

Airbnb, the largest housing service in the world, owns no rooms, and is now present in all of the province’s municipalities. In addition to taking market shares from traditional hoteliers, Airbnb is having a major impact in certain municipal territories. Apartments that had been traditionally occupied by residents are now being transformed into tourist dwellings. Income from lodging taxes, which support municipalities’ economic development, could be affected. Furthermore, displeased citizens are requiring regulatory changes to put an end to the continuous coming and going of tourists.

Another case that has been well publicized in recent years: the emergence of Uber in the taxi sector has caused quite a headache for political decision-makers. Regulatory changes had to be adopted in light of the growth of this business model.

Other digital players will emerge in the coming years and will definitely upset the usual business model. Municipalities will have to remain vigilant and become more flexible to deal with these disturbances quickly.

Municipal administration transformation opportunities

Digital changes are nevertheless generating interesting opportunities for Quebec municipalities. The new technological tools available make it possible to embrace the notion of a smart city, which can enhance the quality of citizens’ lives. Platforms like Facebook, among others, enable municipalities to increase stakeholders’ commitments, in particular by making it easier to share information and consult on a variety of topics.

Professional support by knowledgeable experts

When you are faced with these changes brought on by the digital economy, our experts can support you with: