Cross-border shoppers buoy Buffalo's economy

The good news is, Canadian shoppers are boosting the economy. The bad news is, it’s the wrong economy.

Statistics Canada figures released on Tuesday show retail sales in Canada grew by a mere 0.2 per cent in December, after adjusting for seasonal variations.

Meanwhile, Canadians shopping in Buffalo, N.Y. helped boost income from sales tax in Erie County to a record high in 2011. The county collected just under $401 million in sales tax last year, an increase of 4.5 per cent over 2010.

“A few years ago, the American shopper was frequenting Canadian retailers,” said Lorne Steinhart, acting Erie County comptroller. “More often now it’s the other way around.”

Canadian shoppers generate tax revenue for Erie County in malls, restaurants, hotels and gas stations.

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It’s not just the high Canadian dollar that’s drawing them to border towns. The total sales tax in Erie County is 8.75 per cent, compared to the 13 per cent harmonized sales tax (HST) in Ontario.

U.S. retailers sell the same goods available in Canada for less – as much as 20 per cent less in some cases. They also carry a wider array of products.

“They often will not offer certain products in the Canadian market and they sell their goods into Canada at a much higher price,” said Diane Brisebois, president and CEO of the Retail Council of Canada.

Canadian tariffs and marketing boards also drive up prices in Canada, said Brisebois.

She says unfair cross-border competition keeps Canadian retailers awake at night.

Douglas Porter, deputy chief economist at BMO Capital Markets Economics, said there is no doubt cross-border shopping has had an impact on the Canadian retail industry.

“Basically, our cost structure here is almost set up for the currency to be at 80 cents or so, not a dollar. There is very little retailers can do when the currency moves as quickly as it did,” said Porter.

He said the December dip in retail sales in Canada was no surprise, considering the news headlines at the time: Record household debt in Canada, the debt crisis in Europe, rising unemployment and a drop in consumer confidence to its lowest level since the end of the recession.

December’s retail sales performance was led by declines in the automotive sector, but there were also sharp declines in sporting goods, hobby, books & music (-3.4%), general merchandise (-1.1%), electronics & appliances (-2.8%) and clothing (-0.8%).

Volumes remained level, but aggressive discounting in the holiday season cut deeply into revenues.

And don’t expect heroics from the local shoppers anytime soon, Porter warns.

“Slower job growth, weak wage gains, and public sector restraint will leave households income-constrained,” he noted.
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