Nobody likes feeling like a patsy. And if you pay $145 for a pair of running shoes when you could have gotten them for $105, you’re going to feel like a patsy. Even ignoring the financial impact of paying more for a pair of shoes, there’s a visceral mix of shame and anger that accompanies the sense that somebody’s taken advantage of you. So a recent BMO Capital Markets report suggesting Canadian retail prices are 14% higher than those in the United States should be a punch to the pride of the Canuck consumer. Somebody’s making fools of us—although none of the suspects will admit it.
Different Canadian and American price tags for the same items has been a roiling issue since an at-par loonie made blatant the pricing discrepancies. Finance Minister Jim Flaherty said last fall that consumers are “rightly irritated,” while Bank of Canada governor Mark Carney has corroborated the price gap is real and substantial. How substantial? Canadians pay 17% more for books, 32% extra for lawn mowers and 14% more for diapers, according to the recent BMO report. Want to buy your kid a T-shirt at the Gap? You’ll pay $4 more in Canada than the U.S. retail price of $24.95, even when the currency exchange rate is taken into account.
In the short term, Canadian stores may be pocketing more, but the long-term effect on the retail sector is negative, as shoppers will increasingly head south for bargains. Canadian cross-border shopping has already reached a two-decade high, while shopping trips to Canada by Americans are at a 40-year low. Canadians and Americans used to cross the border in a one-to-one ratio; there are now 2.7 Canadians going stateside for every Yankee coming the other way.
Retailers acknowledge the problem but insist they’re not causing it. Diane Brisebois, president of the Retail Council of Canada, recently told a Senate committee that multinational suppliers charge up to 50% more when dealing with stores in this country, saying Canada is a smaller market and a more expensive place to do business.
But to blame big, bad multinationals for the inflated prices is too easy an answer. Many Canadian retailers have failed to pass along to consumers the benefit they’ve garnered from a stronger loonie. And there’s far less competition in this country, meaning stores have less incentive to offer lower prices. The four top retailers in Canada control 28% of the marketplace, compared with just 12% in the United States.
If there’s any sign of hope for Canada, it looks like the Target logo. Target’s arrival next year, alongside others like Nordstrom and Marshalls, could provide more incentive for existing chains to lower prices.
The government also must help close the price gap by eliminating antiquated tariffs. A retailer attempting to import hockey skates pays 18% duty in Canada but faces no duty in the United States.
Finally, consumers need to stop being patsies. When J. Crew opened its Canadian retail operation and website, fans noticed the final prices were sometimes 50% higher than in the U.S., once taxes and duties were added in. People complained they shouldn’t need to pay duty on a domestic purchase, the charge was dropped and prices went down. Sometimes “Buyer Beware” isn’t sufficient advice. Buyers must be loud as well.