August 22nd, 2007

 

Blurb: The risin  loonie has boosted Canadians’ living standards. But studies show that retailers have not passed all of the savings on to consumers.

 

Benefits from a strong loonie take time to trickle down

 

By Peter Diekmeyer • Bankrate.com

 

Canadian companies do not appear to be passing all of the savings that they are reaping from the stronger loonie to consumers. So says a key consumer lobby group, after comparing Canadian and US pricing on a variety of consumer goods. Businesses argue for patience, saying that those benefits do not always materialize immediately.

 

“The Canadian government recently asked retailers to reflect their increased purchasing power into their pricing structures, but that is not always happening,” says Michel Arnold, general manager of Quebec-based Option Consommateurs. “Consumers need to assert themselves more. In most cases, there is no reason that companies should be charging more to Canadians than to Americans for the same product.”

 

Option Consommateurs researchers looked at variety of random items selling at major retailers such as Toys “R” Us, Dell, Best Buy and Volvo. In all cases, price differences between the Canadian and US retail outlets were larger than the exchange rate alone might dictate. The results are in line with research results released by BMO Capital Markets earlier this summer, which showed that Canadian consumers pay on average 8% more for the same goods than US consumers do.

 

Flow through challenges

Hold on a second, says one retail spokesperson. “It is in our interest to make sure that our customers get the best pricing possible,” says, Neil Murphy, a communications official with book retailer Indigo Canada. “Many people do not realize that in the book industry it is the publisher, not the retailer that sets the prices. And since in many cases prices are printed right on the books, the best chance many publishers get to make an adjustment is during the next print run.”

 

Murphy has a point. True, some sectors of the Canadian economy seemingly operate in a country club atmosphere in which there are just a few players and no one goes after each other too hard. However the retail sector is fairly cut throat with everyone looking hard for even the most miniscule advantage they can get over their competition. If they don’t, the Internet and (in some cases), cross-border shopping, have given consumers alternatives.

 

Businesses are typically in a no-win situation when it comes to there types of arguments. When they do move fast to pass on price discounts, no one notices. But when they slip up, there’s hell to pay. For example research done by the European Commission showed no significant change European inflation after the introduction of the euro, despite the fact that opinion polls showed that the public overwhelmingly believed that prices had risen.

 

European economists theorize that the one of the reasons that what they called the “perception gap,” existed, is that the instances in which prices did rise were often publicized well out of proportion to their financial impact.

 

Consumer products and the strong dollar

In the case of Canada, our loonie has shot up from US $0.64 to the US $0.95 range during the past five years, which works out to close a 50 percent increase. That massive surge has brought untold benefits to Canadian consumers in a vast variety of areas ranging from imported cars to overseas travel. And that surge isn’t just limited to US products.

 

Many of the world’s currencies, such as the Chinese Yuan, are closely tied to the greenback, which means that the Canadian dollar has gained ground against them too. Furthermore, businesses are under far more pressure to pass on savings to consumers than they were following previous currency swings. The advent of the Internet, has made it possible for any ten-year old kid, to compare cross border widget prices online. And if there is a discrepancy, you’ll likely only hear about it if it is in the online retailers’ favor.

 

Cross-border shopping on the upswing

That said, in business perception is everything. And according to one expert, there are clear indications that consumers believe that they are being taken advantage of. “Starting last year, the number of Canadian shoppers at our mall shot up by between 35 and 50 percent, depending on the month,” says Joan Lapierre, marketing director at the Champlain Center, in Plattsburgh New York. “They come mostly for the savings, but once they are here they see that we also have many stores that don’t operate in Canada.”

 

According to Lapierre, shoes and jewelry are two items that offer the most visible savings, strong enough to entice many travelers to endure two hour lineups at the border during peak periods.

 

Though such savings may be enticing, they are clearly not enough, in most cases, to make up for the gas and travel time spent in getting into the United States and navigating the border lineups. Many of those travelers are clearly going into Plattsburgh to make a point. And if more Canadian retailers don’t get their act together soon, Champlain Mall may be soon seeing a lot more of them.

 

Peter Diekmeyer (www.peterdiekmeyer.com) is a freelance business and economics writer.

 

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