Comparing the Canadian and U.S. Dollar

Canadian Consumers are Getting Less When the Dollar is Worth More

By Victoria Chau

If one were to walk into a Canadian bookstore today, one would pay anywhere from 15 to 30 percent more than if one were to buy the same item in the United States. For the past few decades, because of the Canadian dollar’s subordinate stance in front of the United States’ dollar, this mark-up on virtually everything from flat screens to even food made sense and has gone unnoticed by most of us.

But times are changing. For a few years now, the Canadian dollar has lingered around parity with the US. So why have Canadian consumers not felt the benefits of a strong currency? To put things in perspective, let’s go back a decade and analyze our dollar’s value trajectory.

Using the Bank of Canada’s online Currency Converter, it is evident that there has been a more or less systematic increase in the value of the Canadian dollar since 2000. In fact, from January 2000 to April 2003, the Canadian dollar shot-up in value from US $0.60 to US $0.70. After a year, the Canadian dollar continued to increase and its value came up just under US $0.80. As our dollar’s value was still worth less than the US’ by quite a bit, it made sense during this time that there’d be a mark-up on our items since they actually did cost more.

The next few years though, we continued to see an increase in the value of our dollar, climbing from US $0.80 to US $0.95. But despite this steady upward climb in value, Canadians continued to pay a similar mark-up to the one seen in previous years during substantially lower values.

Finally, in September 2007, we hit parity with the US dollar amid a scrambling US market; then two months later, the Canadian dollar continued to increase and hit a high of just under US $1.10.

It was at this time in 2007, that complaints from Canadian consumers began to surface in regards to unreasonably high prices despite a stronger value right here at home. It simply didn’t make sense that we were paying more for our goods when our dollar should have given us more value in return.

Then, as more Canadians began to purchase their items from online US retailers or by crossing the border itself, retailers began to announce price cuts and special discounts for Canadian consumers; larger Canadian retailers like Zellers and Wal-Mart followed by announcing cutbacks on hundreds of items to persuade Canadians to buy at home.

Following these events, and in response to the public outcry, Finance Minister Jim Flaherty claimed in a Toronto Star article to “want the market to work…[and for] prices to go down to reflect the increased purchasing power of the Canadian dollar.”

However, after Flaherty met with several large retailers to discuss the pricing issue and lobby for more substantial price-cuts, a different issue emerged regarding supply costs.

Canadian retailers claimed that they were unable to lower their prices on all goods because their suppliers were charging them more than the retailers in the United States. In fact, Liberal Industry Critic Scott Brison told the CBC that the manufacturers providing the goods to Canadian retailers are charging them up to 90 percent more than their American counterparts.

Instead of suggesting retailers to lower their prices, Brison calls for the Canadian government to re-evaluate the tariffs being charged on the goods entering the country, as the taxes and the transportation costs are causing the mark-up to remain in place.

On the one hand, it does make sense that products in Canada might be more expensive than in the United States when taking into consideration transportation costs and tariffs. After all, every business student will recall Porter’s Five Forces Model explaining purchasing power. We—as Canadian consumers of some 30 million people— have a smaller purchasing power than the Americans who have a population of over 300 million. We also have to bear in mind that some of the regional retailers in the US are actually the same size, if not bigger, than some of our Canadian national retailers. As National Affairs Vice-President of the Retail Council of Canada, Derek Nighbor, puts it, “it’s an issue of scale.”

Nonetheless, back in 2007, retailers promised that given time prices would begin to adjust accordingly to the increased value of the Canadian dollar, as many items (particularly books) are priced anywhere from six to twelve months in advance.

Yet even after three years, Canadians have seen no major difference. And as hopes that we will ever see the benefits of a soaring loonie begin to ebb, Canadians have instead turned to online shopping or have chosen to make the drive across the border, making sure to remain there at least 48 hours so as to avoid the extra custom fees.

In fact, Direct-Marketing Strategist, Paulina Sazon, has reported that thanks to the World Wide Web “the volume of shipments through the Canadian postal service’s special service for American retailers [has] increased 38 percent over the last year,” while PayPal Canada states that it sees “an average of 1200 cross-border transactions per hour.”

However, even with the threat of online and cross-border shopping, Canadian retailers have yet to pass on the gains of a strong Canadian dollar. Despite the consumer outrage in 2007, which forced retailers to concede deals (apparently these deals had an expiration tag beginning after the 2007 holiday season), consumers seem to have forgotten their anger and passively accepted the return to marked-up prices.

It seems to be a losing battle to put our hopes on the retailers and suppliers; until they realize the threat online or cross-border shopping presents to them, Canadian consumers will simply have to continue looking elsewhere for those best deals.

So to move this along, why not make yourself comfortable in front of a computer or take a small trip over the border?

ARB Team

Arbitrage Magazine

Business News with BITE

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