Cross-border shopping craze hampering B.C. retail growth

THE BELLINGHAM HERALDJune 8, 2013 

CANADIAN SHOPPING

Canadian Chantelle Watson, left, lifts a bag of groceries as she and her mother Sahron Pierreroy, right, and family friend Bobbi Banister load up a van with food and supplies in the Costco parking lot Thursday Sept. 23, 2010 in Bellingham. Bob Pierreroy says they shop in Washington,"Because it (the HST tax) was supposed to make it go down and now it's gone up."

ANDY BRONSON — THE BELLINGHAM HERALD

A new report indicates the increased number of British Columbians shopping in Northwest Washington is dampening retail growth in the province.

The Business Council of British Columbia estimates that B.C. residents spent $1 billion to $1.6 billion in retail while on short-term cross-border shopping trips to the U.S. in 2012.

When longer-term trips of more than 48 hours are added in, the figure rises to $2.6 billion. The estimates focus on consumer goods and do not include sales at restaurants or service categories.

It's a significant increase compared to just three years ago. The report indicates that if cross-border shopping had remained at 2009 levels, B.C. retail sales would have risen 3 percent in 2012, rather than 1.9 percent.

A variety of factors explain why more Canadians are shopping in the U.S., particularly in Whatcom County, said Ken Peacock, chief economist and vice president at the Business Council. The stronger Canadian dollar and the recent increase in duty-free exemptions are factors, but price motivation is key.

"There is definitely a price difference with similar retail products," Peacock said. "B.C. residents are spending more on groceries across the border because of the savings."

It's not just dairy products, where prices are subsidized in the U.S., that Canadians see significant savings. The council's study looked at 19 typical household purchases, and Canadians would save money on 18 of those products. In fact, buying 17 of those items in the U.S. would have resulted in double-digit savings for Canadians, with ketchup topping the non-dairy items with a savings of 54.3 percent.

The study didn't estimate how much of those short-term excursion dollars were spent in Whatcom County, but given that most of the Canadians return on the same day, the percentage is large, possibly as much as two-thirds, Peacock said.

Hart Hodges, director of Western Washington University's Center for Economic and Business Research, doesn't think spending is as high as two-thirds because of all the retail options just south of Whatcom County. Most of the B.C. day-trip travelers spend their money in Whatcom, Skagit and Snohomish counties, he said.

Peacock said higher Canadian prices for non-dairy grocery items are a result of several factors. Some of it is taxes, but the way the retail industry works is also significant. Canadian retailers don't have the same kind of buying power as similar U.S. stores when it comes to negotiating a price with manufacturers, and shipping costs are more expensive. Labor costs are also generally higher in Canada.

Another issue Canadians run into is "country pricing," where a set percentage is factored in and doesn't react quickly to currency changes, said Jim Pettinger, president of International Market Access in Ferndale. His business offers a variety of cross-border services to help with sales and distribution. An example of "country pricing" is books, many of which list a U.S. price and also Canada price on the back cover.

B.C. residents also took advantage of the increase in duty-free exemptions, which started in June 2012. Canadians are now allowed to bring back $200 worth of merchandise after being in the U.S. for 24 hours, up from the previous limit of $50. After 48 hours, the limit jumped to $800, double the previous limit.

As a result of the policy change, the report found, the number of B.C. residents taking overnight trips by vehicle into the U.S. more than doubled in the first nine months of 2012, compared to the same period before the change.

Along with groceries, B.C. residents are still seeing savings at the gasoline pump. According to the report, in late April 2013 Canadians would save about $1.44 a gallon filling up in Blaine rather than in Surrey or Langley.

The price difference in gas has become a significant issue for B.C. policymakers. The province added several gas taxes in recent years to pay for mass transportation and to address carbon pollution. So many B.C. residents are now crossing the border to fill up on gas that the province is seeing a drop in volume, which is impacting tax revenue.

"I think (British Columbia) has reached a tipping point in terms of the amount of taxes that can be put on gas," Peacock said.

Unfortunately for the province, its government can do little to slow the leakage. The province can't make changes to the currency or the border crossings; both are handled at the federal level. Peacock believes the Canadian federal government is more concerned about the free flow of goods through the border than some retail leakage.

Longtime residents in British Columbia and Whatcom County both know that cross-border shopping goes through cycles, so the situation is probably not long-lasting. In the late 1990s, U.S. residents took advantage of a weak Canadian dollar to visit that area. And British Columbia received an influx of Americans before and after the 1986 World Expo in Vancouver.

"My perception is that we're on the back end of this cycle," said Pettinger, referring to the current trend of Canadians shopping in the U.S. "I think it will start to wane a bit."


HOW MUCH DOES IT COST IN CANADA?

The Business Council of British Columbia compared a variety of common household purchases in the U.S. and Canada to find out the price difference.

ProductCanada priceU.S. pricePercent savings
2-percent milk, half gallon3.422.0041.6
Butter, 1 pound3.993.3216.9
Medium cheddar cheese, 1 pound7.773.2158.6
Eggs, 1 dozen2.941.8337.9
Cheerios, big box6.384.4430.4
Lays potato chips, about 9.5 oz.3.452.9115.7
Heinz ketchup, about 34 oz.4.331.9854.3
Coke, 2 liter2.281.5332.9
Energizer AA batteries, 6 pack6.974.8929.8
Advil, 200 mg, 50 tabs8.186.6019.2
SOURCE: Business Council of British Columbia. Prices are in Canadian and are adjusted to reflect different product sizes and quantities, assuming an exchange rate of 98 cents to the U.S. dollar. The prices are the average of non-sale offerings at two different stores in each country.

Reach DAVE GALLAGHER at dave.gallagher@bellinghamherald.com or call 715-2269.

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