COMMERCE : After Shopping Around, Canadians Return Home
It may be bad news for such U.S. border towns as Blaine, Wash., or Port Huron, Mich., but it’s good news for Canadian retailers: Canadian shoppers are starting to spend their money at home again.
For the past two years, bargain-hunting Canadians have been traveling by the hundreds of thousands, if not the millions, to such unlikely U.S. attractions as Blaine to unload their cash.
The buying craze grew to such proportions that guidebooks, newspapers and a telephone hot line all appeared in Canada, offering tips on where to get the best U.S. deals. Tour operators made big bucks busing Canadians to the U.S. malls and back. One community college even offered a mini-course on U.S. shopping techniques.
“There was a torrent of Canadians crossing the border, in desperation over prices they thought were outrageous,” said Len Kubas, a Toronto retail-management consultant.
The stampede was triggered in part by a long-overvalued Canadian dollar and in part by a hated 7% value-added tax imposed in January, 1991.
In addition, certain structural features of the Canadian economy--higher unionization rates, for instance, and the use of supply controls on some farm products--conspired to make prices here higher than just over the border. In mid-1991, Toronto retailing consultant John Winter compared prices in International Falls, Minn., and Ontario’s Ft. Frances and found that almost everything cost more in Canada--some products as much as five times.
At its peak, economists said the cross-border shopping boom would flatten Canadian retailing. Alasdair McKichan, president of the Retail Council of Canada, estimates that Canadians on U.S. shopping sprees were spending more than $2 billion per year in the United States.
But the picture has changed since October. Canadians went to the polls that month in a rare, nationwide referendum on whether to amend their constitution. Amid the pre-balloting uncertainty, the Canadian dollar went into a steep descent, losing about 15% of its value against the U.S. dollar. When it finally leveled off, it was about where economists had been saying it should have been for years.
Suddenly, Canadians didn’t feel as rich as they used to when they went to the United States and the number of shopping trips they made fell accordingly. Precise statistics on cross-border shopping are nonexistent, but tourism statistics, a useful proxy, show that the number of one-day car trips to the United States fell by 10% in October. The November figure, not yet published, is expected to show a continuing decline.
Another happy indicator has been the lunging mobs of shoppers in Canadian streets and malls during the holidays. On Boxing Day, a holiday celebrated here the day after Christmas, many merchants flouted provincial laws controlling business hours, slashed prices by as much as 70% and hung out signs promising to beat U.S. prices.
As a result, one Toronto music store boasted a lineup of about 1,000 people outside in the frosty air by the time it opened; a nearby sporting-goods store experienced a shopper rampage that led to one man’s hospitalization.
“Canadian retailers have become much sharper and more aggressive in getting business,” consultant Kubas said. “We’re even starting to get cross-border shopping in reverse.”
He says he recently bumped into an American loading up on menswear in Toronto, “and he was feeling rich” as he studied the Canadian prices.
Winter, however, said that there are still plenty of distortions and inefficiencies in the Canadian economy and that if retailing here is really to bounce back, then merchants, distributors and the government will have to make deep structural changes.
“The danger is that retailers will go back to sitting on their laurels just because the dollar has lowered,” he said.
