Loonie losers

With the dollar near parity, are we getting gouged again?

Loonie losersLast week marked the second anniversary of the Great Canadian Consumer Uprising. When the loonie surged 18 per cent in the first 10 months of 2007 it exposed huge price gaps between Canadian and U.S. retailers. In some cases, even with the dollar at par, Canadians were paying 25 per cent more. Shoppers in this country, normally a docile lot, revolted en masse. Even Finance Minister Jim Flaherty weighed in, chastising stores for gouging consumers. Yet last week was remarkable in its own right. In the first 10 months of this year the loonie once again jumped 18 per cent, and like before, it’s laid bare some price gaps between Canadian and U.S. retailers. But the response from shoppers this time around? Meh.

The shifting mood highlights two crucial developments that will be key to determining how retailers fare this vital Christmas shopping season. On the one hand, stores have renegotiated with suppliers to bring down prices, helping them be more competitive with U.S. rivals. But at the same time, shoppers are simply no longer so gung-ho that they’d hop in the car and wait hours at the border to save a few bucks on books, jeans and TVs. The lack of outrage suggests consumers simply don’t care anymore, or at least, can’t afford to. With the economy in shambles, they’re not shopping in either the U.S. or Canada. And that poses an even greater threat than cross-border shopping did in 2007.

Back then the soaring loonie, which topped US$1.10, caught retailers completely off guard. (The dollar hit US97 cents last week.) So too did the outrage. “The outcry was immense,” says John Williams, a retail analyst in Toronto. Retailers claimed their hands were tied because merchandise had been ordered at least half a year earlier. They also vowed to correct the problem. But their protestations fell on deaf ears. Fed up, millions of shoppers crossed the border for better deals.

After the initial uproar, merchants stayed true to their word, say experts. Mass merchants like Zellers and Wal-Mart played hardball with suppliers and forced them to bring their wholesale prices more in line with those in the U.S. “Retailers became much more assertive and savvy about their outsourcing,” says Diane Brisebois, president of the Retail Council of Canada. Stores also began to keep money in the bank for last minute purchases should the dollar swing again, as it has now. “They all remember how difficult it was in 2007 and now we’re going through this horrible period again,” she says.

The hard work paid off, to an extent. By July the price gap for a basket of goods tracked by BMO economist Doug Porter had fallen to less than seven per cent. On some high profile products like books and cars, the gaps nearly closed altogether. So it’s no surprise that Canadians have been doing less shopping south of the border. For one thing, the rush to buy cars in the U.S. is waning fast. So far this year Canadian have brought back 85,000 cars, according to Transport Canada. That’s roughly the same number as in 2006 and a far cry from the more than 210,000 vehicles imported by this time last year.

But at the same time, the price gap is starting to show up again and has widened to about 12 per cent, says Porter. According to Johnny Dick, vice-president of business development at Wishabi, an online service that specializes in price comparisons between Canadian and U.S retailers, on some items like GPS devices the gap is now as wide as 60 per cent. Dick says U.S. retailers are suddenly paying a lot more attention to Canadian shoppers. “They’re saying, ‘There’s a population the size of California’s that’s not broke right above us, maybe we can tap into that.’ ”

The evidence of a mad rush for the border is scarce, however. Even as the Canadian dollar has risen, the number of Canadians heading south for overnight trips fell 13 per cent in August from the year before. The problem is, they’re not doing much shopping on either side of the 49th parallel. In August retail sales in Canada showed a slight increase of 0.8 per cent from the month before, but any gains came largely from higher gas prices and car sales. Excluding those, retail sales were flat. More disheartening, retail sales in August were only slightly higher than they were three years earlier. “We’re in a very different world now,” says Porter. “Consumers have been weakened, maybe not as much as in the U.S., but shoppers are pulling back.”

All of this is setting up the Canadian retail sector for a rocky Christmas season, one that experts say is the most important in decades. If retailers keep prices low and the economy improves, they may lure shoppers into their stores. But with shops across the border offering fire-sale prices just to keep their doors open, there’s the potential for the price gap to widen further. “Since it’s such a sensitive time, retailers can’t afford to be perceived as non-competitive,” says Williams. “But they have very little wiggle room left.”

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