COVER

SHOPPING BINGE

THE CROSS-BORDER SPENDING SPREE HAS BECOME A CRISIS

D’ARCY JENISH April 29 1991
COVER

SHOPPING BINGE

THE CROSS-BORDER SPENDING SPREE HAS BECOME A CRISIS

D’ARCY JENISH April 29 1991

SHOPPING BINGE

COVER

THE CROSS-BORDER SPENDING SPREE HAS BECOME A CRISIS

For Stephen and Lauree Savoie, who run a bed-and-breakfast operation at their house in Saint John, N.B., the savings are too big to pass up. The Savoies have four children under the age of 4, including nine-month-old twins, and their business is seasonal. As a result, the budget-conscious couple and their children drive 100 km west to Calais,

Me., once a month. There, they buy enough dairy and poultry products to last until the next shopping excursion. Lauree Savoie said that she saves about $900 a year buying most of the family’s milk in the United States. Her husband added that on their last trip they paid the equivalent of $165 in Canadian funds, including taxes and duties, for a set of curtains that would have cost $350 in Saint John. Said Lauree Savoie:

“Canadian prices are so high that we have to shop in the United States to survive.” For similar reasons, thousands of Canadians every day make trips to the United States in search of less expensive consumer goods. Because of that, Canadian retailers say that the growing cross-border shopping binge has become a crisis that will cost them over $2 billion in lost sales this year alone.

Although Canadian retail sales exceed $190 billion a year, merchants, shop-

ping-plaza operators and municipal politicians say that they are alarmed by the dramatic increase in cross-border shopping during the past two years. In 1990, Canadians made 52 million automobile trips of 24 hours or less to shop in the United States, a 20-per-cent increase from a year earlier. Retail industry analysts and economists say that because duties on imported goods are gradually disappearing under the terms of the Canada-U.S. Free Trade Agreement, which took effect at the beginning of 1989, and because of the relatively high value of the Canadian dollar, Canadian consumers can save significant amounts of money by shopping across the border.

Bankruptcies: As well, some Canadian consumers say that they shop in the United States to avoid paying the Goods and Services Tax. Some take advantage of federally legislated tourist exemptions that allow returning travellers to bring back a specified amount of merchandise depending on how long they have been out of the country. Others avoid the tax by not declaring their purchases. Said Barbara Schultz, who owns a small Toronto temporary-employee agency: “I have not bought one item of clothing or one pair of shoes up here since the GST came in. I refuse to.” Provincial laws that prohibit most merchants in Ontario and all four Atlantic provinces from opening their stores on Sundays are also driving Canadians across the border to shop (page 46).

Merchants in Canadian communities close to the border say that the swarm of across-the-border shoppers has resulted in dwindling sales, job losses—and bankruptcies. The problem has also led to increasingly urgent pleas for government action. National Revenue Minister Otto Jelinek told Maclean’s that the federal government plans to hold discussions with retailers, border-community mayors and labor groups. As well, Ottawa is planning several initiatives, including a campaign that will stress the economic problems created by cross-border shopping.

As for long-term solutions, Jelinek said that Canadian retailers must become more competitive. He conceded that they may have difficulty lowering their costs because of high municipal taxes and the high levels of provincial and federal taxes that pay for Canada’s social programs. However, Toronto-based retail analyst John Winter said that prices are higher in Canada because wholesalers and distributors charge Canadian retailers more than they do American merchants. Winter added that in the past, Canadian retailers accepted higher prices. Now, he said, consumers are expressing their opposition by crossing the border to shop.

Gamble: Meanwhile, most Canadian consumers say that they are delighted with the savings available on products ranging from beer to television sets. Among the items that Canadian shoppers regularly name as being far cheaper in the United States than in Canada: gasoline, milk, cheese and other grocery items, electronics and clothes (page 40). Usually, a 12-pack of Canadian-brewed Labatt’s Blue costs $12.30 in Vancouver, while 12 cans of the same beer—imported from Canada— costs $8.99 (Can.) in Blaine, Wash. A pair of OshKosh infant denim overalls costs $34 in downtown Toronto. The same item sells for $15 (Can.) in Niagara Falls, N.Y.

Goods purchased in the United States can wind up being more expensive once duty and GST are paid. Typically, a man's sports jacket purchased in New York state might cost the equivalent of $594.65 (Can.) with state tax included. If duty and GST are paid at the border, $152.96 would be added to the cost. The same jacket could be bought in Toronto for $632.50, including GST and provincial sales tax. Still, many Canadians manage to bring in goods duty-free under the legal exemptions, or gamble that they will not be stopped and forced to provide an account to customs officers.

For many American border communities, the influx of Canadian shoppers has helped to soften the impact of the current economic recession. “We are doing far better than we had ever expected,” said

SMALLER DUTIES AND A HIGH DOLLAR CREATE SAVINGS ON AMERICAN GOODS

Thomas MacDonald, general manager of Rich’s Department Store in Calais, Me. “Canadians want the big-ticket items like television sets, air conditioners and lawn mowers.” Added Michael Brennan, executive vice-president of the Whatcom County Chamber of Commerce in northwestern Washington state: “This region has been well protected by cross-border shoppers from any kind of recessionary problem.”

