High-profile U.S. fashion chain J. Crew Group Inc. launched its first store in Canada last week to lineups at the change rooms and plenty of buzz. But many shoppers came away with sticker shock.
J. Crew has raised its merchandise prices by about 15 per cent in its Canadian store and on its new Canadian e-commerce site compared with those at its U.S. outlets. For online customers, taxes and duties raised the final price for orders in some cases by as much as 50 per cent compared with the U.S. site they previously ordered from.
Irate customers flooded online forums with complaints about the steep price increases. Some said they will ditch J. Crew or even return their latest purchases.
"I will not spend another penny there," said Suzanne Dugard, a longtime J. Crew customer who bought about $600 worth of clothes at the Toronto store on Thursday and plans to take them all back. "I feel once again as a Canadian, I'm getting screwed."
While J. Crew is in the spotlight over its cross-border pricing, it joins other U.S. retailers that have increased prices here. The price gap between Canadian and U.S. products has widened in many categories of goods over the past couple of years, despite a surge in the loonie that should reduce prices on this side of the border.
Retailers point to the higher cost of doing business in Canada, including duties and fewer economies of scale. But the quick and angry response from customers to J. Crew's hiking of domestic prices underscores its customers' familiarity with its products and prices, and the easy access to its e-commerce site to make fast price comparisons.
Before ever opening its first store here, J. Crew had built a stalwart following of Canadian customers, partly from publicity it gets from First Lady Michele Obama favouring the fashions. Current CEO Mickey Drexler, who turned The Gap into a worldwide fashion retail powerhouse in the 1990s, joined J. Crew in 2003, shifted it up-market and gave it flair by updating the classics with eye-catching linings and trims. Now the Canadian launch is a test for an international expansion.
Ms. Dugard is among its fans. She shopped regularly on J. Crew's website and couldn't wait for the physical store to arrive in Toronto.
J. Crew officials replied to The Globe and Mail's inquiry about the price increase by e-mailing a letter the company has sent to infuriated customers. Signed by president Jenna Lyons, the message says it is taking the feedback very seriously.
"The change in cost for merchandise purchased in our stores and online was necessary to keep pricing consistent with our new – and expanding – retail operations in Canada," the retailer's letter says.
"However, we understand your concerns, and will continue to work to provide you with an excellent online shopping experience. For J. Crew, the reception to our new store in Canada has been nothing short of extraordinary."
The online price discrepancies can be hefty. Ms. Dugard, 42, calculated that four items she purchased online from J. Crew earlier this summer for $260 (U.S.) would cost $385.57 today – almost 50 per cent more. The latest rate includes taxes and duties of $93.12 as well as the chain's new $9.95 shipping rate (which is lower than the previous shipping and handling fee of $34.50).
"I keep thinking it must be a mistake," she said in an interview, clad in a J. Crew twin set, jeans and ballet flats. She previously bought virtually her whole wardrobe from J. Crew, having shelled out thousands of dollars last year alone on the merchant's e-commerce site.
Besides the taxes and duties, base prices also are higher on the Canadian site. For example, the retailer's No. 2 leopard pencil skirt costs $144 at the store in Toronto and online, but just $118 (U.S.) on its U.S. website (about $117 Canadian) – a 23-per-cent increase.
Other retailers have felt consumers' wrath about higher prices in Canada compared with the U.S. Last spring, a study found that Canadian prices were 20-per-cent higher than those of the same products in the United States, while two years earlier the spread was less than 7 per cent. The differential this year came despite the value of the loonie soaring above the U.S. dollar.
The Canada-U.S. price gap reflects different dynamics in each of the markets. The U.S. retail landscape is hugely competitive, resulting in prices that are frequently lower than in the rest of the world, according to Douglas Porter, deputy chief economist at Bank of Montreal, which conducted last spring's price survey.
Diane Brisebois, president of the Retail Council of Canada, has estimated that North American and global producers charge Canadian retailers 12- to 25-per-cent more than they do U.S. merchants. Canada provides fewer economies of scale, resulting in higher costs to distribute products, she has said.