Canadian retailers should lower prices ‘as soon as possible’: Flaherty
Last Updated: Tuesday, October 23, 2007 | 10:31 AM ET
CBC News
Federal Finance Minister Jim Flaherty urged Canadian retailers to lower their prices in wake of the strong loonie, but placed some of the responsibility on consumers to seek better deals.
“There is power to shopping around,” Flaherty said following a meeting with wholesalers and retailers about the price gap between Canadian and U.S. prices on some products.
“Consumers also have a responsibility. If they don’t think they are getting a fair deal, they should compare prices and shop around.”
Flaherty said his message to retailers was clear — that with the Canadian dollar at par with the U.S. dollar, distributors, wholesalers and retailers should reduce their prices for Canadian consumers “as soon as possible.”
“There should not be large discrepancies between similar products just because they’re being sold on different sides of [the] border,” Flaherty said.
Flaherty said he understood the reasons provided by retailers for the price discrepancies. He said retailers told him there are lag times with respect to inventory that was priced before the dollar reached par and they also said Canadian retailers face additional expenses, including higher freight costs and translation costs.
He said the dollar has been on an upward trajectory for a while, and businesses have had time to adjust.
Critics have urged Flaherty to re-evaluate high tariffs retailers must absorb, saying sticker prices won’t reflect the strength of the loonie without active government intervention.
Won’t intervene
But he reiterated the government would not intervene.
“As minister of finance I can only encourage the retail industry to let the market work. And if the market works, prices should go down.”
Liberal industry critic Scott Brison, who met with retailers on Tuesday, said Flaherty’s criticism of retailers is unfounded and noted that suppliers must shoulder some of the blame for the price difference.
“I have a list in front of me of some of the manufacturers providing goods to Canadian retailers, and in some cases the prices are 90 per cent higher than what they’re charging U.S. retailers,” he said.
Brison called on Flaherty to review high tariffs retailers have to absorb, noting that while some larger operations can afford to lower their prices, smaller companies cannot.
“[Flaherty] is blaming mom and pop retailers for what is a much more complex issue,” he said.
Canadian Auto Workers president Buzz Hargrove said Tuesday that North American automakers are expecting to bow to consumer pressure and lower prices, though he said the Big Three — General Motors, Ford and Chrysler — can’t afford deep cuts.
“Unfortunately, I don’t think the automakers have an alternative, given the publicity and given the pressures that are out there,” he said.
“Remember, BMW is one of the most successful, high-profit manufacturers in the world, whereas … Ford lost $12 billion last year. That’s a substantive difference in the argument, but I do believe they’ll still be forced to lower their prices.”
Retailers cite size, duties as reasons for price gap
Derek Nighbor, national affairs vice-president of the Retail Council of Canada, which represents 40,000 retailers, said retailers called for the meeting in part to educate the minister about the complexity of pricing structures in Canada.
Prices have failed to drop, he said, in part because of high duties the retailers must absorb. Nighbor also notes that Canada’s size means it has less purchasing power than the United States.
“As far as the global economy goes, we’re pretty small players still. Even some of our largest retailers in Canada couldn’t compete with the size of a regional retailer in California, for example. So it’s an issue of scale,” he said.
Canadian shoppers find deals
Many Canadian consumers have complained that Canadian prices are about 20 per cent higher than in the U.S. In a CBCnews.ca forum, many shoppers said they have found significant savings by travelling south of the border for a range of items including GPS navigation systems, car seats, cars and books.
“The Canadian market has not been price competitive with the U.S. since 2003,” Bob Kay of Midland said in the forum.
“I just bought my first American (but Japanese) car brand new and am really enjoying driving it, especially after knowing everyone else paid $45,000 while I paid $33,000 for the exact same thing!”
Nighbor acknowledges the price gap but says a grim economic forecast has helped keep U.S. prices artificially low.
“U.S. retailers have been slashing prices and bleeding margins just to hang on to any degree of market share because of all the economic issues and the fear that they’re heading into a recession,” he said.
Anna Wallner, host and producer of the show The Shopping Bags, said the deepest discounts can be found in border towns. She strongly encouraged shoppers staying north of the border to negotiate prices.
“It’s always OK to ask for a discount, and now more than ever it’s important to wear your smart negotiating hat,” she said.
Last week, two of Canada’s biggest retailers — Wal-Mart and Zellers — announced they were dropping prices on some goods to reflect the loonie’s rise. In September, Porsche announced they were lowering their prices in Canada by an average of about eight per cent on its 2008 models to better reflect the loonie’s strength.
