Shoppers make run for the border
Higher duty- free thresholds draw ire of retailers who take their concerns to Ottawa.
The stakes in the battle over cross- border shopping, already a multi- billiondollar business, are about to be raised when duty- free limits go up June 1.
After years of watching Canadians line up to cross the border seeking cheaper prices, particularly with the dollar near parity, local retailers now face the prospect of even higher duty- free thresholds.
Canadian retailers are starting to fight back, pushing the federal government to investigate why businesses on this side of the border face higher wholesale prices that they’re forced to pass on to consumers to stay in business.
In March, the federal government’s budget called for an increase to the duty- free limit to $ 200 from $ 50 on stays longer than 24 hours and to $ 800 from $ 400 for stays longer than 48 hours. Previously, a person who was away for seven days or more could bring back goods worth $ 750 duty- free. The limits for visits shorter than 24 hours and for alcohol and tobacco are unchanged.
Cross- border shopping may be costing the Canadian economy as much as $ 20 billion a year, and the new limits will make this worse, Doug Porter, deputy chief economist at the Bank of Montreal, said last week after releasing a report into cross- border shopping.
“[ W] e would estimate that cross- border spending may, in fact, account for as much as 8 per cent to ten per cent of all outlays on items that can be moved across borders. If correct, that represents a real drain on domestic retail sales, employment, and government revenues; a drain that looks to deepen,” Porter wrote in his report.
It’s no wonder Canadians are heading south. The BMO report found consumers looking for the best deal often find it south of the border. The overall price gap is now 14 per cent, down from 20 per cent last year but still significant. When specific examples are used, the savings are even more striking. For instance, the BMO report found that running shoes that cost $ 145.99 in Canada would sell for $ 106.73 in the U. S., while a lawn mower that sells for $ 479 in Canada retails for $ 361.51 south of the border.
All those great deals combined with the new limits will likely mean an increase to the 50 million annual visits to the U. S. by Canadian residents, Porter said in his report.
Retail appeals to Ottawa
That has retailers in Canada concerned and looking to their industry associations to fight back.
“I think retailers, especially in this soft economy that we’re in, are concerned and are looking for ways to keep consumers here,” said Anita Patil Huberman, CEO of the Surrey Board of Trade. “It’s an ongoing concern, but the reality is when Minister Flaherty announced the new limits in his budget, I think it came further to light how Canadians could go across the border and save money.”
Dave Wilkes, senior vicepresident of the Retail Council of Canada, said his organization has expressed concerns around four key factors — tariffs, supply- managed products, harmonizing regulations and country pricing — to the Senate banking committee, which is expected to report this year on the causes of the persistent price gap between the countries, despite near parity in the value of the U. S. and Canadian dollars most years since 2007.
“All of that and the increased exemptions make it more attractive for Canadians to shop south of the border, particularly for day- to- day staples,” Wilkes said.
“It used to be that the trip down to the U. S. was an adventure, but now we’re seeing more and more day trips and people stocking up on eggs and dairy.”
Wilkes acknowledged that while there is still no official exemption for trips less than 24 hours, enforcement is lax.
“So there is a double issue — the exemptions are increasing, which is making people more aware of cross- border shopping and then when they do go back and forth there is not enforcement,” Wilkes said.
Grocers are particularly hard hit because staples such as eggs, cheese and milk are often significantly cheaper in the U. S. because Canada takes a different approach to subsidizing farmers that artificially increases prices on those items, Wilkes said.
Calling government support of cross- border shopping a “disturbing trend,” John Scott, president and CEO of Canadian Federation of Independent Grocers, said the government needs to take a close look at policies such as supply management or taxation of gasoline to create a level playing field.
“The businesses on the border are concerned,” Scott said. “We offer some of the safest food in the world, our nutritional content is incredible and our food safety standards are amazing, and we offer them in very comfortable shopping environments.
“So yeah, you get a little bothered when people say I’m going over for just [ a lower] price on certain products. I would argue that the Canadian consumer should take another look at how well- served they are in the Canadian market.”
Ken Oplinger, president and CEO of the Bellingham- Whatcom Chamber of Commerce, said many people from the Bellingham area look to Vancouver for both entertainment and shopping, and that harmonizing the duty- free limits between the two countries makes sense. But he remembers it wasn’t that long ago that a 63- cent Canadian dollar kept Canadians at home, forcing many Bellingham businesses to close.
“Right now, almost every variable is in favour of U. S. retailers over Canadian retailers, but long- term I don’t think that will continue. We’ve seen it fluctuate over the years and I think that tension will return at some point,” Oplinger said.
Both Oplinger and Scott said there are different costs in Canada due to many factors such as packaging and labelling requirements, our smaller population and the cost of distributing goods.
Scott said he isn’t aware of any border- region businesses offering any special deals to entice consumers to shop at home.
“You always put your best offer forward and margins in this industry are already razorthin,” Scott said. Individual stores were reluctant to speak specifically about cross- border shopping, and those contacted referred The Sun to the CFIG and the Retail Council of Canada.
Oplinger said he doesn’t think cross- border shoppers are going south to visit specific stores for specific deals.
“When we see changes in exchange rates or rules, we don’t usually see specific retailers responding because for the most part, Canadians are not responding to specific retailers, they’re responding to what the atmosphere is here as a whole,” Oplinger said.
Huberman said retailers need to work hard and be very creative to keep their customers.
“There is a tendency for consumers to look for the best deal possible,” Huberman said. “The main thing for businesses to focus on is being very creative when it comes to marketing their product or service and driving their business, especially in the retail sector with coupons, liaising collaboratively with business networks, and signage, those types of things.”
The view from Surrey
Huberman’s organization, the Surrey Board of Trade, is so concerned about the loss of business to the United States, they are working on a resolution with other chambers of commerce in border cities asking the federal government to research why Canadian retailers pay higher prices than their counterparts in the U. S., Huberman said.
Canadian retailers pay as much as 50- per- cent- higher wholesale prices from their suppliers, so have to charge their customers more, but that the reasons why are not wellunderstood, Huberman said. The resolution this fall.
“The Canadian dollar has really remained at par with the U. S. dollar for many years, but retailers pay up to 50- per- cent more for the same products: gas, cheese, milk, those types of things. I don’t know why,” Huberman said. “We say the federal government needs to take a look at this seriously and research why Canadian retailers pay that much more for milk and butter and that type of thing than a U. S. retailer.” Her organization would like to see the government restrict products like dairy products from cross- border shopping exemptions.
“That would keep consumers here in Canada, but it has to be side by side with the federal government researching why Canadian retailers pay so much more,” Huberman said.
With the federal government announcing cuts to Canada Border Services Agency and increasing the personal exemptions for cross- border shopping, it’s possible there will be longer waits at the border, Huberman said.
Some cross- border travellers won’t have longer lineups; U. S. Customs and Border Protection announced this week the expansion of the NEXUS program to the Sumas, Wash. border crossing, beginning May 25 and operating from 7 a. m. to 7 p. m. every day. The NEXUS program allows pre- screened, low- risk travellers a dedicated border lane to bypass lineups.
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