And the cross-border shopping frenzy shows no signs of abating. According to Statistics Canada, during the first two months of 1991, the number of day trips by car to the United States increased by 21 per cent over January and February, 1990. In February alone, almost four million Canadians crossed the border for trips of less than 24 hours, up 27.3 per cent from 3.1 million in February, 1990.

Some entrepreneurial Canadians have found ways to profit from the trend. Once or twice a month, between May and November, Toronto travel agent Shirley Cannon sells a three-day “shop till you drop” tour, which includes bus transportation to Buffalo, N.Y., and two nights’ hotel accommodation with breakfast included for $169. Cannon said that she organizes a

tight schedule that includes stops at three shopping malls and four large specialty stores over the three days.

Duties: The growing flood of Canadian shoppers who prefer to shop American has led to traffic jams and lengthening delays at border crossings. On Saturdays and Sundays, the parking lot of the Factory Outlet Mall in Niagara Falls, N.Y., popular with shoppers from

southern Ontario, is jammed with Canadian cars. Local residents say that the mall parking lot is often littered with shoes, jackets and other garments discarded by Canadians who wear their new clothes in the hope of escaping duties and taxes at the border.

Other Canadians who shop regularly in the United States say that they benefit financially even after taking into account the exchange rate and after paying provincial sales tax, GST and duties at the border. Wayne Lee, a 35year-old manager of a portable-sign company and father of two from North Vancouver, B.C., said that he and his wife, Patricia, regularly drive 85 km south to Bellingham, Wash., to buy all their milk and dairy products because they are cheaper. He added that if he pays $10 duty

on the goods he brings back, he can usually save the same amount of money by gassing up the family car in the United States. Said Lee: “If the average family spends $500 a month on food, they can get it for $375 down there, in Canadian funds, factoring in the exchange and any duty.”

At the country’s busiest border crossings, shoppers have begun to create unprecedented lineups of vehicles. Last week, Mansel Legacy, national president of the 9,400-member Customs Excise Union, said that the federal government should hire another 1,000 customs officers to deal with the growing work load. John Johnston, Canada Customs district manager at Niagara Falls, Ont., said that on Satur-

day and Sunday afternoons, motorists can count on waiting up to two hours before reaching the Canadian side of the Whirlpool, Rainbow and Queenston bridges.

Protest: As well, traffic jams occur regularly on weekends at the Seaway International Bridge, which crosses the St. Lawrence River between Cornwall, Ont., and Massena, N.Y. Angry Mohawk Indians on the nearby Akwesasne reserve threatened to blockade the bridge last week to protest the disruption of their lives. But they agreed to call off their protest after a meeting with federal officials from several departments who promised to try to resolve the problem.

Meanwhile, U.S. retailers have begun to develop marketing campaigns aimed at attract-

ing even more Canadians. Carolyn Harding, marketing director at the Champlain Centres in Plattsburgh,

N.Y., 100 km south of Montreal, said that the mall prints brochures in French and English and has three bilingual employees to staff an information booth.

Aggressive marketing has also benefited the business community in Grand Forks, N.D., a city of 50,000 that is 125 km south of the Manitoba border. Manitoba government officials estimate that Manitobans spend $300 million to $400 million annually in the city. David Kjolhede, executive director of the Greater Grand Forks Convention and Visitors Bureau, added that surveys conducted by the bureau show that up to 70 per cent of the city’s out-of-town shoppers come from Manitoba.

Express: In an effort to relieve congestion at border crossings, Revenue Canada has announced plans to launch an experimental program involving express lanes on May 1 at the Douglas border crossing, 45 km south of Vancouver on the B.C.-Washington state border. Under the program, 20,000 B.C. residents will be able to buy a $10 windshield decal that will allow them to cross the border using a special reserved lane. Motorists will be asked to indicate the value of goods purchased in the United States on a computer card and the GST and duty will be charged to a designated credit card.

The dramatic increase in cross-border shopping has led provincial chambers of commerce in Manitoba and New Brunswick to set up task forces to study the problem. As well, a 15-member committee made up of Ontario

border-community mayors is pressing both the provincial and federal governments to take steps to protect Canadian border-area retailers. And a 12-member Ontario legislative committee has been meeting retailers,

border-city mayors and other affected groups to search for solutions to the problem. According to some economists, it is primarily high levels of municipal, provincial and federal taxation in Canada that make the cost of running retail businesses— and the cost of consumer goods—so much higher than in the United States. Last fall, the Toronto-based Canadian Federation of Independent Business examined taxes paid by retailers on both sides of the border. The study showed that women’sclothing retailers in Toronto paid 39 per cent more taxes to all levels of government than their counterparts in Buffalo, while bookstores paid 46 per cent more. Said Toronto-based retail marketing consultant Leonard Kubas: “People here are overgoverned, and someone has to pay for all that government. In Canada, it’s the consumer who pays.” Unless, of course, the consumer de3 cides to drive to the United States, where lower prices and lower taxes have become an increasingly attractive alternative.

D’ARCY JENISH

JOHN DeMONT

MARK TUNNEY

BARRY CAME

JAMES DEACON

MAUREEN BROSNAHAN

HAL QUINN