With files from the Canadian Press
Flaherty calls on distributors to reduce prices
Updated Tue. Oct. 23 2007 9:35 PM ET
CTV.ca News Staff
Finance Minister Jim Flaherty said distributors and retailers should lower prices “as soon as possible” to reflect a soaring Canadian dollar, and held up a copy of the latest Harry Potter book as an example of how some items are still much cheaper in the U.S.
Flaherty’s comments followed what he called a “frank and open discussion” with industry members Tuesday.
“My message was clear: now that the Canadian dollar is at par with the United States dollar, I strongly urge Canadian distributors, wholesalers and retailers to reduce prices for Canadian consumers,” he said.
Flaherty said he looked at a copy of the recent Harry Potter book in Washington this past weekend, which was selling for US$29.74 before tax. He came back to Ottawa and purchased the Canadian version, which was $36 before tax.
“It’s a price difference of more than 20 per cent. And the actual price, as printed on the covers, is $45 for the Canadian version and $34.99 for the American version,” he said.
Harry Potter is distributed in Canada by Vancouver-based Raincoast Books, and Scholastic in the U.S.
The Canadian dollar closed the day at 103.51 cents US.
“Retailers tell me that there are lag times with respect to inventory that was priced before the dollar reached parity,” he said.
“They told me there are also additional costs, which is accurate, for doing business in Canada, such as higher freight costs, additional costs for translation, and higher brokerage tariffs.
“I appreciate that, and I understand that prices cannot be lowered overnight, and that Canadian and U.S. prices may never be identical because of some of those unique differences. But the Canadian dollar has been on an upward trajectory for several years now, and there has been a significant period of time to adjust.”
Representatives from Wal-Mart Canada, Hudson’s Bay Co., Toys R’ Us, Staples Inc. and Forzani Group Ltd. were all in Ottawa to meet with Flaherty.
Wal-Mart Canada said that the company had its “best-ever year of price reductions.”
In a press release, the company said it has been negotiating with suppliers for more than a year to have wholesale prices better reflect the strengthening Canadian dollar.
“Canadians are not satisfied, Wal-Mart Canada is not satisfied, and negotiations continue,” Mario Pilozzi, Wal-Mart Canada’s president and CEO, said in the release.
“We are the agent for our customers, and will continue to work proactively with suppliers to negotiate lower prices. We are committed to turning our negotiations into many pleasant surprises for our customers between now and the New Year.”
On Friday, Hudson’s Bay Co. announced it would reduce prices on items at nearly 300 Zellers discount department stores.
Additional factors
Still, some industry experts note that the exchange rate is only one factor on the price differentials between products sold in Canada and the U.S.
John Williamson, federal director of the Canadian Taxpayers Federation, sent a letter to Flaherty yesterday arguing that price parity is impossible.
“Our economy has more costly regulations and higher taxes and until this is changed, Canadians cannot expect price parity with the U.S., which has a more dynamic, lower taxed, less regulated and therefore less costly market,” Williamson wrote.
“Canada cannot have radically higher minimum wages, higher business taxes and more costly regulations and suppose prices will be the same on both sides of the border.”
Williamson told CTV Newsnet on Tuesday that Crown corporations and “government monopolies” should be held to the same standard as Canadian retailers.
“It’s not the private market that sets the toll fares across the Canada-U.S. borders, which are still charging much more in Canadian dollars,” Williamson said.
“I haven’t noticed prices coming down at the liquor monopolies and Canada Post just increased its price of mail going to the U.S. despite the huge increase in the loonie.”
Williamson said the Canadian economy remains much less efficient than the American economy due to “costly imputs” imposed on businesses by the government that weren’t noticed when the dollar was lower.
“Mr. Flaherty’s position would be strengthened immensely if he said, for example, we’re going to cut employment insurance taxes right away for employers to allow them to pass these savings on to consumers. Lead by example and then he can go out and beat up some of the retailers,” Williamson said.
Economists estimate that Canadians may be paying as much as 20 per cent more than Americans for similar products sold in the U.S.
Some U.S. auto retailers and Bombardier dealers have been told not to sell to Canadians, in order to protect dealers north of the border.
Canadian Auto Workers president Buzz Hargrove said Tuesday that dealers will be forced to lower prices if consumer pressure remains strong.
With files from The Canadian Press
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20071023/retailers_loonie_071023/20071023?hub=TopStories
http://www.cbc.ca/canada/story/2007/10/23/retailers-flaherty.html
