Canadian Shoppers Abandon Homeland for US Malls
BUFFALO, N.Y. — IN Buffalo, Detroit, and other towns along the United States' border with Canada, retailers are thrilled every weekend to see hundreds of Canadians in their stores. But the cross-border shopping threatens to slow Canada's already shaky economy. For more than a century, Americans and Canadians have purchased goods and services from each other. But the magnitude of the current shopping craze is historic.
During the first six months of this year, Canadians took a record 24 million day-trips to the US - an 18 percent jump from a year ago, according to government statistics. Observers say most of these day-trips were for shopping.
``Imagine a country where 90 percent of its people now prefer to shop in the nation next door. That's Canada today,'' says David Jokinen, a US real estate developer who has studied the issue.
Although the 21-month-old US-Canada Free Trade Agreement says nothing about consumer shopping, many are blaming the agreement for the current Canadian stampede toward US malls and factory outlets. Mr. Jokinen says the trade pact has taken away the guilt some Canadians feel about not shopping at home. Prime Minister Brian ``Mulroney has given them permission to shop in the US,'' he says.
But John Johnston, district manager for Canada Customs at the busy Niagara Falls border crossing, says economics, not politics, is fueling cross-border shopping. ``This has nothing to do with free trade,'' he says.
Consumers and the leaders of Canadian retail organizations point to a host of factors, including:
The High Canadian Dollar. The Mulroney government's tight money policies have helped boost the value of the Canadian dollar. The currency is currently worth a high 86.6 cents US. This favorable exchange rate has made shopping trips to the US more worthwhile, says Mark Adler, a Toronto entrepreneur who published a shopping guide to Buffalo and Niagara Falls, N.Y.
Taxes. Provincial sales tax and a federal manufacturer's levy often make prices in Canadian stores higher than those at US retailers. Moreover, farm subsidies from Washington give US grocers a competitive advantage, says Gerry Prins, president of Distribution Canada, a group of independent supermarkets.
Jokinen predicts a new influx of Canadian shoppers once the controversial Goods and Services Tax (GST) takes effect north of the border Jan. 1.
The new levy would replace Canada's 13.5 percent manufacturer's tax with the 7 percent GST. In Ontario, the 8 percent provincial levy will be added to the GST, bringing the total sales tax to 15 percent.
Greater Variety. Many of the Canadian shoppers interviewed at a Niagara Falls mall said there is a greater variety of consumer goods in the US. Some Canadians also complain about being taken advantage of at home by retailers who feel there is a captive marketplace. ``Until the gouging stops on that side of the border, I'm going to continue to shop here [in the US],'' a Toronto woman says.
A group of 85 Ontario merchants recently banded together to form Shop Ontario, a lobbying group which has launched a public campaign to convince Canadians to shop at home.
``Some people think there's a pot of gold over the Rainbow Bridge [in Niagara Falls],'' says Michael Allen of the Seaway Mall in Welland, Ontario, and chairman of Shop Ontario. ``Sure, there are nuggets, but our surveys show there is not a pot of gold,'' he says.
Meanwhile, mall owners in New York and Michigan are preparing a media blitz aimed at enticing even more Canadians to shop south of the border.
The Rainbow Centre Factory Outlet Mall in Niagara Falls, N.Y., for example, has distributed over 250,000 brochures to people living in southern Ontario, says John Percy, the mall's marketing director. He notes that Canadians make up 60 percent of the plaza's business.
A recent study by Jokinen suggests that the distance a Canadian consumer lives from the international border determines what they will buy and the frequency of their cross-border trips. In Jokinen's analysis, Canada has three shopping zones:
The ``weekly gas and grocery belt,'' for which drive-time to the US takes between five minutes and a half-hour.
The ``monthly clothes and home entertainment belt,'' which includes cities such as St. John, New Brunswick; Winnipeg Manitoba; and Toronto, an hour or more from US malls.
The ``quarterly appliance and big-ticket belt,'' which includes Quebec City and other cities 90 minutes or more from the border.