Canadian shoppers expected to flock to US

A new BMO Capital Markets special report on the change to duty-free limits on cross border shopping has been released.

According to BMO deputy chief economist Douglas Porter, “Canadians will flock to Maine, Michigan and Minnesota en masse, as well as the border states of New York, Washington and New Hampshire” in numbers not seen in years, thanks to the increase to the duty-free limits.

Travellers visiting south of the border for more than 24 hours will now be allowed to bring home $200 worth of merchandise duty-free, up from $50. Stays longer than 48 hours will now allow $800, whereas the previous limit was $400 for stays of a week and $750 for anything longer.

This has the potential to harm Canadian retailers in an big way, as the problem of higher prices in Canadian stores has long been an issue.

The report notes that “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.”

This price difference has long given shopping across the border a big appeal, but has become even more prominent during the past four years when the slow economy has made every penny count to consumers.

Canadian consumers have taken issue with what is perceived to be unfair pricing for years, particularly since American retail chains started opening up here and charging more for the same products.

Retailers say they have very little control over pricing, as they face higher tariffs for finished goods and are charged more by suppliers.

The Retail Council of Canada has recently stepped in as manufacturers like Roots, Barrymore Furniture and Canada Goose have asked for help, fearing what these latest changes could mean for their stores.

A ‘buy Canadian campaign’ is said to be in the works, encouraging locals to shop at home. The council is also looking into introducing a bill that will offer financial incentives to people shopping in Canada, and to Canadian retailers.

Meanwhile, the change in duty-free limits has the potential to send shoppers south in numbers not seen since the 1990s, when the Canadian dollar was within ten cents of the American dollar and the GST tax came into effect. At that time though, it was significantly easier to cross the border as Canadians didn’t need an enhanced drivers license or a passport to get into the United States.

Online shopping, border delays and the price of gas have kept many consumers shopping at home, but with the duty-free limits increasing, shoppers are likely to see more value in a trip south.

The issue has also kept Americans from travelling to Canada, as American visits are now the lowest they’ve been in 40 years, with the equivalent of 2.7 Canadians crossing the border for every one American that heads north.

Sources: BMO, Yahoo, The Spec

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