By Francine Kopun | Moneyville – Wed, 16 May, 2012 8:12 PM EDT
Canadians will flood the U.S. border this summer to shop in numbers not seen in two decades, according to a BMO Capital Markets report released Thursday.
“Canadians will flock to Maine, Michigan and Minnesota en masse, as well as the border states of New York, Washington and New Hampshire,” wrote BMO deputy chief economist Douglas Porter.
Porter predicts the shopping trips will start June 1, when new, higher, duty-free limits announced in the federal budget kick in.
The duty-free limit for stays of more than 24 hours will be boosted to $200 from $50. Limits for visits longer than 48 hours will be increased to $800. The previous limits were $400 for a week and $750 for more than a week.
“Of course, the shopping allowances would not be an issue if there wasn’t a compelling lure for Canadians to cross the border,” Porter wrote in his report.
“Our latest random sampling of a basket of goods finds that Canadian retail prices are roughly 14 per cent above U.S. levels, before taxes and adjusted for the exchange rate.”
Higher retail prices in Canada have been a sore point with shoppers since the dollar reached parity with U.S. The grumbling began over books but spread as more U.S. chains began opening in Canada, charging more for the same merchandise sold in the U.S.
Porter has been compiling figures on the price differences between the two countries for five years.
He said that while there has been some improvement in the differential lately, he still found a 37 per cent price gap on a sample of five running shoes, an 11 per cent gap on a sample of seven cars and a 17 per cent gap on a sample of four magazines.
Canadian retailers are fighting back.
The Retail Council of Canada (RCC) recently told a Senate committee looking into the issue that Canadian retailers face higher tariffs for finished goods from Asia and are charged more by suppliers, contributing to higher prices for consumers.
Dave Wilkes, senior vice-president of the RCC, said Canadian retailers have been attending town halls to discuss how to handle the situation.
“These are people who have put their heart and soul into their business,” he said.
MPP Mike Colle said retailers and manufacturers in his Lawrence-Eglinton riding – where iconic Canadian manufacturers including Roots, Canada Goose and Barrymore furniture are located – have asked him for help.
In response he is working on a Buy Canadian campaign to encourage residents to shop at home. He hopes to introduce a private member’s bill offering financial incentives to Canadian retailers and people shopping in Canada.
“I think it’s a pending disaster, especially for the border cities,” he said.
Jim Foster, a manager at the Queenston Lewiston Duty Free says business has been good so far this year, mostly due to good weather. But it’s hard to say whether the exemptions will be enough to entice people to border shop.
“We’ll prepare for it – it’s better to be prepared – but it remains to be seen,” said Foster.
The store has increased the summer help and broadened the range of jewellery for and high-end Scotch for sale.
Ann Raymondo, a partner at Clarkson Cycle and Fitness in Thorold, located between St. Catharines and Niagara Falls, about 15 kilometres from the border, says business has been slipping for years as manufacturers downsize, eliminating high-paying jobs.
The rise of cross-border and online shopping has also affected business. She understands that people don’t have as much money to spend, so they need to find the best deal. Her business is still viable, but she doesn’t know what could happen if even more shoppers head south.
“If it got worse, I don’t have a crystal ball, hard to say.”
Porter said the last time Canadians crossed the border to shop in large numbers was in early 1990s, after the GST came into effect and the Canadian dollar was trading within ten cents of the U.S. dollar. But back then, it was a lot easier to cross the border – there was less security and Canadians didn’t need a passport or an enhanced drivers licence to enter the U.S.
“Border delays and hassles, the high price of gas, the availability of online shopping and the passport requirements for trips to the U.S. have kept…visits below the peak levels of the early 1990s,” Porter wrote.
The trend has also affected the tourist industry in Canada. Overall visits by Americans are now running at the lowest level in more than 40 years of records.
There are now 2.7 Canadian visits to the U.S. for every U.S. visitor to Canada, where as the ratio was 1:1 from 1995 to 2005, according to Porter’s report.