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The Globe and Mail

U.S.-Canada price gap defies easy answers

Drivers enter the United States from Canada on June 1, 2009 in Blaine, Wash.

Ted S. Warren/The Associated Press

With a loonie worth more than a U.S. dollar, bargains abound for Canuck shoppers who hit the stores south of the border this coming Easter long weekend.

Apple's just-released iPad 2 can be had for $499 (U.S.) in the U.S., while it lists for $519 (Canadian) in Canada. Meanwhile, a silk border print dress at Banana Republic sells for $110 (U.S.) in the U.S. and $134 (Canadian) in Canada.

The reasons for the difference defy easy explanation.

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The size of the market, taxes, contractual obligations, the cost of doing business in a country as big as Canada and the sluggishness of the U.S. economic recovery all get mentioned by experts when asked to explain the difference.

But some suggest an unwillingness of Canadians to spend the same time as Americans to hunt for a bargain may also contribute to the gap.

David Soberman, a marketing professor at the University of Toronto's Rotman School of Management, said Canadians may get angry about paying more than U.S. shoppers, but anger only gets you so far if you don't change your shopping habits.

"Shopping seems to be a very big part of what goes on in the U.S. People go down to Florida, to Georgia, to the southern U.S. and one of the activities that you do there are tours going to outlet malls," Mr. Soberman said.

"I'm not going to make a value judgment on whether or not that is good or bad or if that is a way to fulfill your life and a good way to spend your time, but if you're wondering why prices are lower, it might be part of the explanation."

"For consumers in Canada who want to get better prices, what you need to do is check all of the retail stores where you can buy the product and patronize the store that has the lowest price," he said.

The loonie sits about 30 per cent higher than it was two years ago. It has been fortified by a surge in the price of commodities such as oil and base metals.

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A report last week by the Bank of Montreal suggested that the jump in the loonie has created a price gap of about 20 per cent for many consumer goods - with Canadians paying the higher charge.

BMO's survey compared 11 items, including golf balls, Blu-ray movies, running shoes and cars.

There is no denying Canada is smaller and that means less competition, which in turn means higher prices.

But Michael Mulvey, marketing professor at the University of Ottawa's Telfer School of Management, also noted some of the biggest difference in prices between the U.S. and Canada are in the areas where there isn't free trade, such as telecommunications.

Mr. Mulvey also said the larger middle class in Canada likely plays a role.

"When you have a larger number of people that are struggling, it does put pressures to bring prices down," he said.

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"Wal-Mart is the place that people go to … partly because they don't feel ripped off when they go there."

Queen's University business professor Ken Wong said some retailers may also be restricted by contracts under which manufacturers dictate what retailers can charge in Canada.

"There are certain categories where in fact you can probably buy the product for less as a consumer than the seller can buy it for at wholesale in Canada," Mr. Wong said.

Mr. Wong played down the unwillingness of Canadians to hunt for a bargain as a factor.

"We do have people who want to treasure hunt. You look at the success of Winners as a case in point," Mr. Wong said of the discount clothing retailer. "We do see people who are questioning the necessity for higher-quality goods in all instances, hence the success of dollar stores."

But not everything is cheaper in the U.S.

A Playstation 3 at BestBuy lists for $299.99 on both its Canadian and U.S. websites, while Electronic Art's NHL 11 game for the game console can be had for $59.99 (U.S.) in the U.S., it is on sale in Canada for $49.99 (Canadian).

And the real estate landscape in Canada is set to become more competitive. RioCan Real Estate Investment Trust has signed a deal with Tanger Outlet Centers that will see up to 15 U.S.-style outlet malls in Canada over the next five to seven years.

And Target , a must-hit destination for many Canadian shoppers headed to the U.S., has acquired 220 Zellers stores in Canada and plans to convert 100 to 150 of them to its own banner by the end of 2013.

Mr. Soberman said the new entrants will have a push-pull effect on the market.

"You have the entry of U.S. retailers into Canada which should put more competition on the existing retailers and create more competitive pricing," he said.

But the big new players aren't all good news, Mr. Soberman said.

"So when you have a higher degree of concentration in the retail sector, you have the other thing going on, which is companies tend to not compete as fiercely."

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