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Businesses struggle with border battle
South Surrey businesswoman Carol Hecht counts herself fortunate that she has a loyal older clientele at her Peninsula Village boutique Never E’Nuff Clothes.
But she knows that a significant amount of her walk-in trade, particularly younger consumers, are comparison shopping – and that some of that business is heading to the U.S., attracted by lower prices not subject to the same taxes and tariffs she has to factor in.
“You hear them talking about it all the time,” she said. “You overhear telephone conversations in the store, as they’re talking to someone else. Just the other day a customer was talking about opening a mailbox in Blaine. They order online and have their purchases delivered down there.”
It’s frustrating, she said, because the prices of the same goods in her store are driven up by “taxes and all sorts.”
“There are one or two U.S. (clothing) collections I could possibly bring in, but I won’t because (U.S. stores) are selling them way lower than I could sell them for.”
The cross-border factor compounds problems of a slow economy and a “complete saturation of retail in this area,” she said.
And while Hecht has been loath to let staff go from her long-established business, she acknowledges she has had to cut hours wherever possible.
She said she also finds it difficult to continue saying “yes” to community requests for event sponsorships or silent auction donations.
“I still try to do what I can, but there’s a limit. Money’s a lot tighter these days. Compared to three or four years ago, I’d say business is 30 per cent down, but the rent is the same and the paycheques are the same.”
As the Canadian dollar has grown to parity with the American in the past three years, lower prices just south of the border – and generous duty exemptions – have been noted by cash-strapped consumers.
But this is costing Canadian businesses, and their employees, officials say.
“No amount of shop local promotion is going to compete with people’s price sensitivity,” said Allan Asaph, executive director of the Abbotsford Chamber of Commerce, whose members are also feeling the pinch from Bellingham. “What we need to address is the landed cost to Canadian retailers, so they can be more competitive.”
These price differences were 13 per cent on average last year, according to the Bank of Montreal.
While Canadians are propping up the Bellingham economy, their neglect of their own economy does cost the community.
Two-thirds of Canadians have shopped in the U.S. in the past year, according to an Ipsos Canada poll. Of those, 72 per cent feel no guilt about it, and 15 per cent have lied to a customs agent.
In 2010, the City of Bellingham’s finance director, John Carter, conducted a survey from which he estimated that Canadian shoppers account for 10 to 20 per cent of all retail sales in Bellingham.
That’s at least $140 million to $235 million Canadian dollars flowing to Bellingham every year for general merchandise, restaurant food and drinks, he said. And this figure excludes groceries, a major purchase for people regularly shopping down south.
When U.S. retail sales dropped by as much as 30 per cent in 2009, Bellingham saw only a small decrease, and it has already rebounded, said Ken Oplinger, president and CEO of the Bellingham/Whatcom Chamber of Commerce and Industry.
“It was almost entirely because of Canadians coming across,” he said.
On busy summer shopping weekends, the Chamber estimates that more than half of the cars in big-box store parking lots have Canadian plates, mostly from B.C.
Nationwide, through their 50 million trips across the border, Canadians could be spending as much as 10 per cent of their retail dollars in the United States, according to BMO chief economist Doug Porter. That’s more than $20 billion a year.
While Canadian shopping centres close to the border have seen retail sales flatten, and growth has been slower than expected, Bellingham’s Costco is actually planning an expansion, and hiring more staff.
“If it’s having a positive effect on them, it must have a negative impact here,” said South Surrey businessman Mel Jesson.
Co-owner of the South Surrey-based Black Bond Books chain, which has 11 locations from North Vancouver to Mission, Jesson said he has seen an impact on business from cross-border shopping.
“I speak with quite a few merchants in town and a lot of them are saying their sales are down and a lot of customers are going across the line,” Jesson said.
“Sales are down in our own stores that are closer to the border. It’s clear that cross-border shopping contributes to this, and it must be lower prices in the U.S. – there’s no other reason to go through all that hassle.”
For specialty retailers, employee wages are about 18 per cent of retail sales, says retail consultant John Williams, head of J.C. Williams Group in Toronto. Sales of $140 million – the minimum amount that Canadians are sending to Bellingham annually – correspond with 800 potential retail jobs in Canada. That’s based on a Statistics Canada average of $15 per hour, for 40 hours per week.
Jesson said the book business – in which U.S. and Canadian prices are printed on covers side by side – particularly highlights inequities in prices between stores here and those down south.
“It’s even worse than for other goods, where there’s no comparison of the sticker price,” he said.
He’s another who has seen an impact on business from online sales, which also means business going south of the border, he said.
“Even when you’re buying from Amazon.ca, the order is shipped out of Seattle,” he said. “A lot of people think they’re supporting Canadian business by doing that, but you just have to look at the return address.”
Another incentive for cross-border shoppers, Jesson said, is the perception that Canada Border Services guards are not closely scrutinizing goods Canadians are bringing back with them.
“The border guards have declared they’re not tax collectors. Unless you’ve got something that’s obviously a big ticket item, they’re not looking that closely. If the federal government had any inclination to keep business in Canada, maybe they should be saying ‘you guys at the border are tax collectors’.”
Canadian retailers, like Hecht and Jesson, want a level playing field.
That, they say, is what will allow businesses to hire more staff and support more community events, ensuring that the dollars Canadians are spending actually benefit the local community.
– with files from Alina Konevski