Retailers say they welcome U.S. price-gap inquiry

Canadian retailers say they welcome the opportunity to explain to a senate hearing why consumers pay more for some items in Canada than in the U.S.

The Retail Council of Canada was responding to federal finance minister Jim Flaherty’s call for a senate inquiry into complaints about the Canada-U.S. price gap.

“Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border,” Flaherty says in a letter to the standing senate committee on national finance.

Flaherty said he wants the committee to launch a study this fall in consultation with retailers, distributors, importers, wholesalers, and consumers.

Canadian retailers say prices are higher here because they face higher costs for things like import duties, transportation and distribution, and the prices charged by multi-national brand owners.

Flaherty said he would want the senate committee to study the role these factors play in pricing.

The Canadian Apparel Federation, which represents clothing manufacturers, said the study would be “a step forward.”

The group said it believes it will show that duties on imports aren’t a huge part of the difference in pricing between Canada and the U.S.

Having said that, executive director Bob Kirke added there may be room to make changes on some tariffs. “Our concern is that you change them with a little bit of forethought and that you’re not impacting domestic producers. That it’s a balanced approach.”

Other factors, such as bilingual labeling and the much smaller size Canadian market compared with the U.S. for example, aren’t within the government’s ability to change, Kirke added

Prices in Canada are on average 20 per cent higher than in the U.S. though some items are much higher, according to a study last April by Doug Porter, deputy chief economist at BMO Capital markets

In a letter obtained by The Star, Flaherty told the senate committee he shares Canadian consumers’ “irritation” with a persistent price gap five years after the Canadian dollar hit parity with the U.S. greenback.

The price-gap problem resurfaced last month after popular U.S. fashion retailer J. Crew opened its first store in Canada and also its first Canadian website.

Fans of the clothing retailer were quick to point out J. Crew had raised its prices for Canada and added duties and taxes to its online prices. This made the final bill for some items 40 to 50 per cent higher than on its U.S. website.

J. Crew quickly backed down, removing the added duty from its Canadian site, though its prices both in the Yorkdale store and online remain 15 per cent higher on average than in the U.S.

Canadian consumers began complaining about the price gap in 2007 after the Canadian dollar soared above parity with the U.S. greenback for the first time in 30 years.

At the time, Flaherty responded by urging retailers to lower their prices and be more open about their pricing practices. He also suggested consumers shop around to ensure they get the best deal.

Canadian retailers said they felt unfairly blamed. They said prices in Canada are higher because they face higher costs here. However, nobody has provided a detailed explanation of how much these factors affect prices.

And, in some cases, retailers – including J. Crew’s CEO Mickey Drexler – have acknowledged they are charging whatever the market will bear.

The situation has improved since Flaherty last met with Canadian retailers five years ago to discuss this issue, he says in the letter. But many Canadians still have concerns with a persistent gap between some goods, the letter also says.

“We all want Canadians to shop at and support local businesses, especially with the start of the Christmas shopping season only months away. But we live in a market economy and Canadians know the value and power of shopping around. If we want our consumers to shop here, we need competitive prices,” his letter says.

“A strong dollar should benefit Canadian consumers,” the letter says.

It’s not just consumers who have noticed the price difference.

When BMO’s Porter first began tracking prices in 2007 they were 24 per cent higher in Canada on average.

At the time, retailers said they needed time to adapt as most merchandise had been ordered 12 to 18 months earlier, when the dollar was at 80 cents U.S.